Yes, when other airlines copied American Airlines' frequent flier program, they engaged in the prisoner's dilemma. While cooperating by all offering frequent flier programs benefits customers and the airlines, any individual airline would benefit more by not offering the program (finking) if other airlines do offer them. This is because an airline that doesn't offer the program would avoid the costs but still gain customers due to the programs of other airlines. However, if all airlines chose not to offer the programs, all would be worse off. So in not cooperating (offering the program), each airline risks an outcome that is worse for all involved.

1. Marketing: Managing Profitable
Customer Relationships

2. Market & Product
 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.
 Product (Marketing Offer): physical product,
service, information, experience, person,
place, organization, and ideas.

3. Examples of Product

4. Definition of Marketing
 Marketing is the process of planning and
executing the conceptions, pricing, promotion
and distribution of ideas, goods, and services
to create exchanges that satisfy individual
and organizational goals. (AMA)
 Marketing is meeting needs profitably.

5. Marketing Philosophy
 The Production Concept
 The Product Concept
 The Selling Concept
--------------------------------------------------------
 The Marketing Concept
 The Customer Concept
 The Societal Marketing Concept

6. The Production Concept
 Consumers will prefer products that are
widely available and inexpensive.
 Focus: achieving high production efficiency,
low costs, and mass distribution.
 It is useful when (1) the demand for a product
exceeds the supply; (2) the product’s cost is
too high.
 Examples: Standard Raw Materials and
Components, CD, LCD.

7. The Product Concept
 Consumers will favor those products that
offer the most quality, performance, or
innovative features.
 Focus: making superior products and
improving them over time.
 Examples: Digital Camera, CPU.
 Better Mousetrap Fallacy
 Marketing Myopia. (Theodoes Levitt, 1965)

8. The Selling Concept
 Consumers and businesses, if left alone, will
ordinarily not buy enough of organization’s
products.
 Focus: undertake an aggressive selling and
promotion effort.
 Examples: unsought goods: encyclopedias,
funeral plots, foundations.

9. The Marketing Concept
 The key to achieving its organizational goals
consists of the company being more effective than
competitors in creating, delivering, and
communicating superior customer value to its
chosen target markets.
 Slogans: 麥當勞都是為您, 以客為尊, 顧客永遠是對
的, We do it all for you (Toyota).
 Four pillars: target market, customer needs,
integrated marketing and profitability.

10. Figure 1.3: Contrasts Between the Sales Concept and
the Marketing Concept

11. The Customer Concept

12. The Societal Marketing
Concept
 The organization’s task is to determine the needs,
wants, and interests of target markets and to deliver
the desired satisfactions more effectively and
efficiently than competitors in a way that preserves
or enhances the consumer’s and society’s well-
being.
 Examples: Body Shop; HSBC; Johnson &
Johnson’s Tylenol; 保力達蠻牛.

13. Needs, Wants and Demands
 Needs (需要): the basic human requirements.
 Physical: food, clothing, shelter, safety
 Social: belonging, affection
 Individual: learning, knowledge, self-expression
 Wants (慾望): when needs are directed to
specific objects that might satisfy the need.
 Demands (需求): wants for specific products
backed by an ability to pay.

14. Demand States and Marketing
Tasks
 Marketing managers are responsible for
demand management.
 Negative Demand → Counter Marketing, e.g.
insurance.
 No Demand → Stimulus, e.g. encyclopedias.
 Latent Demand → Developing, e.g. iPod; 柴汽兩
用汽車; 克寧銀養奶粉.
 Declining Demand → Remarketing, e.g. Arm &
Hammer’s baking soda → deodorizer; school.

15. Demand States and Marketing
Tasks
 Marketing managers are responsible for
demand management.
 Irregular Demand → Synchromarketing (同步行
銷), e.g. ice cream; museum.
 Full Demand → Maintain Marketing
 Overfull Demand → Demarketing (低行銷), e.g.
Mister Donut; 黑師傅捲心酥.
 Unwholesome Demand → Social Marketing, e.g.
cigarettes; drunk-driving.

16. Customer Relationship
Management (CRM)
 The overall process of building and
maintaining profitable customer relationships
by delivering superior customer value and
satisfaction.
 On average, it costs 5 to 10 times as much to
attract a new customer as it does to keep a
current customer satisfied. (Sears – 12 times)

17. Customer Perceived Value
 The difference between total customer value
and total customer cost.
 Value chain, e.g. Wal-Mart.
 Value-delivery network, e.g. Honda.

18. Customer Lifetime Value and
Equity
 Customer lifetime value: the value of the
entire stream of purchases that the customer
would make over a lifetime of patronage.
 Lexus: $600,000; Taco Bell: $12,000;
Supermarket: $50,000.
 Customer equity: the total combined
customer lifetime values of all of the
company’s customers.
 Cadillac vs. BMW

19. Selective Relationship
Management
 Weed out losing customers and target
winning ones for pampering.
 Examples: Citibank; First Chicago Bank;
Fidelity Investment.
 Risk: future profits are hard to predict.

20. Customer Relationship Groups
Profitability
Projected loyalty
High
Low
Long-term
customers
Short-term
customers
Good fit between
company’s offerings and
customer’s needs; high
profit potential
Limited fit between
company’s offerings and
customer’s needs; low
profit potential
Little fit between company’s
offerings and customer’s
needs; lowest profit
potential
Good fit between
company’s offerings and
customer’s needs; highest
profit potential
Strangers
Butterflies True Friends
Barnacles

21. Share of Customer
 The portion of the customer’s purchasing in
its product categories that a company gets.
 Methods to increase share of customer
 Offer greater variety to current consumers
 Train employees to cross-sell and up-sell in order
to market more products and services to existing
customers.
 Amazon: books, music, videos, gifts, toys,
consumer electronics, office products, and so
on.

22. Customer Satisfaction
 The extent to which a product’s perceived
performance matches a buyer’s expectation.
 Smart companies aim to delight customers by
promising only what they can deliver, then
delivering more than they promise.
 Examples: Lexus; Southwest Airlines;
Seasons Hotels; Nordstrom department store.

23. Satisfying Customer Complaints
 Rate of dissatisfaction: 25%; rate of
complaint in dissatisfaction: 5%.
 50% of complaints report a satisfactory
problem resolution.
 Examples: Williams-Sonoma; Enterprise
Rent-A-Car.
 On average, satisfied →3 people, and
dissatisfied → 11 people.

24. Satisfying Customer Complaints
 Rate of complainant repurchase
Resolved Resolved
quickly
Major
complaints
34% 52%
Minor
complaints
52% 95%

25. Customer Relationship Levels
and Tools
 Level of relationship: basic＜ reactive (e.g.
P&G)＜accountable＜proactive＜partnership
(e.g. Boeing).
 Tools:
 Add financial benefits, ex. frequent-flier program.
 Add social benefits, ex. club marketing program.
 Add structural ties, ex. McKesson; FedEx.

26. In 1981, American Airlines first
introduced the AADVANTAGE
frequent-flier program. When other
airlines copied this strategy, did they
engage in the prisoner’s dilemma?

27. Prisoner’s Dilemma
Player 1 ╲ Player 2
Cooperate Fink
Cooperate 2, 2 3, -3
Fink -3, 3 -2, -2