Module

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CHAPTER ONE
MARKETING: CREATING AND CAPTURING CUSTOMER VALUE
1.1. Introduction
In broader sense, marketing is applied in every aspect of life regarding the activities
performed by individuals and groups; profit oriented, and non-profit organizations. Thus, this
chapter is an introductory part of the basic concepts of marketing. The term marketing can
be defined from different perspectives. Many people think it means the same as personal
selling. Others think marketing is the same as personal selling and advertising. Still others
believe marketing has something to do with marketing products available in stores, arranging
displays, and maintaining inventories of products for future sales.
Actually, marketing includes all of these activities and more. Marketing has two facets. First,
it is a philosophy, an attitude, a perspective, or a management orientation that stresses
customer satisfaction. Second, marketing is a set of activities used to implement this
philosophy.
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.
Although we will explore more detailed definitions of marketing later in this chapter, perhaps
the simplest definition is this one: 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.
Many people think that only large companies operating in highly developed economies use
marketing, but some marketing is critical to the success of every organization, whether large
or small, domestic or global. In the business sector, marketing first spread most rapidly in
consumer packaged-goods companies, consumer durables companies and industrial
equipment companies. Within the past few decades, however, consumer service firms,
especially airline, insurance and financial services companies, have also adopted modern
marketing practices.
Business groups such as lawyers, accountants, physicians and architects, too, have begun to
take an interest in marketing, to advertise, and to price their services aggressively. Marketing
has also become a vital component in the strategies of many nonprofit organizations, such as
schools, charities, hospitals, museums, performing arts groups and even police departments.
Today, marketing is practiced widely all over the world.

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1.2. Marketing Defined
What does the term marketing mean? Marketing must be understood not in the old sense of
making a sale - 'selling' - but in the new sense of satisfying customer needs. Many people think
of marketing only as selling and advertising. And no wonder, for every day we are bombarded
with television commercials, newspaper ads, direct mail and sales calls. Someone is always
trying to sell us something. It seems that we cannot escape death, taxes or selling!
Therefore, you may be surprised to learn that selling and advertising are only the tip of the
marketing iceberg. Although they are important, they are only two of many marketing functions,
and often not the most important ones. If the marketer does a good job of identifying customer
needs, develops products that provide superior value, distributes and promotes them effectively,
these goods will sell very easily.
We define marketing 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:'' To explain this definition, we examine the following important terms: needs, wants and
demands, products; value and satisfaction; exchange, transactions and relationships; and
markets.
a) Needs, Wants and Demands
 Needs- the most basic concept underlying marketing is that of human needs. A human
need is a state of felt deprivation. Humans have many complex needs. These include
basic physical needs for food, clothing, warmth and safety; social needs for belonging
and affection; and individual needs for knowledge and self-expression. Marketers do not
invent these needs; they are a basic part of the human make-up.
When a need is not satisfied, a person will do one of two things:
1. look for an object that will satisfy it; or
2. try to reduce the need.

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People in industrial societies may try to find or develop objects that will satisfy their
desires. People in less developed societies may try to reduce their desires and satisfy
them with what is available.
 Wants- human wants are the form taken by human needs as they are shaped by culture
and individual personality. A hungry person in Bahrain may want a mango chutney and
lassi. A hungry person in Ethiopia may want ‘injera’. Wants are described in terms of
objects that will satisfy needs. As a society evolves, the wants of its members expand. As
people are exposed to more objects that arouse their interest and desire, producers try to
provide more want-satisfying products and services.
People have few, basic needs (e.g. for food or shelter), but almost unlimited wants.
However, they also have limited resources. Thus, they want to choose products that
provide the most satisfaction for their money.
 Demands-when backed by an ability to pay, that is buying power, wants become
demands. Consumers view products as bundles of benefits and choose products that give
them the best bundle for their money. Given their wants and resources, people demand
products with the benefits that add up to the most satisfaction.
Outstanding marketing companies go to great lengths to learn about and understand their
customers' needs, wants and demands. They conduct consumer research, focus groups
and customer clinics. They analyze customer complaint, inquiry, and warranty and
service data. They train salespeople to be on the lookout for unfulfilled customer needs.
They observe customers using their own and competing products, and interview them in
depth about their likes and dislikes. Understanding customer needs, wants and demands
in detail provides important input for designing marketing strategies.
b) Products and Services
People satisfy their needs and wants with products. A product is anything that can be offered to a
market to satisfy a need or want. Usually, the word product suggests a physical object, such as a
car, a television set or a bar of soap. However, the concept of product is not limited to physical

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objects - anything capable of satisfying a need can be called a product. In addition to tangible
goods, products include services, which are activities or benefits offered for sale that are
essentially intangible and do not result in the ownership of anything. Examples are banking,
airline, hotel and household appliance repair services. Broadly defined, products also include
other entities such as persons, places, organizations, activities and ideas. Consumers decide
which entertainers to watch on television, which political party to vote for, which places to visit
on holiday, which organizations to support through contributions and which ideas to adopt. Thus,
the term product covers physical goods, services and a variety of other vehicles that can satisfy
consumers' needs and wants. If at times the term product does not seem to fit, we could
substitute other terms such as satisfier, resource or offer.
Many sellers make the mistake of paying more attention to the physical products they offer than
to the benefits produced by these products. They see themselves as selling a product rather than
providing a solution to a need. The importance of physical goods lies not so much in owning
them as in the benefits they provide. We do not buy food to look at, but because it satisfies our
hunger. We do not buy a microwave to admire, but because it cooks our food. A manufacturer of
drill bits may think that the customer needs a drill bit, but what the customer really needs is a
hole. These sellers may suffer from 'marketing myopia’. They are so taken with their products
that they focus only on existing wants and lose sight of underlying customer needs. They forget
that a physical product is only a tool to solve a consumer problem. These sellers have trouble if a
new product comes along that serves the need better or less expensively.
c) Value, Satisfaction and Quality
Consumers usually face a broad array of products and services that might satisfy a given need.
How do they choose among these many products? Consumers make buying choices based on
their perceptions of the value that various products and services deliver. The guiding concept is
customer value. Customer value is the difference between the values the customer gains from
owning and using a product and the costs of obtaining the product. Customers often do not judge
product values and costs accurately or objectively.

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They act on perceived value. Customer satisfaction depends on –a product's perceived
performance in delivering value relative to a buyer's expectations. If the product's performance
falls short of the customer’s expectations, the buyer is dissatisfied. If performance matches
expectations, the buyer is satisfied. If performance exceeds expectations, the buyer is delighted.
Outstanding marketing companies go out of their way to keep their customers satisfied. Satisfied
customers make repeat purchases, and they tell others about their good experiences with the
product. The key is to match customer expectations with company performance.
Smart companies aim to delight customers by promising only what they can deliver, then
delivering more than they do promise. Customer satisfaction is closely linked to quality. In
recent years, many companies have adopted total quality management (TQM) programmes,
designed constantly to improve the quality of their products, services and marketing processes.
Quality has a direct impact on product performance, and hence on customer satisfaction. In the
narrowest sense, quality can be defined as 'freedom from defects'. But most customer-centered
companies go beyond this narrow definition of quality. Instead, they define quality in terms of
customer satisfaction.
For example, Motorola, a company that pioneered total quality efforts in the United States,
stresses that 'Quality has to do something for the customer ... Our definition of a defect is "if the
customer doesn't like it, it's a defect".' Customer-focused definitions of quality suggest that a
company has achieved total quality only when its products or services meet or exceed customer
expectations. Thus, the fundamental aim of today's total quality movement has become total
customer satisfaction. Quality begins with customer needs and ends with customer satisfaction.
d) Exchange, Transactions and Relationships
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 something in return. Exchange is
only one of many ways people can obtain a desired object. For example, hungry people can find
food by hunting, fishing or gathering fruit. They could beg for food or take food from someone
else. Finally, they could offer money, another good or a service in return for food.

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As a means of satisfying needs, exchange has much in its favor. People do not have to prey on
others or depend on donations. Nor must they possess the skills to produce every necessity for
themselves. They can concentrate on making things they are good at making and trade them for
needed items made by others. Thus, exchange allows a society to produce much more than it
would with any alternative system.
Exchange is the core concept of marketing. For an exchange to take place, several conditions
must be satisfied. Of course, at least two parties must participate and each must have something
of value to offer the other. Each party must also want to deal with the other party and each must
be free to accept or reject the other's offer. Finally, each party must be able to communicate and
deliver. These conditions simply make exchange possible. Whether exchange actually takes
place depends on the parties coming to an agreement. If they agree, we must conclude that the
act of exchange has left both of them better off or, at least, not worse off.
Whereas exchange is the core concept of marketing, a transaction, in turn, is marketing’s unit of
measurement. A transaction consists of a ride of values between two parties: one party gives X
to another party and gets Y in return.
Marketing consists of actions taken to build and maintain desirable exchange relationships with
target audiences involving a product, service, idea, or other object. Beyond simply attracting new
customers and creating transactions, the goal is to retain customers and grow their business with
the company. Marketers want to build strong economic and social connections by promising and
consistently delivering superior value.
e) Markets
The concepts of exchange and relationships lead to the concept of market. A market is the set of
actual and potential buyers of a product. These buyers share a particular need or want that can be
satisfied through exchange relationships. The size of a market depends on the number of people
who exhibit the need, have resources to engage in exchange, and are willing to exchange these
resources for what they want. Originally the term market stood for the place where buyers and
sellers gathered to exchange their goods, such as a village square. Economists use the term
market to refer to a collection of buyers and sellers who transact in a particular product class, as
in the housing market or the grain market. Marketers, however, see the sellers as constituting an
industry and the buyers as constituting a market.

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1.3. Marketing Management/ Demand Management
Some people think of marketing management as finding enough customers for the company’s
current output. But this view is too limited. Marketing management must find ways to deal with
these different demand states. Hence, marketing management has the task of influencing the
level, timing, and composition of demand in a way that will help the organization achieve its
objectives by doing the activities involved in marketing properly. Below, we shall describe the
eight different states of demand a marketer may encounter in the market and the corresponding
strategies to be followed.
1. Negative demand- is a state of demand where consumers dislike the product and may even
pay a price to avoid it.
For example, in our country some years ago in the early 1990‘s E.C., as we know there was a
new product named K-50 (which was produced by one of Ethiopian Sugar Factory and later
associated with the then term―findata in the gasoline market) in our country ‘s gasoline market
made from Molasses. Due to its inflammable characteristic, the product was disliked by
customers as it brought a number of life accidents and in some cases there were even some
programs transmitted by mass media against this product. Hence, the producers are left with no
chance but to avoid the product from the market.
The marketing task, in such market situation, is to analyze why the market dislikes the product
and then try to change the attitude of customers. The marketing task for this type of state of
demand is called conversional marketing
2. Nonexistent demand–is a state of demand where consumers may be unaware or uninterested in
the product. For example, some years ago in our country Ethiopia farmers were not accustomed to
use fertilizers and other important inputs as they did not know the potential benefit. Nor were
they interested in a new farming method. Hence, the demand for such products was
insignificant. But, after a long time effort by the concerned bodies, now a days, they are
becoming aware of the benefits of these things and thus, are demanding more of these products
than they did before.
The marketing task must be to find ways to connect the benefits of the product with the
person's natural needs and interests. This kind of marketing is called simulative marketing as it
involves stimulating customers to buy the product.
3. Latent demand - Consumers may share a strong need that cannot be satisfied by an existing
product. For example, before Sonny Company introduced Walkman radios and tape recorders,
there were no companies offering such a product even if major part of customers were
clamouring about that want. Before the emergence of mobile phone technology, major part of
the world customers in the industry felt the need of the product and waited so long until it came
into being. There is a strong latent demand for harmless cigarettes, safer neighbourhoods, and

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more fuel-efficient cars.
The marketing task is to identify and measure the size of the potential market, examine the
profitability of the market and then develop effective products that would satisfy the demand
and this strategy is called developmental marketing as it is directed to developing a new
product that can satisfy the unfulfilled needs of customers.
4. Declining demand - Every organization, sooner or later, faces declining demand for one or
more of its products. The marketer must analyze the causes of market decline and determine
whether demand can be re-stimulated by finding new target markets, changing the products
features, or developing more effective communication. The marketing task is to reverse the
declining demand through creative remarking strategy of the product.
5. Irregular demand - Consumer purchases vary on a seasonal, monthly, weekly, daily, or even
hourly basis causing problems of idle or overworked capacity. For example, in cinema halls
much of the seats are idle during week days and may be insufficient during weekends. Museums
are under visited on weekdays and overcrowded on weekends. The marketing task for this type
of state of demand is synchro-marketing which calls to find ways to alter the pattern of demand
through flexible pricing, promotion, and other incentives.
6. Full demand - Consumers are adequately buying all products put into the marketplace.
Organizations face full demand when they are pleased with their volume of business. The
marketing task is to maintain the current level of demand in the face of changing consumer
preferences and increasing competition. The organization must maintain or improve its quality
and continually measure consumer satisfaction to make sure it is doing a good job through a
marketing task -called maintenance marketing.
7. Overfull demand – Some organizations face a demand level that is higher than they can or
want to handle. The marketing task, called demarketing, requires finding ways to reduce the
demand temporarily or permanently.
8. Unwholesome demand - Consumers may be attracted to products that have undesirable social
consequences. A typical example could be cigarette producers. The marketing task for this type
of state of demand is counter marketing

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1.4. Marketing Management Philosophies/Company Orientations
There are five alternative concepts under which organizations conduct their marketing activities:
the production, product, selling, marketing and societal marketing concepts.
The Production Concept
The production concept holds that consumers will favour products that are available and highly
affordable, and that management should therefore focus on improving production and
distribution efficiency. This concept is one of the oldest philosophies that guides sellers. The
production concept is a useful philosophy in two types of situation. The first occurs when the
demand for a product exceeds the supply. Here, management should look for ways to increase
production. The second situation occurs when the product's cost is too high and improved
productivity is needed to bring it down. For example, Henry Ford's whole philosophy was to
perfect the production of the Model T so that its cost could be reduced and more people could
afford it.
The Product Concept
Another important concept guiding sellers, the product concept, holds that consumers will favour
products that offer the most quality, performance and innovative features, and that an
organization should thus devote energy to making continuous product improvements. Some
manufacturers believe that if they can build a better mousetrap, the world will beat a path to their
door." But they are often rudely shocked. Buyers may well be looking for a better solution to a
mouse problem, but not necessarily for a better mousetrap. The solution might be a chemical
spray, an exterminating service or something that works better than a mousetrap. Furthermore, a
better mousetrap will not sell unless the manufacturer designs, packages and prices it
attractively; places it in convenient distribution channels; and brings it to the attention of people
who need it and convinces them that it is a better product.

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A product orientation leads to obsession with technology because managers believe that
technical superiority is the key to business success. The product concept also can lead to
'marketing myopia'. For instance, railway management once thought that users wanted trains
rather than transportation and overlooked the growing challenge of airlines, buses, trucks and
cars. Building bigger and better trains would not satisfy consumers' demand for transportation,
but creating other forms of transportation and extending choice would.
The Selling Concept
Many organizations follow the selling concept, which holds that consumers will not buy enough
of the organization's products unless it undertakes a large-scale selling and promotion effort. The
concept is typically practiced with unsought goods - those that buyers do not normally think of
buying, such as encyclopedias and funeral plots. These industries must be good at tracking down
prospects and convincing them of product benefits.
The selling concept is also practiced in the non-profit area. A political party, for example, will
vigorously sell its candidate to voters as a fantastic person for the job. The candidate works hard
at selling him or herself - shaking hands, kissing babies, meeting donors and making speeches.
Much money also has to be spent on radio and television advertising, posters and mailings.
The selling and marketing concepts contrasted

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Most firms practice the selling concept when they have overcapacity. Their aim is to sell what
they make rather than make what the market wants. Thus marketing based on hard selling carries
high risks. It focuses on short-term results -creating sales transactions - rather than on building
long-term, profitable relationships with customers. It assumes that customers who are coaxed
into buying the product will like it. Or, if they don't like it, they may forget their disappointment
and buy it again later. These are usually poor assumptions to make about buyers. Most studies
show that dissatisfied customers do not buy again. Worse yet, while the average satisfied
customer tells three others about good experiences, the average dissatisfied customer tells ten
others his or her bad experiences.
The Marketing Concept
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 do. Surprisingly, this concept is a relatively recent business
philosophy. The selling concept and the marketing concept are frequently confused. The above
figure compares the two concepts. The selling concept takes an inside- out perspective. It starts
with the factory, focuses on the company's existing products and calls for heavy selling and
promotion to obtain profitable sales. It focuses on customer conquest - getting short-term sales
with little concern about who buys or why.
In contrast, the marketing concept takes an outside-in perspective. It starts with a well-defined
market, focuses on customer needs, co-ordinates all the marketing activities affecting customers
and makes profits by creating long-term customer relationships based on customer value and
satisfaction. Under marketing concept, companies produce what consumers want, thereby
satisfying consumers and making profits.
However, the marketing concept does not mean that a company should try to give all consumers
everything they want. Marketers must balance creating more value for customers against making
profits for the company: As one marketing expert notes, 'The purpose of marketing is not to
maximize customer satisfaction.

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The shortest definition of marketing I know is "meeting needs profitably". The purpose of
marketing is to generate customer value [at a profit]. The truth is [that the relationship with a
customer] will break up if value evaporates. You've got to continue to generate more value for
the consumer but not give away the house. It's a very delicate balance.'
Societal Marketing Concept
Such concerns and conflicts led to the societal marketing concept. The societal marketing
concept calls upon marketers to balance three considerations in setting their marketing policies:
company profits, consumer wants and society's interests. Originally, most companies based their
marketing decisions largely on short-run company profit. Eventually, they began to recognize the
long-run importance of satisfying consumer wants, and the marketing concept emerged. Now
many companies are beginning to think of society's interests when making their marketing
decisions. In addition, the company supports many community and employee programmes that
benefit its consumers and workers, and the environment.