International marketing and regional markets

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1. Capturing Value from Customers

The first four steps in the marketing process presented in the Figure below involve building customer relationships by creating and delivering superior customer value. The final step involves capturing value in return, in the form of current and future sales, market share, and profits. By creating superior customer value, the firm creates highly satisfied customers who stay loyal and buy more. This, in turn, means greater long-run returns for the firm. Here, we analyze the outcomes of creating customer value: 1) customer loyalty and retention 2) share of market and share of customer, and 3) customer equity

Forms of creating customer value: Future sales Current sales Market share Profits

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1.1 Creating Customer Loyalty and Retention

Good customer relationship management creates customer delight. In turn, delighted customers remain loyal to the company and its products. According to some researches, even a slight drop from complete satisfaction can create an enormous drop in loyalty. Thus, the aim of customer relationship management is to create not just customer satisfaction, but customer delight.

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The Impact of Loyalty The two questions for many companies are: 1) Does loyalty really matter? and 2) Do loyalty programs positively affect the ability of companies to initiate and develop longer and more profitable relationships with customers? 1) 1) The answer to the first question is absolutely yes. Over the past decade there have been numerous studies that have helped companies to understand the dramatic opportunity costs of not managing loyalty effectivelyor stated more positivelythe tremendous financial leverage provided by achieving incremental loyalty. One study proved conclusively that companies that can improve the retention of their best customers by as little as five percent can increase enterprise profitability by as much as seventy five percent.

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2) There is no pat answer to the second question because different companies have different programs and may experience very different results. Also, its sometimes hard to determine from the outside looking in as key performance data derived from these programs is highly proprietary and as a result, is hard to come by.

However, companies that manage their six Ps effectively and then add a well designed and executed loyalty capability are in the best position possible as the program can reinforce an already high performing value proposition. Loyalty programs serve an important role for many successful companies and add significant economic value to their enterprise.

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Voice of the Customer

Regardless of how successful an company manages the six Ps and a loyalty program, some customers will still stop buying your product. As unpleasant as this task can be, it is necessary for companies to obtain honest answers to straightforward questions about customer defection. - Have customers stopped buying because they have found a better alternative or a similar one at a better price? - Is your customer service part of the solution or part of the problem? - Have some of your customers simply stopped buying products and services in the category altogether? Answers to these questions serve as the backbone of an ongoing research that should be part of any well-constructed loyalty program. Insights gleaned from this feedback should be used to actively update and refine the way the company engages and serves its customers, both in the loyalty program and throughout the six Ps.
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The Four Ps Plus Two

In order to move toward transforming customers into advocates, companies need more than an attractive loyalty program. Many companies initially engage in customer loyalty with the best of intentions but with a fundamental misunderstanding of what a loyalty program can and cannot accomplish. Unfortunately many companies see the creation of a loyalty program as the panacea for endemic customer turnover, and dissatisfaction. This wish couldnt be further from the reality of what these programs can reasonably be expected to achieve. The truth is, - no matter how well executedthat can overcome a companys inability to execute consistently on the four Ps of marketing product, price, place and promotion. Loyalty programs cannot make up for major operating deficiencies in an enterprise nor can all the data from a sophisticated CRM platform. That is why in this new customer-centric environment, that companies should add two more Ps to their marketing mix to in order to effectively engender customer loyalty.
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The fifth P
The fifth P is people. It is perhaps the most challenging part of the loyalty equation and one of the most important. People have a profound affect on customer loyalty as employees, distributors or franchisees of an enterpriseand it has been proven that people are a powerful part of the customer loyalty equation. Their knowledge about the product or service, their approachability, their motivation and dedication to serving the customer are all tied directly to a companys ability forge a profitable relationship with its customers.
It is no surprise that some companies with the lowest turnover of its people have the lowest turnover of customersmaking them the customer loyalty leaders in their category. This will become increasingly challenging for companies as employee loyalty declines and an increasing amount of work is sourced to third-party providers. Managing the people equation effectively cannot make up for an inferior product, but it is often the intangible asset that becomes the reason why customers buy from you and not your competitorseven when there is product parity and similar pricing.
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The Sixth P + Two P

The sixth P is performance. Performance is the total customer experience as impacted by product, price, place, promotion and people. Performance is how all these activities combine in harmony that matter most to consumers. For instance, if one has a unique product that is priced right, promoted well and distributed effectivelyis that enough to effect customer loyalty? The answer is likely no. If the company is doing all these things right but customer service is poor or staff are rudein the eyes of the consumer the product/service will not have performed to their expectations. The first four Ps are critical to loyalty but individually they are only parts of the puzzle. When the objective is loyalty and protect this can only be achieved through performance as perceived and judged by the customer.

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Critical Success Factors

Companies that are executing the six Ps in an effective manner can likely achieve further improved customer retention, incremental spend and financial yield from customers through a well constructed loyalty program. The ultimate success of any program is highly dependent on thinking through the critical success factors during the strategy, planning and design process.
In order to create a program that is both meaningful for the consumer, and profitable for the sponsorclarity must be achieved resulting from significant discussion, analysis and ultimate executive management support and buy-in. By its very nature, loyalty management is a long-term strategy and any program resulting from such a strategy will require significant organizational support, resources and emphasis from the most senior members of the management team.

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December, 12th 13th 2008

Turning Customers Into Advocates

While some companies are seeking to simply get their customers to buy more over a longer period of time, some enlightened loyalty marketers are raising they bar. They are seeking to transform as many of their customers as possible into advocates for their products and services as research consistently shows that word of mouth promotion is always the most powerful and persuasive. Taking a customer to the advocate stage in a commercial relationship is very challenging but it delivers enormous promotional and economic benefits to companies that achieve it.

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 Companies are realizing that losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a lifetime of patronage. For example, here is a good illustration of Customer Lifetime Value (CLV):
-Stew Leonard, who operates a highly profitable four-store supermarket chain in Connecticut and New York, says that he sees $50,000 flying out of his store every time he sees a sulking customer. Why? Because his average customer spends about $100 a week, shops 50 weeks a year, and remains in the area for about 10 years. If this customer has an unhappy experience and switches to another supermarket, Stew Leonard's has lost $50,000 in revenue. The loss can be Stew Leonard much greater if the disappointed customer shares the bad experience with other customers and causes them to defect. To keep customers coming back, Stew Leonard's has created what the New York Times has called the "Disneyland of Dairy Stores," complete with costumed characters, scheduled entertainment, a petting zoo, and animatronics throughout the store. From its humble beginnings as a small dairy store in 1969, Stew Leonard's has grown at an amazing pace. It's built 29 additions onto the original store, which now serves more than 300,000 customers each week. This legion of loyal shoppers is largely a result of the store's passionate approach to customer service.
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 Stew Leonard is not alone in assessing customer lifetime value. Lexus estimates that a loyal customer is worth more than $600,000 in lifetime sales. Thus, working to retain and grow customers makes good economic sense. In fact, a company can lose money on a specific transaction but still benefit greatly from a long-term relationship. This means that companies must aim high in building customer relationships. Customer delight creates an emotional relationship with a product or service, not just a rational preference. L.L.Bean, long known for its outstanding customer service and high customer loyalty, preaches the following "golden rule": Sell good merchandise, treat your customers like human beings, and they'll always come back for more."

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Customer lifetime value (CLV) or lifetime value (LTV) and a new concept of "customer life cycle management. CLV is the present value of the future cash flows attributed to the customer relationship. Use of CLV as a marketing metric tends to place greater emphasis on customer service and long-term customer satisfaction, rather than on maximizing short-term sales.
What is the ideal rate of savings? Economics Nobel Prize winner, Franco Modigliani offered a key insight: It depends on the stage of the persons lifetime. A childs savings rate is negative, as is the case when the person retires. During the income earning years the savings rate turns positive, increasing to a peak, and then declining. By looking closely at the costs and the activities we decide to put in place, we can improve the profitability of the customer relationship at different stages of the customer lifecycle. In order to do this, we need to take a look at what revenue might be generated by the activities we apply.

(1918-2003)

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 Customer lifetime value Stew Leonards To keep customers coming back, Stew Leonard's has created the "Disneyland of dairy stores. Rule 1- The customer is always right. Rule 2- lf the customer is ever wrong, reread rule 1!

NO

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CLV concept represents how much each customer is worth in monetary terms, and therefore exactly how much a marketing department should be willing to spend to acquire each customer. In reality, it is difficult to make accurate calculations of CLV due to the uncertainty surrounding customer relationships. to calculate CLV apply to the contractual or customer retention situation. These models often involve the following inputs:

Most models

Churn rate - The percentage of customers who end their relationship with a company in a given period. One minus the churn rate is the retention rate. If the model uses only one churn rate, the assumption is that the churn rate is constant across the life of the customer relationship. Discount rate - The cost of capital used to discount future revenue from a customer. The current interest rate is sometimes used as a simple (but incorrect) proxy for discount rate. Retention cost - The amount of money a company has to spend in a given period to retain an existing customer. Retention costs include customer support, billing, promotional incentives, etc. Period - The unit of time into which a customer relationship is divided for analysis. A year is the most commonly used period. CLV is a multi-period calculation, usually stretching 3-7 years into the future. Periodic Revenue - The amount of revenue collected from a customer in the period. Profit Margin - Profit as a percentage of revenue. Depending on circumstances this may be reflected as a percentage of gross or net profit. December, 12th 13th 2008

1.2 Growing Share of Customer

Beyond retaining good customers to capture CLV, good customer relationship management can help marketers to increase their share of customerthe portion of the customer's purchasing that a company gets in its product categories. Thus, banks want to increase "share of wallet." Supermarkets and restaurants want to get more "share of stomach." Car companies want to increase "share of garage" and airlines want greater "share of travel." To increase share of customer, firms can: - offer greater variety to current customers - train employees to cross-sell and up-sell in order to market more products and services to existing customers.

- Cross-sell is a marketing term for the practice of suggesting related products to a customer who is considering buying something. If you're buying a book on Amazon.com, for example, you may be shown a list of books similar to the one you've chosen or books purchased by other customers that bought the same book you did. The most known example of cross-sell is likely the oftspoken fast food phrase: "Would you like fries with that?" - A similar practice, up-sell, involves suggesting more expensive items to a customer making a purchase.
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For example, Amazon.com is highly skilled at leveraging relationships with its 50 million customers to increase its share of each customer's purchases. Originally an online bookseller, Amazon.com now offers customers music, videos, gifts, toys, consumer electronics, office and garden products, apparel, jewelry, and an online auction. In addition, based on each customer's purchase history, the company recommends related products that might be of interest. In this way, Amazon.com captures a greater share of each customer's spending budget.

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1.3 Building Customer Equity We can now see the importance of not just acquiring customers, but of keeping and growing them as well. The only value your company will ever create is the value that comes from customersthe ones you have now and the ones you will have in the future. Without customers, you don't have a business. Companies want not only to create profitable customers, but to "own" them for life, capture their CLV, and earn a greater share of their purchases.
What Is Customer Equity? 1) Customer equity is the total combined customer lifetime values (CLVs) of all of the company's current and potential customers. 2) The ultimate aim of customer relationship management is to produce high customer equity. 3) The more loyal the firm's profitable customers, the higher the firm's customer equity.

Customer equity may be a better measure of a firm's performance than current sales or market share. Whereas sales and market share reflect the past, customer equity suggests the future. Consider Cadillac.
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 In the 1970s and 1980s, Cadillac had some of the most loyal customers in the industry. Accordig to car buyers, the name "Cadillac" defined luxury. Cadillac's share of the luxury car market reached a 51 percent in 1976. Based on market share and sales, the brand's future looked rosy.

However, measures of customer equity would have painted a bleaker picture. Cadillac customers were getting older (average age 60) and average CLV was falling. Many Cadillac buyers were on their last car. Thus, although Cadillac's market share was good, its customer equity was not.
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 The Cadillac automobile was named after the 17th century French explorer Antoine Laumet de La Mothe, sieur de Cadillac, founder of Detroit, Michigan in 1701. Cadillac was formed from the Henry Ford Company upon Henry Ford's departure along with several partners. Cadillac was purchased by the General Motors conglomerate in 1909. It became General Motors' prestige division, devoted to the production of large luxury vehicles. Cadillac is a brand of luxury automobile, part of the General Motors corporation, produced and mostly sold in the United States. Outside of North America, they have been less successful. In the United States, the name became a synonym for "high quality. This is less prevalent in other countries. The latest incarnation of Cadillac styling Art and Science (A&S) was previewed with the 1999 Cadillac Evoq concept roadster at that year's Detroit Auto Show.
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In 2005, General Motors announced the first Cadillac designed exclusively for the European market, a model called the BLS, to be built by Saab in Sweden.

The 2006 Presidential Limousine first shown at the second inauguration of President George W. Bush features A&S design cues, and is said to foreshadow the 2006 Cadillac DTS, which is the replacement for the DeVille.
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- Compare this with BMW. Its more youthful image didn't win BMW the early market share war. However, it did win BMW younger customers with higher SLVs. The result: In the years that followed, BMW's market share and profits increased while Cadillac's fortunes declined. Thus, market share is not the answer. - Thus, we should care not just about current sales but also about future sales. CLV and customer equity are the name of the game. Recognizing this, Cadillac is now making the Caddy cool again by targeting a younger generation of consumers with new highperformance models and its highly successful Break Through advertising campaign. Sales are up 35 percent over the past five years. More important, the future looks promising.

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By the end of 2008, BMW will decide whether or not its going to supply engines and other components to rival automakers GM, Daimler and Fiat. Selling engines and other components to other automakers is part of BMW CEO Norbert Reithofers Number One strategic plan to boost the carmakers profitability. People feel that Cadillac cannot regain the status of Standard of the World by using BMW engines. However, surely 99% of the people who buy Cadillacs wont be concerned where the engine came from. Lincoln did fine by using BMWs turbo diesel in the Mark VII (it was done sparingly). BMW is optimizing a two-mode hybrid transmission that GM recently developed.
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Building the Right Relationships with the Right Customers Companies should view customers as assets that need to be managed and maximized. But not all customers, not even all loyal customers, are good investments. Surprisingly, some loyal customers can be unprofitable, and some disloyal customers can be profitable. Which customers should the company acquire and retain? Up to a point, the choice is obvious: Keep the consistent big spenders and lose the erratic small spenders. The company can classify customers into one of four groups, according to their: 1) profitability and 2) projected loyalty (see next Figure). Each group requires a different relationship management strategy.

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1) "Strangers" show low potential profitability and little projected loyalty. The relationship management strategy for these customers is simple: Don't invest anything in them.

2) Butterflies" are potentially profitable but not loyal. An example is stock market investors who trade shares often and in large amounts, but who enjoy hunting out the best deals without building a regular relationship with any single brokerage company. Efforts to convert butterflies into loyal customers are rarely successful. Instead, the company should enjoy the butterflies for the moment. It should use promotional attacks to attract them, create satisfying and profitable transactions with them, and then stop investing in them until the next time around.

Fugure Customer Relationship Groups

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 "True friends" are both profitable and loyal. The firm wants to make continuous relationship investments to delight these customers and nurture, retain, and grow them. It wants to turn true friends into "true believers," who come back regularly and tell others about their good experiences with the company. "Barnacles" are highly loyal but not very profitable. An example is smaller bank customers who bank regularly but do not generate enough returns to cover the costs of maintaining their accounts. Like barnacles on the hull of a ship, they create drag. Barnacles are perhaps the most problematic customers. The company might be able to improve their profitability by: - selling them more, - raising their fees, or - reducing service to them. However, if they cannot be made profitable, they should be "fired."
Thus, different types of customers require different relationship management strategies. The goal is to build the right relationships with the right customers.
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2. The Changing Marketing Landscape

Every day, dramatic changes are occurring in the global market. Richard Love of HewlettPackard observes, "The pace of change is so rapid that the ability to change has now become a competitive advantage. The future am not what it used to be. As the marketplace changes. so must those who serve it. In this section, we discuss about the major developments (trends) that are challenging marketing strategy. We look at four major developments: 1) the digital age

2) rapid globalization
3) the call for more ethics and social responsibility, and

4) the growth of not-for-profit marketing

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2.1. The Digital Age

The recent technology boom has created a digital age. The explosive growth in computer, telecommunications, information, transportation, etc. has had a major impact on the ways companies bring value to their customers. Now we are all connected to each other. - We can now travel around the globe in only hours or days. - Where it once took days to receive news about world events, we now see them as they are occurring through live satellite broadcasts, by phone or the Internet.

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The technology boom: - Hhas provided new ways to learn about customers, and to create products customised to individual customer needs (customisation). - Is helping companies to distribute products more efficiently and effectively and to communicate with customers in large groups or one-to-one.

With a few clicks of a mouse button, a direct marketer can tap into online data services to learn anything from what car you drive to what flavor of ice cream you prefer. Or, using today's powerful computers, marketers can create their own detailed customer databases and use them to target individual customers with offers designed to meet their specific needs.

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Technology has brought new advertising tools ranging from cell phones, iPods, DVRs, Web sites, and interactive TV to video kiosks at airports and shopping malls. Marketers can use these tools to zero in on selected customers with carefully targeted messages.

- Through the express delivery, customers can receive their purchases in less than 24 hours. - From virtual reality displays that test new products to online virtual stores that sell them.
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Perhaps the most dramatic new technology is the Internet. Today, the Internet:
- Links individuals and firms to each other and to information all around the world; - Allows anytime, anywhere connections to information, entertainment, and communication; - Alows to companies to build closer relationships with customers; - Has now become a truly a global phenomenon. The number of Internet users worldwide now stands at almost 1.3 billion and will reach an estimated 1.8 billion by 2010. This growing and diverse Internet population means that all kinds of people are now going to the Web for information and to buy products and services. Internet enables selling everything from books, toys, and CDs to furniture, and 100-pound bags of dog food. The frenzy cooled during the "dot-com meltdown" of 2000, when many poorly conceived e-tailers and other Web start-ups went out of business.
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 Today, a new version of the Internet has emerged- often referred to as Web 2.0. Web 2.0 offers a set of new Web technologies for connecting with customers such as: - Weblogs and video-based blogs, - Social networking sites, and - Video-sharing sites.

Conclusion: Thus, the technology boom is providing exciting new opportunities for marketers.

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Online marketing is now the fastest-growing form of marketing. These days, it's hard to find a company that doesn't use the Web. In addition to the "clickonly" dot-corns, most traditional "brick-and-mortar" companies have now become "click-andmortar" companies. They have ventured online to attract new customers and build stronger relationships with existing ones. Today, some 65 percent of American online users use the Internet to shop. Business-to-business e-commerce is also booming. It seems that almost every business has set up shop on the Web.

2.2. Rapid Globalization

Many marketers are now connected globally with their customers and marketing partners. Today, almost every company, large or small, is touched in some way by global competition. - A large U.S. electronics manufacturer competes in its home markets with Korean rivals. - A Internet retailer finds itself receiving orders from all over the world at the same time that an American producer introduces new products into emerging markets abroad.

Today, companies are not only trying to sell more of their locally produced goods in international markets, they also are buying more components abroad.

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-American firms have been challenged at home by European and Asian multinationals. Companies such as Toyota, Nokia, Sony, and Samsung have often outperformed their U.S. competitors in American markets. Similarly, U.S. companies have developed global operations, making and selling their products worldwide. American McDonald's now serves 52 million customers daily in worldwide-some 65 percent of its revenues come from outside the United States. McDonalds has launched (December 2008) an aggressive ad campaign in Seattle to take over a bigger share of the lucrative coffee market.

Nike markets in more than 160 countries, with non-U.S. sales accounting for 53 percent of its worldwide sales.
MTV Networks is a global brand with its 137 localized of the channels worldwide in 164 countries around the globe.
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2.3. The Call for More Ethics and Social Responsibility Marketers are reexamining their relationships with social values and responsibilities. As the worldwide consumerism and environmentalism movements mature, today's marketers are being called upon to take greater responsibility for the social and environmental impact of their actions. Corporate ethics and social responsibility have become hot topics for almost every business. The social responsibility and environmental movements will place even stricter demands on companies in the future. Some companies resist these movements, budging only when forced by legislation or organized consumer reactions. Some companies are building social responsibility and action into their company value and mission statements. Each year companies pledge at least I percent of their sales or IO percent of their profits, to the protection of the natural environment. th th

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2.4. The Growth of Not-for-Profit Marketing

In recent years, marketing has become a major part of the strategies of many notfor-profit organizations, such as hospitals, private colleges museums, zoos, and even churches. The nation's nonprofits face stiff competition for support and membership. Sound marketing can help them to attract membership and support.
The Growth of Not-for-Profit Marketing is a symbol of good marketing

1) Not-for-profit marketing: The San Francisco Zoological Society aggressively markets the zoo's attractions to what might be its most important customer segment - children of all ages.

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-Similarly, private colleges, facing declining enrollments and rising costs, are using marketing to compete for students and funds. - Many not-for-profit organizations- e.g. the Salvation Army-have lost members and are now modernizing heir missions and "products" to attract more members and donors. Government agencies have also shown an increased interest in marketing. For example the U.S. military has a marketing plan to attract recruits to its different services, and various government agencies are now designing social marketing campaigns to encourage energy conservation and concern for the environment or to discourage smoking, excessive drinking, and drug use.

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Figure -An Expanded Model of the Marketing Process

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 The first four steps in the marketing process create value for customers. In the final step, the company reaps the rewards of its strong customer relationships by capturing value from customers. Delivering superior customer value creates highly satisfied customers who will buy more and will buy again. This helps the company to capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm. Finally, companies must take into account three additional factors. In building customer and partner relationships, they must 1) harness marketing technology, 2) take advantage of global opportunities, and ensure that they act in an 3) ethical and socially responsible way.

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Resume
What is marketing? Simply put, marketing is the process of building profitable customer relationships by creating value for customers and capturing value in return.
The first four steps of the marketing process focus on creating value for customers. The company first gains a full understanding of the marketplace by researching customer needs and managing marketing information. It then designs a customer-driven marketing strategy based on the answers to two questions: 1) "What consumers will we serve?" (market segmentation and targeting). Good marketing companies know that they cannot serve all customers in every way. Instead, they need to focus their resources on the customers they can serve best and most profitably. 2) "How can we best serve targeted customers?" (differentiation and positioning). Here, the marketer outlines a value proposition that spells out what values the company will deliver in order to win target customers.

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 With its marketing strategy decided, the company now constructs an integrated marketing program-consisting of a blend of the four marketing mix elements, or the four Ps- that transforms the marketing strategy into real value for customers.

Perhaps the most important step in the marketing process involves building value-laden, profitable relationships with target customers. Throughout the process, marketers practice customer relationship management to create customer satisfaction and delight. In creating customer value and relationships, however, the company cannot go it alone. It must work closely with marketing partners both inside the company and throughout the marketing system. Thus, beyond practicing good customer relationship management, firms must also practice good partner relationship management.

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Discussion!

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