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Doyle & Stern - The Customer Led Business
The first priority of a business should be to satisfy its customers' needs and wants. The aim of marketing is to create and deliver products and services that customers will value and this is the central task of management.
Needs and ProductsSmith (1776) showed that the drive of competing firms to make a profit, by providing customers with what they want, is ultimately in the interests of consumers because they obtain more and better products at lower prices.Marketing management is the task of facilitating this process by professionally identifying the needs of customers and developing those offers that give customers what they want.Need = is a basic requirement that an individual wishes to satisfy.Want = a specific product to satisfy the underlying need.Demand = a want for a specific product supported by an ability and willingness to pay for it.Companies do not create the need for food or social status but they try to influence demand by designing their products to be attractive, work well, be affordable and be readily available.Product = anything that a firm offers to satisfy the needs or wants of customers.
Value and ChoiceEvery customer has a product choice set which consists of the number of alternatives that are considered when seeking to satisfy a certain need. This choice is the governed by a need set, for example a need for speed, service, convenience,
perceived quality, ambience and reliability. Each alternative in the choice set is weighed against the need set.The choice that is ultimately chosen is the one that is perceived to have the highest utility. This is the consumer's estimate of the products overall capacity to satisfy their needs. As prices of products are not identical consumers have to determine which product they consider to give the best value.Value = a combination of price and utility.This concept of value provides companies with two ways to increase their demand in order to increase the customers perception of value:
1. Enhancing the features.
2. Cutting the price.Negotiation = the process of trying to arrive at a mutually acceptable exchange.Transaction marketing = a one of negotiation. Here both parties aim to maximise their profits.Relationship marketing = a long-term, continuous series of transactions between parties. When a good working relationship is built, negotiating time and costs are reduced and pattern of transactions becomes predictable.Relationship marketing has become a central focus of marketing, and high emphasis is placed on increasing customer loyalty. Managers have realised it is more beneficial to invest in quality and customer service to keep customers happy.Satisfied customers stay with the business in the long term and are more profitable than new customers:
1. The firm does not have to incur the selling costs of acquiring new customers.
2. Satisfied customer place more business with the firm, recommend it to others and are less price sensitive.
EXAMPLE: Studies by management consultants Bain & Company suggest that the annual profits generated from a customer who has been with a company for seven years are typically more than five times the amount it generates in the first year (Doyle & Stern, 2006). ?
Marketing network = consists of the company and those other organisations (suppliers, bankers, distributors, key customers) with which it has built long-term, dependable relationships.Market = all potential customers sharing a specific need or want who might be willing and able to exchange to satisfy a need or want.Industry = a collection of sellers.
The Customer Led BusinessThe task of marketing is to facilitate the exchange process and enhance the organisation's ability to engage in mutually beneficial exchanges. Marketing management seeks to attract and retain customers by offering desirable products.Marketing management consists of five tasks:
1. Identifying target markets - Management has to identify those customers it desires to make exchanges with.
Choice of markets will be governed by the wealth they possess and the organisation's capability to serve them.
2. Marketing research - Management has to collect information on the current and potential needs of customers in the markets chosen, how they buy and what competitors are offering.
3. Product development - The business must develop products (and/or services) which will meet needs and wants sufficiently to attract target customers to buy.
4. Marketing mix - Management will have to determine the price, promotion and distribution for the product.
Marketing mix is tailored to offer value, communicate the offer and make it accessible and convenient.
5. Monitoring - Since management will wish to build relationships which retain customers, it needs to obtain feedback on customer satisfaction with the exchange and to modify the product and marketing mix as needs and competitive environments change.Marketing management = the process of identifying target markets, researching the needs of customers in these markets and then developing the product, price, promotion and distribution to create exchanges that satisfy the objectives of the organisation's stakeholders.
1. Product OrientationIn some companies the product is given higher importance than the customer.
1. The premise here is that the customer will want the product, but no effort is made to research whether this is actually the case.EXAMPLE: In high-tech companies there is often a belief that developing technologically superior products is the route to success. Here scientists make the product decisions. Generally the results are offers that are over-engineered, too costly to produce and insufficiently appealing to the market.
2. The second variant is the view that success lies in producing the product more efficiently than competitors.
Possessing the lowest cost is seen as a source of competitive advantage.
2. Sales OrientationOnce a product has been produced that is unappealing to the customer, companies often see aggressive selling,
advertising and promotion as a way to penetrate the market.Selling and marketing are two polar opposites "Selling tries to get the customer to want what the company has,
marketing on the other hand, tries to get the company to produce what the customer wants" (Levitt, 1960)."While aggressive selling can sometimes fool the customer into buying a product once, it can never form the basis of a long-term relationship" (Doyle & Stern, 2006, p.38). 3. Financial OrientationInstead some companies have a high focus on their financial assets. Here, the task of management is seen to be the generation of the maximum amount of cash that can be produced from a given asset base.High returns can be achieved for a few years through the exploitation of inherited assets. In the longer run the company fails to satisfy customers, build strong brands and keep up with changes in the environment.
4. Customer OrientationLeading companies today recognise the necessity of being a customer led business. This business orientation is called the marketing concept.The marketing concept states that "a business is most likely to achieve its goals when it organises itself to meet the current and potential needs of customers more effectively than competitors" (Doyle & Stern, 2006, p.39).
Success and Customer Satisfaction"Profits today are derived from customers won in the past" (Doyle & Stern, 2006, p.40). It is therefore a mistake for companies to gauge their performance based on current profit and sales performance.o
Good profits in the present can mask deteriorating customer performance.
Sales growth may not lead to future profits if new customers cost too much to attract or have no loyalty.
The sales and profits of the future are intrinsically linked to the value of the company today. Value is created by the satisfied customer in the present who want to remain customers in the future.Companies recognise that satisfied customers are highly valued assets. In contrast, dissatisfied customers can rapidly destroy the performance of the business.
Focus on NeedsA customer led company will focus on needs rather than products.A market is defined by a need not a product. The central idea of marketing is the recognition that whatever product the company produces, the customer does not want it.
EXAMPLE: IBM carved out a leadership position by defining its market, not as computers, but as managers wanting better information to make more profitable decisions. Buyers were much more ready to spend on better information systems than they were on computers (Doyle & Stern, 2006, p.41).
EXAMPLE: Charles Revson, founder of Revlon, put it more colourfully when he remarked: "In the factory we make cosmetics, but in the store we sell hope" (Doyle & Stern, 2006, p.41).
EXAMPLE: Rolex defined itself as being in the status not watches business (Doyle & Stern, 2006, p.41).
EXAMPLE: The president of Black & Decker made a similar point: "Last year one million quarter-inch drills were sold, not because people wanted quarter-inch drills, but because they wanted quarter-inch holes" (Doyle &
Stern, 2006, p.41).Customers expect all products and services to be safe and reliable - choice is now based on the additional features and services that competitor's offer.
EXAMPLE: Fed Ex's customer satisfaction surveys showed that it provided excellent service, but it recently decided that it must do better. Examined the entire package delivery and billing process from the customer viewpoint. The result was Powership - a computer terminal given to thousands of the companies best customers. Creates address labels with routing instructions and automatic billing. Fed Ex built more growth and increased customer loyalty and satisfaction by utilising modern information technology and by understanding customer needs better than customers did themselves (Doyle & Stern, 2006, p.44). ?
Once the customer's needs are known, the company can develop products and services to meet them. It is useful to distinguish between the core product or service and the augmented products or services that surround the core.
EXAMPLE: For a hotel, the core product is clean, comfortable accommodation. But since many hotels can meet this minimum requirement, differentiation and choice are based upon how effectively the hotel augments its core. Augmented products include personal service, leisure facilities and so on (Doyle & Stern, 2006, p.41).Three types of need (or market) can be distinguished:
Existing markets - where customers are satisfied with the existing product. New entrants to the market compete on price and promotion rather than a new offering. Margins are low with few product differences.
Latent markets - customers with defined needs that have not yet been met by competitors. Companies that develop a product or service to meet this need can gain a market leading position.
Incipient markets - needs that customers have but are unaware of until a product triggers the want or need.EXAMPLE: 3M's Post-it notes, the Sony Walkman, the Xerox machine, eBay and iTunes. These products and services changed customer behaviour and created new markets.Innovation arises in an attempt to meet latent or incipient needs and offers real opportunities for profit.
EXAMPLE: One company that has been innovative in satisfying previously unmet customer needs is eBay,
which manages to match buyers and sellers in new ways, such as electronic auctions. The range of products now sold via eBay in many countries is huge and includes luxury items such as Rolex watches.
Competitive AdvantageCompanies cannot just meet the needs of the customers; they need to be better than their competitors at doing this.
EXAMPLE: In the 1990s, Swissair ceased to be the businessperson's favourite airline, not because it got worse,
but because the competitors such as British Airways improved and then surpassed it in service.Companies engage in competitive benchmarking to compare customer satisfaction with the products, services and relationships with those of key competitors.
Entire BusinessMarketing is a philosophy of business that places the customer, not the marketing department, at the centre.The marketing philosophy says that everyone's role is to focus on satisfying the customer, not just the role of the marketing department.In order to avoid marketing becoming a narrow and functional task, some organisations refuse to have a marketing department. Instead it should be the central task of all departments to ensure that the customer is satisfied."Marketing is so basic that it cannot be considered a separate function within the business, on a par with others such as manufacturing or personnel. Marketing requires separate work and a distinct group of activities. But it is first, a central dimension of the entire business. It is the whole business seen from the point of view of its final result, that is, from the customer's point of view. Concern and responsibility must therefore permeate all areas of the enterprise" (Drucker,
Retention and SatisfactionThe average company loses around 10% of its customers annually. Bain's experience in the UK and the USA is that a 5%
increase in the retention rate increases customer profits by between 20-85%.Customers that consider themselves to be highly satisfied are six times more likely to buy again from the company compared to those who are just satisfied. ?
These highly satisfied customers are also more likely to tell others about their experience:
EXAMPLE: Virgin Atlantic discovered that on average passengers who were delighted by their experience on its flights told four others.Therefore delighting customers both increases retention and generates new business.Although satisfied customers can boost profits, dissatisfied customers can erode it even quicker. On average dissatisfied customers tell 14 people about their experience. It is therefore crucial to continually measure customer satisfaction and consider the reasons behind customer dissatisfaction.Dissatisfied customers should be encouraged to complain; studies show that companies can retain 62% of dissatisfied customers if it responds to their complaints. If it responds very quickly, it can retain 95% of customers.
EXAMPLE: British Airways, found that customers whose complaints are dealt with to the customer's complete satisfaction are 5-10% more satisfied with the airline than those who have never had a problem.
Managerial ImplicationsThe first task of managers is to ensure that they are satisfying their customers better than the competition.The second task is to put in place strategies to further improve customer satisfaction. This can be achieved by offering products and services that are perceived by customers to be superior, or are lower in costSuperior value is based upon the company building core competences - specific knowledge and skills, which allow it to manage core processes more effectively than competition.The value of the company's offer also needs to be communicated to target customers through brand-building programmes, which include advertising, the Internet, public relations, sponsorship programmes and guarantees.In an attempt to further retain customers, companies have begun to introduce loyalty programmes.
Frequency marketing programmes - those run by airlines, which reward customers who buy frequently.
The club concept - offers customers who join special benefits such as discounts or gifts.EXAMPLE: Tesco, the British grocery retailer, enrolled over 1 million members in the first six months when it launched its Club Card.The internet and telephone help lines are also a rapidly growing medium that can aid communication between the company and the customer.
EXAMPLE: Procter & Gamble prints a free telephone number on all its products and deals with 75,000 customers' calls a year. If 85% of the complaints are handled to its customers' satisfaction, the benefit to the company annually was estimated at over half a million dollars.Thanks to technological advancements, companies are able to keep comprehensive databases which detail the behaviour and attitudes of their customers. This allows them to target offers and communications that are specifically tailored to be relevant to the needs and expectations of individual customers. The emergence of one-to-one marketing
(Peppers & Rogers, 1999). Doyle & Stern - Strategic Market Planning
Strategic market planning is concerned with adapting the organisation to a changing environment. Customer needs change as new technologies appear and the environment changes. Generally competitor performance improves and as a result successful companies begin to decline if they too do not continually change and adapt.
Strategic WindowsSudden environmental changes can trigger major developments in markets.When a change in occurs, existing leaders are ill-equipped to match new requirements. Contenders can go through the open window and displace players. Challenge facing leaders is to 'close' the strategic window before contenders establish themselves. Task of newcomers is to pass through the window fast and effectively before it is closed.The major causes of strategic windows opening are:
New technology - this can rapidly make the key strengths of current market leaders obsolete.EXAMPLE: Ever Ready dominated the small battery market until Duracell used lithium to replace conventional zinc cells. They had longer operating lives and Ever Ready's market share collapsed.
New segments - this offers a window to new players if the current competitors are not alert to its significance.EXAMPLE: British motorcycle industry was destroyed by its failure to identify and capitalise on the emergence of a leisure segment. The rapid growth of the leisure market in the more affluent western countries provided a strategic window for Honda that it exploited to achieve industry dominance.
New channels of distribution - the sudden emergence of new channels can create strategic windows.EXAMPLE: Dell led in the computer market in the 1990s by pioneering direct sales over the Internet and telephone. This allowed it to undercut IBM and Compaq, which employed conventional high-cost retail channels, and to add value by customising products to individual requirements.
Market redefinition - nature of demand sometimes changes from buying products to buying service systems.EXAMPLE: Docutel dominated the market for ATMs. Then banks began to look to integrate electronic funds transfer systems. Opened the window to the computer companies such as IBM which could offer a total package. Docutel was ousted from the market because it lacked new system capabilities.
New legislation - Laws, regulations, privatisations and international agreements present strategic windows.EXAMPLE: The break-up of government monopolies in telecommunications has opened up longprotected markets to fierce new competition.
Environmental shocks - Sudden, unpredicted changes in commodity prices, currency alignments, interest rates or political events can produce dramatic changes in market positions.EXAMPLE: The attacks in the US on 11 September 2001 caused a number of shocks to the world economic system and to the travel industry in particular which are still being felt after five years.
Components of StrategyA well-defined strategy will include decisions about the following:Scope of the business - Scope refers to the choice of products that the firm will produce, the markets it will serve, and the level of vertical integration it will pursue.Objectives - identify the firm's primary stakeholders, establish performance criteria and define what levels of attainment the firm will seek on these criteria. ?
Strategic business unit identification - Management needs to structure the organisation into identifiable business units with managers clearly accountable and responsible for their performance.Resource allocation - A central strategic task is to allocate the resources of the firm among the business units and then among product-markets, functional departments and activities within each business.Developing sustainable differential advantage - Most important strategic objective is to achieve a sustainable competitive advantage that makes the business the preferred choice for a significant number of customers.Effective functional strategies - Competitive strategy needs to be implemented by efficient and effective policies. Include policies for manufacturing, positioning, product line, pricing, promotion and distribution.Synergy -Resources and capabilities that compliment and reinforce one another. Unless such synergies are identified and exploited, a business unit will have no advantage over small firms.
Corporate StrategyCompanies differ in the extent to which they develop strategic plans centrally. Goold et al (1994) identified three styles:Strategic planning -headquarter teams which undertake detailed planning. Centre develops strategies to build long-run competitive advantage, to make individual businesses grow, and identify and develop synergies. Have matrix structures, with centralised product managers responsible for developing global strategies.?
EXAMPLE: IBM, Cadbury-Schweppes, Unilever and Electrolux.
Financial control - the centre is small and does not get involved in the strategies of its business units. Instead headquarters sets stretching and tightly controlled profit and cash requirements for each of its businesses,
which it runs like a holding company. Managers are held personally accountable for achieving the targets.?
EXAMPLE: Hanson Trust, BTR and GEC.
Strategic control - primary responsibility for strategic planning is assigned to operating unit, the centre takes a view as to the long-term balance. Short-term constraints may be relaxed if the unit's longer-run opportunities look good. The centre will evaluate the strategies of the businesses and withhold resources if unconvinced.No one style holds clear superiority over another as they are beneficial in different circumstances.
Strategic planning is highly effective when focusing on creating a sustainable competitive advantage.
Financial control may be superior in stimulation personal effort and accountability.
A strong strategically-oriented centre facilitates long-run growth, whereas financial control pushes ongoing results. In the short run, the latter will often be less risky and produce superior profits.
The appropriate style will also depend upon the type of industry.EXAMPLE: In dynamic, resource-intensive industries such as electronics and pharmaceuticals, a focus on tight financial controls would quickly kill the business. But in mature industries, a priority for generating cash can provide the resources for a long-run acquisition-led growth strategy.
Corporate MissionThe mission statement seeks to describe the purpose of the business and its essential character. A mission statement has four functions:1.
To motivate employees by providing them with an external goal worth striving for.
2. Provide a shared sense of purpose to the people working in widely separated business unites.
3. Give a sense of direction by identifying those markets/technologies where management sees opportunities.
4. Identifies major policies that define how the business should treat all stakeholders.
There are four components of the mission statement.
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