Principles of Marketing Chapter 1:
Creating Customer Value and
Engagement
Introduction to Emirates Airlines
Business Model:
Emirates Airlines operates a hub-based business model in Dubai, which is strategically located within 8
hours of 75% of the world's population. This model facilitates swift connections for international
travelers, maximizing efficiency and operational reach.
Growth and Reach:
Founded in 1985, Emirates has expanded rapidly to operate across six continents, with a network
serving 157 cities worldwide. The airline employs about 45,000 individuals from an impressive 172
nationalities, highlighting its commitment to diversity and inclusion in its workforce.
Focus on Customer Value:
Emirates’ strategy revolves around creating exceptional customer value and deepening brand
engagement. This positioning allows the airline to lead in international aviation by consistently
offering innovative products and services that enhance the travel experience.
Digital Marketing:
Emirates has made a notable shift towards digital and social media marketing, effectively utilizing
platforms such as Facebook, Twitter, Instagram, and YouTube to achieve high engagement rates with
customers. This strategy fosters community building and strengthens brand loyalty.
Brand Engagement Example:
The “Hello Tomorrow” campaign exemplifies Emirates’ efforts positioning the airline as more than just
a travel option; it connects cultures and experiences worldwide, integrating storytelling through
various media forms to captivate audiences.
Service Differentiation:
Rather than competing solely on price, Emirates emphasizes high-quality service, innovative in-flight
enhancements, and unique customer experiences. This includes access to exclusive lounges, the
onboard ICE entertainment system, and the Skywards loyalty program which rewards frequent
travelers.
Understanding Marketing
Definition:
Marketing is defined as the set of strategies and activities by which companies acquire and engage
customers, build strong customer relationships, and create superior customer value in order to capture
value from customers in return.
Core customer and marketplace concepts:
1. Customer Needs, Wants, and Demands
Needs: States of felt deprivation. Includes basic human requirements, such as
food, clothing, and shelter, that must be satisfied.
Wants: The form human needs take as they are shaped by culture and
individual personality. For example, a person may need food but want a specific
type of cuisine.
Demands: Human wants that are backed by buying power; customers will
demand products that fulfill their wants when they have the resources to buy.
2. Market Offerings
Some combination of products, services, solutions, and experiences offered to a
market to satisfy a need or want. Market offerings can be tangible goods, such
as shoes or electronics, or intangible services, like healthcare or education. More
broadly, market offerings also include other entities, such as persons, places,
organizations, information, ideas, and causes.
Many sellers make the mistake of paying more attention to the specific products
they offer than to the benefits and experiences produced by these products.
These sellers suffer from marketing myopia.
3. Customer Value and Satisfaction
Value: The ratio of perceived benefits to the cost incurred to obtain those
benefits. Companies must focus on providing superior value to establish
competitive advantage.
Satisfaction: The extent to which a product's perceived performance meets a
buyer's expectations. High satisfaction levels foster customer loyalty and can
lead to repeat purchases.
4. Exchanges and Relationships
Exchanges: The act of obtaining a desired object from a person or an
organization by offering something in return. Effective exchanges depend on
mutual agreement and satisfaction between parties involved.
Relationships: The ongoing interactions between businesses and customers
that build trust and loyalty. Long-term relationships can lead to brand advocacy
and repeat business.
5. Markets
A market is the set of actual and potential buyers of a product or service.
Markets can be segmented based on various factors such as economic,
demographic, geography, behavior, or psychographics to tailor marketing
efforts effectively.
Designing a Customer Value–Driven Marketing Strategy and Plan
To design a winning marketing strategy, the marketing manager must answer two important
questions: What customers will we serve (what’s our target market)? and How can we serve these
customers best (what’s our value proposition)?
Selecting Customers to server: Companies segment markets to target specific groups
effectively, tailoring offerings to meet unique preferences and behaviors.
Choosing a Value Proposition: Companies must clearly define how they will differentiate
themselves from competitors, which is vital for attracting and retaining customers (e.g.,
JetBlue, Spirit Airlines).
Marketing Orientations
There are five alternative concepts under which organizations design and carry out their marketing
strategies: the production, product, selling, marketing, and societal marketing concepts.
Production Concept: The idea that consumers will favor products that are available and
highly affordable; therefore, the organization should focus on improving production and
distribution efficiency.
Product Concept: The idea that consumers will favor products that offer the most quality,
performance, and features; therefore, the organization should devote its energy to making
continuous product improvements.
Selling Concept: The idea that consumers will not buy enough of the firm’s products
unless the firm undertakes a large-scale selling and promotion effort.
Marketing Concept: A philosophy in which achieving organizational goals depends on
knowing the needs and wants of target markets and delivering the desired satisfactions
better than competitors do.
Societal Marketing Concept: The idea that a company’s marketing decisions should
consider consumers’ wants, the company’s requirements, consumers’ long-run interests,
and society’s long-run interests.
Preparing an Integrated Marketing Mix
The major marketing mix tools are classified into four broad groups, called the four Ps of marketing:
product, price, place, and promotion. To deliver on its value proposition, the firm must first create a
need-satisfying market offering (product). The firm must then decide how much it will charge for the
offering (price) and how it will make the offering available to target consumers (place). Today, the
“place” includes not just traditional brick-and-mortar stores but also the internet, mobile channels, and
other media that facilitate digital interaction and delivery. Finally, it must engage target consumers,
communicate about the offering, and persuade consumers of the offer’s merits (promotion).
Customer Relationship Management (CRM)
CRM is the overall process of building and maintaining profitable customer relationships by delivering
superior customer value and satisfaction. It deals with all aspects of acquiring, engaging, and growing
customers.
The key to building lasting customer relationships is to create superior customer value and
satisfaction.
Satisfied customers are more likely to be loyal customers and give the company
a larger share of their business.
A customer buys from the firm that offers the highest customer-perceived value:
This refers to the customer’s evaluation of the difference between the benefits
delivered by and the costs of obtaining and using a market offering, relative to
those of competing offerings.
Customers often do not judge values and costs “accurately” or “objectively”;
they act on perceived value.
Value can mean different things to different consumers:
Some consumers might consider value to be sensible products at affordable
prices.
Others might feel that value is paying more to get more.
Example: A luxurious Patek Philippe watch costs between $20,000 and
$1,000,000. To those who own one, it represents a great value.
Customer satisfaction is the pleasure a buyer feels when a product’s perceived
performance matches or exceeds their expectations.
If the product’s performance falls short of expectations, the customer is
dissatisfied.
If performance matches expectations, the customer is satisfied.
If performance exceeds expectations, the customer is highly satisfied or even
delighted.
Customer Engagement and Today’s Digital Media
Today’s digital technologies have profoundly changed the ways that companies and brands connect
with customers and how customers connect with and influence each other’s brand behaviors.
Companies historically focused mostly on mass marketing brands at arm’s length to broad segments
of customers. In contrast, companies now use online, mobile, and social media to refine their targeting
and to engage customers more deeply and interactively.
This new marketing is named customer-engagement marketing.
Customer-engagement marketing is making the brand a meaningful part of
customers’ conversations and lives by fostering direct and continuous customer
involvement in shaping brand conversations, experiences, and community.
Beyond building brand loyalty and purchasing, marketers want to create customer brand
advocacy, actions by which satisfied customers initiate favorable interactions with others
about a brand.
Greater customer empowerment means that companies can no longer rely on marketing by
intrusion. Instead, they must practice marketing by attraction—creating market offerings
and messages that engage customers rather than interrupt them. For example, companies
post their latest ads and videos on social media sites, hoping they’ll go viral.
Customer-Generated Marketing
One form of customer-engagement marketing is customer-generated marketing, where
customers themselves—invited or uninvited—help shape their own brand experiences and
those of others.
Example: Oreo ran a #MyOreoCreation contest asking fans to come up with new
flavor ideas. Three finalist flavors hit the stores for two months before fans voted
online for a winner, who received $500,000.
Partner Relationship Management
Partner Relationship Management (PRM) is the concept of working closely with partners in
other company departments and outside the company to jointly bring greater value to
customers.
PRM focuses on fostering effective relationships between a company and its
partners, such as resellers, distributors, and other collaborators.
It involves strategies to enhance collaboration, communication, and alignment
of goals between partners.
Key benefits include improved efficiency, better resource allocation, and
increased sales through joint marketing and sales efforts.
Technology is often utilized to implement PRM systems that facilitate partner
engagement, training, and performance tracking, ensuring that all partners are
aligned with the company's objectives and can contribute to mutual success.
Creating Customer Loyalty and Retention
Good customer relationship management creates customer satisfaction.
Satisfied customers remain loyal and talk favorably to others about the company
and its products.
Keeping customers loyal makes good economic sense.
Loyal customers spend more and stay around longer. Losing a customer means
losing more than a single sale; it means losing the customer lifetime value—
the value of the entire stream of purchases that the customer would make over
a lifetime of patronage.
Growing Share of Customer
Good customer relationship management can help marketers increase their share of
customer—the share they get of the customer’s purchasing in their product categories.
To increase share of customer, firms can offer greater variety to current
customers or create programs to cross-sell and up-sell more products and
services to existing customers.
Example: Amazon is highly skilled at leveraging relationships with its hundreds
of millions of customers worldwide to increase its share of each customer’s
spending budget.
Building Customer Equity
Customer equity is the total combined customer lifetime values of all the company’s current and
potential customers.
Building the Right Relationships with the Right Customers
Companies should manage customer equity carefully. They 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?
Customers are classified into four groups based on:
1. Potential profitability: How much profit they can generate for the company.
2. Projected loyalty: How long they are likely to stay loyal to the company.
The Four Customer Groups
1. Butterflies:
Characteristics: High profitability but short-term loyalty.
Strategy: Focus on satisfying their needs while they are actively engaged. Avoid
over-investing in them once their loyalty fades.
Example: Stock market investors who trade frequently but don’t stick with a
single brokerage firm.
2. True Friends:
Characteristics: High profitability and long-term loyalty.
Strategy: Nurture these relationships by continuously improving offerings,
engaging them, and building trust. Convert them into "true believers" who
advocate for the brand.
Example: Customers who repeatedly purchase and share positive experiences
about the company.
3. Strangers:
Characteristics: Low profitability and short-term loyalty.
Strategy: Avoid investing resources in them as there is little alignment between
their needs and the company’s offerings.
Example: Customers who make occasional purchases but do not fit the target
market.
4. Barnacles:
Characteristics: Low profitability but long-term loyalty.
Strategy: Analyze whether they can be made profitable (e.g., through upselling
or reducing service costs). If not, consider limiting investments in them.
Example: Bank customers who maintain accounts but generate minimal revenue.
Putting It All Together
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 value–driven marketing strategy based on the
answers to two simple questions. The first question is “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. The second marketing strategy question is “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 to win target customers.
With its core marketing strategy chosen, the company now constructs an integrated marketing mix
consisting of a blend of the four mix elements—the four Ps—that transforms the marketing strategy
into real value for customers. The company develops product offerings and creates strong brand
identities for them. It prices these offers to create real customer value. It distributes or places the
offers to make them available to target consumers. Finally, the company designs promotion programs
that engage target customers, communicate the value proposition, and persuade customers to act on
the market offering.
Perhaps the most important step in the marketing process involves engaging target customers and
building value-laden, profitable relationships with them. Throughout the process, marketers practice
customer relationship management to create customer satisfaction and delight. They engage
customers in the process of creating brand conversations, experiences, and community. 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 its marketing system. Thus, beyond
practicing good customer relationship management and customer-engagement marketing, firms must
also practice good partner relationship management.
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, buy again, and
advocate for the brand. This helps the company capture customer lifetime value and a greater share of
the customer’s spending. The result is increased long-term customer equity for the company.
