CHAPTER 1

MARKETING IN A CHANGING WORLD: CREATING CUSTOMER

VALUE AND SATISFACTION

CHAPTER OBJECTIVES

1. Define what marketing is and discuss its core concepts.

2. Explain the relationships between customer value, satisfaction, and quality.
3. Define marketing management and understand how marketers manage demand and
build profitable customer relationships.
4. Compare the five marketing management philosophies.
5. Analyze the major challenges facing marketers headings into the next century.

CHAPTER OVERVIEW

Marketing is part of all of our lives and touches us in some way every day. To be successful
each company that deals with customers on a daily basis must not only be customer-driven, but
customer-obsessed. The best way to achieve this objective is to develop a sound marketing
function within the organization. Marketing is defined as 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. Marketing is a key factor in business success. The marketing
function not only deals with the production and distribution of products and services, but it also
is concerned with the ethical and social responsibility functions found in the domestic and global
environment. Marketing and its core concepts, the exchange relationship, a brief description of
marketing management, the five major philosophies of marketing thought and practice,
marketing challenges in the new millennium, marketing’s relationship to the information
technology boom and the Internet, and the new marketing landscape are the topics presented in
this introductory chapter.

CHAPTER OUTLINE

1. Introduction
a. Today’s successful companies at all levels have one thing in common.
b. All successful companies are strongly customer focused and heavily committed
to marketing.
c. To be successful an organization motivates everyone in the organization to
produce superior value for their customers, leading to high levels of customer
satisfaction.

2. What is Marketing?
a. Creating customer value and satisfaction are at the very heart of modern
marketing thinking and practice.
b. A very simple definition of marketing is that it is the delivery of customer
 satisfaction at a profit.
c. You already know a lot about marketing--it’s all around you.

Marketing Defined
d. Many people think of marketing only as selling and advertising.
1). Marketing is no longer “telling and selling.”
2). Marketing’s new sense is concerned with satisfying customer needs.
e. Marketing is defined as 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.

*****Use Key Term marketing Here; Use Chapter Objective #1 Here; Use Discussing
the Issues #1 Here; Use Figure 1-1 Here; Use Power Point 1-2, 1-3 Here*****

Needs, Wants, and Demands

c. Human needs are the most basic concept underlying marketing. A human need is
a state of felt deprivation.
1). Humans have many complex needs.
a). Basic, physical needs for food, clothing, warmth, and safety.
b). Social needs for belonging and affection.
c). Individual needs for knowledge and self-expression.
2). These needs are part of the basic human makeup.
d. Another concept in marketing is human wants. A human want is the form that a
human need takes as shaped by culture and individual personality.
e. Demands are human wants that are backed by buying power.
1). Consumers view products as bundles of benefits and choose products that give
them the best bundle for their money.
2). People demand products with the benefits that add up to the most satisfaction.
f. Outstanding marketing companies go to great lengths to learn about and
understand their customer’s needs, wants, and demands.
g. The outstanding company strives to stay close to the customer.

*****Use Key Terms needs, wants, and demands Here; Use Power Point 1-3, 1-4
Here*****

Products and Services

h. A product is anything that can be offered to a market to satisfy a need or want.
A service is an activity or benefit offered for sale that is essentially intangible and
does not result in the ownership of anything.
1). The concept of product is not limited to physical objects and can include
persons, places, organizations, activities, and ideas.
2). Be careful of paying attention to the product and not the benefit being satisfied.
3). “Marketing myopia” is caused by shortsightedness or losing sight of underlying
customer needs by only focusing on existing wants.

*****Use Key Terms product and service Here; Use Power Point 1-3, 1-5 Here*****
 Value, Satisfaction, and Quality
i. Customer value is the difference between the values that the customer gains from
owning and using a product and the costs of obtaining the product. Customers do
usually judge product values and costs accurately or objectively--they act on
perceived value.
j. Customer satisfaction depends on a product’s perceived performance in delivering
value relative to a buyer’s expectations. If performance exceeds expectations, the
buyer is delighted (certainly a worthy goal of the marketing company).
1). Smart companies aim to delight customers by promising only what they can
deliver, then delivering more than they promise.
2). The aim of successful companies today is total customer satisfaction.
3). Customer delight creates an emotional affinity for a product or service, not just
a rational preference, and this creates high customer loyalty.
4). Quality has a direct impact on product or service performance. Quality is
defined in terms of customer satisfaction.
k. The term total quality management (TQM) is an approach in which all the
company’s people are involved in constantly improving the quality of products,
services, and business processes. Marketers have two major responsibilities in a
quality-centered company:
1). They must participate in forming strategies that will help the company win
through total quality excellence--they must be the customer’s watchdog.
2). Marketers must deliver marketing quality as well as production quality.

*****Key Terms customer value, customer satisfaction, and total quality

management (TQM) Here; Use Chapter Objective #2 Here; Use Discussing
the Issues #2 Here; Use Marketing At Work 1-1 Here; Use Power Point 1-3, 1-6
Here*****

Exchanges, Transactions, and Relationships

l. Marketing occurs when people decide to satisfy needs and wants through exchange.
Exchange is the act of obtaining a desired object from someone by offering some-
thing in return.
1). Exchange is only one of many ways to obtain a desired object.
2). Exchange allows a society to produce much more than it would with any
alternative system.
m. Whereas exchange is a core concept of marketing, a transaction (a trade of values
between two parties) is marketing’s unit of measurement. A transaction usually
involves at least two things of value, agreed-upon conditions, a time of agreement,
and a place of agreement. Most involve money, a response, and action.
n. Transactions in marketing are part of a larger idea of relationship marketing.
Beyond creating short-term transactions, marketers need to build long-term
relationships with valued customers, distributors, dealers, and suppliers.
Ultimately, a company wants to build a unique company asset called a marketing
network (the company and all its supporting stakeholders). The goal of
relationship marketing is to deliver long-term value to the customer and thereby
 secure customer satisfaction and retention of patronage. To build this relationship
(beyond offering consistently high value and satisfaction), the marketer can:
1). Add financial benefits.
2). Add social benefits.
3). Add structural ties.
4). Seek profitable customers.

*****Use Key Terms exchange, transaction, and relationship marketing Here; Use
Discussing the Issues #2 Here; Use Power Point 1-3, 1-7, 1-8, 1-9 Here*****

Markets
o. The concepts of exchange and relationships lead to the concept of a market. A
market is the set of actual and potential buyers of a product.
1). Originally a market was a place where buyers and sellers gathered to exchange
goods (such as a village square).
2). Economists use the term to designate a collection of buyers and sellers who
transact in a particular product class (as in the housing market).
3). Marketers see buyers as constituting a market.
4). Modern economies operate on the principle of division of labor, where each
person specializes in producing something, receives payment, and buys needed
things with this money. Thus, modern economies abound in markets.

*****Use Key Term market Here; Use Power Point 1-10 Here*****

Marketing
p. The concept of markets brings one full circle to the concept of marketing.
1). Sellers must search for buyers, identify their needs, design good products and
services, set prices for them, promote them, and store and deliver them.
2). A modern marketing system includes all of the elements necessary to bring
buyers and sellers together.

*****Use Figure 1-2 Here; Use Power Point 1-11 Here; Discuss Speed Bump (Power
Point 1-12) Here*****

3. Marketing Management
a. Marketing management is defined as the analysis, planning, implementation, and
control of programs designed to create, build, and maintain beneficial exchanges
with target buyers for the purpose of achieving organizational objectives.

*****Use Key Term marketing management Here; Use Chapter Objective #3 Here;
Use Power Point 1-13 Here*****

Demand Management
b. Marketing management is concerned not only with finding and increasing demand,
but also with changing or even reducing it.
1). Demarketing’s aim is to reduce demand temporarily or permanently (move
 traffic away from a popular tourist attraction during peak demand times).
2). In reality, marketing management is really demand management.

*****Use Key Term demarketing Here; Use Power Point 1-13 Here*****

Building Profitable Customer Relationships

c. Managing demand means managing customers.
1). Demand comes from new customers and repeat customers.
2). Today, besides making efforts to attract new customers, marketers are going all
out to retain and build relationships with existing customers. It costs five
times as much to attract a new customer as it does to keep a current customer
satisfied.
d. Because of changing demographics, a slow-growth economy, more sophisticated
competitors, and overcapacity in many industries, many markets and market shares
are shrinking.
e. The key to successful customer retention is superior customer value and satis-
faction.

*****Use Chapter Objective #3 Here; Use Marketing At Work 1-2 Here; Use Power
Point 1-13 Here*****

4. Marketing Management Philosophies

a. There are five alternative concepts under which organizations conduct their market-
ing activities: the production, product, selling, marketing, and societal marketing
concepts.

*****Use Chapter Objective #4 Here; Use Discussing the Issues #3 Here; Use Power
Point 1-14 Here*****

The Production Concept

b. The production concept holds that consumers will favor products that are available
and highly affordable and that management should, therefore, focus on improving
production and distribution efficiency. This is one of the oldest philosophies that
guides sellers.
c. The production concept is useful when:
1). Demand for a product exceeds the supply.
2). The product’s cost is too high and improved productivity is needed to bring it
down.
d. The risk with this concept is in focusing company operations too narrowly. Do
not ignore the desires of the market.

*****Use Key Term production concept Here; Use Power Point 1-14 Here*****

The Product Concept

e. The product concept states that consumers will favor products that offer the most
quality, performance, and features. The organization should, therefore,
 devote its energy to making continuous product improvements.
1). Some manufacturers mistakenly believe that if they “build a better mousetrap,”
consumers will beat a path to their door just for their product.
2). The product concept can also lead to “marketing myopia,” the failure to see the
challenges being presented by other products.

*****Use Key Term product concept Here; Use Power Point 1-14 Here*****

The Selling Concept

f. Many organizations follow the selling concept. The selling concept is the idea that
consumers will not buy enough of the organization’s products unless the organiza-
tion undertakes a large-scale selling and promotion effort.
1). This concept is typically practiced with unsought goods (those that buyers do
not normally think of buying).
2). To be successful with this concept, the organization must be good at tracking
down the interested buyer and selling them on product benefits.
3). Industries that use this concept usually have overcapacity. Their aim is to sell
what they make rather than make what will sell in the market.
4). There are not only high risks with this approach but low satisfaction by
customers.

*****Use Key Term selling concept Here; Use Power Point 1-14, 1-15 Here*****

The Marketing Concept

g. 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.
h. The marketing and selling concepts are often confused. The primary differences
are:
1). The selling concept takes an “inside-out” perspective (focuses on existing
products and uses heavy promotion and selling efforts).
2). The marketing concept takes an “outside-in” perspective (focuses on customer
needs, values, and satisfactions).
i. Many companies claim to adopt the marketing concept but really do not unless they
commit to market-focused and customer-driven philosophies.

*****Use Key Term marketing concept Here; Use Figure 1-3 Here; Use Power Point
1-14 and 1-15 Here*****

The Societal Marketing Concept

j. The societal marketing concept holds that the organization should determine the
needs, wants, and interests of target markets. It should then deliver the desired
satisfactions more effectively and efficiently than competitors in a way that
maintains or improves the consumer’s and the society’s well-being.
1). The societal marketing concept is the newest of the marketing philosophies.
2). It questions whether the pure marketing concept is adequate given the wide
 variety of societal problems and ills.
3). According to the societal marketing concept, the pure marketing concept
overlooks possible conflicts between short-run consumer wants and long-
run consumer welfare.
4). The societal concept calls upon marketers to balance three considerations in
setting their marketing policies:
a). Company profits.
b). Customer wants.
c). Society’s interests.
5). It has become good business to consider and think of society’s interests when
the organization makes marketing decisions.

*****Use Key Term societal marketing concept Here; Use Discussing the Issues #4
Here; Use Figure 1-4 Here; Use Power Point 1-14 and 1-16 Here; Discuss
Speed Bump (Power Point 1-17) Here*****

5. Marketing Challenges into the Next Century

a. Marketing operates within a dynamic global environment.
b. Today’s companies are wrestling with:
1). Changing customer values and orientations.
2). Economic stagnation.
3). Environmental decline.
4). Increased global competition.
5). And a host of other economic, political, and social problems.

Growth of Nonprofit Marketing

c. In recent years marketing has become a major component in the strategies of
many nonprofit organizations (such as colleges, hospitals, museums, symphony
orchestras, and even churches).
d. Organizations such as hospitals (seeking to find out what customers want), the
YMCA (trying to attract new members), the U. S. Army (designing social
marketing campaigns), and the U. S. Postal Service (selling stamps through the
mail) have all learned the value of marketing procedures and techniques.

The Information Technology Boom

e. The boom in computer, telecommunications, and information technology, as well
as the merging of these technologies, has had a major impact on the way
businesses produce and market their products.
f. The Information Superhighway (and its backbone--the Internet) will link
customers to companies in ways that were unimagined only a few years ago.
The Internet is a vast and burgeoning global web of computer networks, with no
central management or ownership. The user-friendly World Wide Web has
changed us all.
g. As information technology becomes more user-friendly, the astute marketer will
learn how to use the various systems to increase business and better serve the
customer of tomorrow.
*****Use Key Term Internet Here; Use Discussing the Issues #5 Here*****

Rapid Globalization
h. Geographical and cultural differences and distances have shrunk dramatically in
the last decade.
i. Today, almost every company, large or small, is touched in some way by global
competition.
1). American firms are challenged by international competitors in their once
safe domestic market.
2). Companies are not only exporting, but buying more components and supplies
from abroad.
3). Domestically purchased goods and services are hybrids (with components
coming from many international sources).
4). The secret for business success in the next century will be to build good
global networks.

*****Use Marketing At Work 1-3 Here*****

The Changing World Economy

j. A sluggish world economy has resulted in more difficult times for both
consumers and marketers.
k. Downsizing (to cut costs) has dramatically affected purchasing power.
l. Current economic conditions create both problems and opportunities.

The Call For More Ethics And Social Responsibility

m. The ethics and environmental movements will place even stricter demands on
companies in the future.
n. Environmental responsibility cannot be ignored.

The New Marketing Landscape

o. Companies of every sort learned that they cannot remain inwardly focused,
ignoring the needs of consumers and their environment.
p. Companies must become consumer oriented and market driven.
q. Inward (social responsibility) and outward (customer orientation) values will
remain a constant measure of success.

*****Use Chapter Objective #5 Here; Use Video Case 1 Here; Use Rest Stop (Power
Point 1-18) Here*****

TRAVEL LOG--DISCUSSING THE ISSUES

1. Answer the question “What is marketing?”

Marketing, more than any other business function, deals with customers. Creating customer
value and satisfaction are at the very heart of modern marketing thinking and practice. The
simplest definition of marketing is the delivery of customer satisfaction at a profit. The goal of
marketing is to attract new customers by promising superior value, and to keep current customers
by delivering satisfaction.
Marketing is much more than selling and advertising. Today, marketing must be
understood beyond the old “telling and selling.” The new direction is that of satisfying customer
needs. Therefore, the definition used in the text is that marketing is a societal and managerial
process by which individuals and groups obtain what they need and want through creating and
exchanging products and value with others. For additional information see Figure 1-1.

2. Discuss the concept of customer value and its importance to successful marketing. How are
the concepts of customer value and relationship marketing linked?
Customers usually face a broad array of products and services that might satisfy a given
need. Customers make their buying choices based on their perceptions of the value that various
products and services deliver.
Customer value is the difference between the values the customer gains from owning and
using a product and the costs of obtaining the product. Since customers often do not judge
product values and costs accurately or objectively, marketers must gear efforts toward perceived
value on the part of the consumer.
Customer satisfaction depends on a product’s perceived performance in delivering value
relative to a buyer’s expectations. If performance matches expectations, the buyer is satisfied. If
performance exceeds expectations, the buyer is delighted. Smart companies aim to delight
customers by promising only what they can deliver, then delivering more than they promise.
In the broadest sense, the marketer tries to bring about a response to some offer. This
transaction relationship is part of the larger idea of relationship marketing. Beyond creating
short-term transactions, marketers need to build long-term relationships with valued customers,
distributors, dealers, and suppliers. Strong customer value appreciation helps to solidify the
relationship between the marketer and various concerned publics. The idea is to build a strong
relationship and network with key stakeholders and profits will follow.

3. Identify the single biggest difference between the marketing concept and the production,
product, and selling concepts. Discuss which concepts are easier to apply in the short-run.
Discuss which concepts are easier to apply in the short run. Which concept offers the best
long-run success? Why?
The purpose of this question is to get students to understand the marketing concept better,
and to see how it is different from other philosophies. The key difference between the marketing
concept and the production, product, and selling concepts is its basic focus. The marketing
concept begins with the needs and wants of the consumer. A true marketing company achieves
its success by fulfilling its customers' desires.
The production, product, and selling concepts all focus on the needs of the seller. The
production and product concepts begin with the product, and assume it will generate demand
because of price, availability, or quality. The selling concept begins with the product to be sold,
and tries to generate demand for it.
The production, product, and seller-based concepts are the easiest to apply in the short-
run. The company does not need to redefine its business, it just works harder: more efficiency, a
better product, harder selling. But these measures are only successful if consumer needs are met.
 The marketing concept is more difficult to apply. It requires careful study and flexibility
to meet the needs of sometimes fickle consumers. This may require a business to rethink its
entire mission. But if consumer needs and wants are not met, the business will eventually fail.

4. According to economist Milton Friedman, “Few trends could so thoroughly undermine the
very foundations of our free society as the acceptance by corporate officials of a social
responsibility other than to make as much money for their stockholders as possible.” Do you
agree or disagree with Friedman’s statement? What are some drawbacks of the societal
marketing concept?
The quote is from Dr. Friedman's Capitalism and Freedom (The University of Chicago
Press, 1962). Friedman supports his argument with several questions (also see John F. Gaski,
"Dangerous Territory: The Societal Marketing Concept Revisited," Business Horizons, July-
August 1985, pp. 42-47). If businesses do have a social responsibility other than maximizing
profits, how are they to know what that responsibility is? Should unelected private individuals
decide what the social interest is? How great a burden are they justified in placing on their
stockholders (in lost profits) in serving that social interest?
Dr. Friedman is referring to profit maximization "within the rules of the game"--that is,
open competition without deception or fraud. This qualification eliminates many of the abuses
resulting from attempts to maximize profits that are described in Chapter 16. It does not address
the concerns discussed under "The Societal Marketing Concept," environmental pollution, world
hunger, and so on. Should packaged-goods manufacturers, for example, act to reduce pollution
by spending millions of dollars to develop a biodegradable alternative to plastic containers if
they cannot get their investment back through lower costs or higher prices? Who should pay for
the costs of this research, the companies' stockholders or customers?
A good way of discussing this question is to take both sides of the issue to extremes.
Total social responsibility might prevent people from being able to buy the products they want--
bicycles, presweetened breakfast cereals, fatty luncheon meats, and so on. Total profit
maximization might increase prices or pollution, cause safety risks, and reduce the services
offered to disadvantaged and less profitable market segments. Either extreme would be
unacceptable to most consumers.

5. As indicated in the text, “the explosive growth in computer, telecommunications, and

information technology has had a major impact on the way companies bring value to their
customers.” List and briefly explain five ways this trend has affected the average consumer
and their purchasing habits. Be sure to include in your discussion the impact of the Internet
on marketing practices.
The technology boom has created exciting new ways to learn about and track customers,
create products and services tailored to meet customer needs, distribute products more
effectively, provide new ways to advertise products and services, and communicate with
customers in large groups or one-to-one.
For example, companies can now build accurate and up-to-date databases, solicit and
receive feedback on how to better design products and services, provide an additional avenue for
distribution beyond traditional means (some products can be directly downloaded on to the
consumer’s personal computer), the Internet provides an excellent source for advertising to the
“wired-in” consumer, and E-mail can reach consumers daily at a fraction of the cost of
traditional communication formats.
 Internet usage surged in the 1990s with the development of the user-friendly World Wide
Web. More than 60 million people surf the Internet each month, up from 1 million people in late
1994. There may be as many as 4 to 6 million Web Sites worldwide, and these numbers are
growing explosively. Almost all forms of business are setting up shop on the Internet (which in
turn encourages more people to use the Internet). The only major problem that must be solved in
this new form of commerce is how to handle security. More information is found in Chapter 14.

TRAVEL LOG--CONCEPT CHECKS

The following are answers to the Concept Checks questions found at the end of the chapter.
These answers appear in the text for the convenience of the students.

1. Marketing

2. Satisfying customer needs

3. Product; Product

4. Customer value

5. Delight; Delight

6. Total customer satisfaction

7. Relationship marketing

8. Market

9. Production; Product; Selling; Marketing; and Societal Marketing Concepts

10. Marketing Concept

SUGGESTED MAP REFERENCES

The following references will be useful for MAP Stop 1 found at the end of Chapter 1. It is
suggested that these references be given to the student in advance of the assignment found in
MAP Stop 1.

1. Burrows, Peter, “Oh, Do I Love My iMAC.” Business Week, October 5, 1998,

p. 46.

2. Kantrowitz, Barbara, “At Last, a Really Big Mac.” Business Week, September 28,
1998, p. 85.
3. Wildstrom, Stephen, “Is Apple’s iMAC For You?” Business Week, September 7,
1998, p. 18.

4. Wildstrom, Stephen, “Where Wintel Fears to Tread.” Business Week, September

14, 1998, p. 19.

KEY TERMS AND APPLICATIONS

All of the Key Terms found in this chapter appear on the Prentice Hall Web page at
www.prenhall.com (reference this text). At the Web site the instructor will find all Key Terms
listed, an identification of what the Key Term means, and why it’s important. This information
will be especially helpful to students who are having difficulty with the Key Terms or if Key
Terms are to be stressed on examinations.

POWER POINT AND TRANSPARENCY MASTERS

Visual reproductions of Power Point electronic slides (Transparency Masters) for this chapter are
found in a special section at the end of the F.A.C.T.S. (Faculty Activities and Classroom
Teaching Strategies) supplement which accompanies the Instructor’s Resource Manual. Specific
references for the Power Point slides and Transparency Masters are found in the Chapter Outline
section of this chapter.