Solution Manual for Principles of Marketing, 18th Edition

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Principles of Marketing
Eighteenth Edition
Philip Kotler
Gary Armstrong
olution Manual
Revised by Christy AshleySOLUTION MANUAL

Chapter 1
MARKETING: CREATING CUSTOMER VALUE AND
ENGAGEMENT
MARKETING STARTER: CHAPTER 1
AMAZON: Obsessed with Creating Customer Value, Engagement, and
Relationships
Synopsis
Amazon, which was founded in 1995 as a book store, has experienced explosive growth by moving beyond online
selling to physical stores, video and music streaming, cloud services, and the Internet of Things, which allowed it to
grow revenue to $233 billion. Its CEO, Jeff Bezos, said that Amazon’s success is due to its obsession with
customers. It is driven to create genuine value and special experiences for customers. Selection, convenience, and
value are the foundation stones of the Amazon experience, and Amazon has introduced innovations that make
shopping easier (e.g. 1-Click ordering; Alexa; fast delivery; Amazon Key).
Discussion Objective
An active 10-minute discussion of the Amazon story will help link students to key foundational marketing concepts.
Amazon provides an excellent vehicle for introducing the overall marketing framework presented in Chapter 1 and
throughout the text: Good marketing is all about creating value for customers and building strong customer
relationships in order to capture value from customers in return.
Starting the Discussion
To start the discussion, ask the class to share their experiences with Amazon. What attracts them to Amazon? What
is it about the customer experience that is so enticing?
Next, pull up Amazon’s Facebook page. Click on articles and links to further explore. Together, note the variety of
approaches Amazon takes and the focus on customers. Investigate Amazon’s other media, including the company’s
website, Twitter, Snapchat, and YouTube. In what ways does Amazon’s focus on customer service show through?
You should be familiar with these websites in advance so that you can move purposefully to keep the discussion
moving. But let the class discussion interactively guide the sites that you explore, taking you deeper into each page.
Start with the first question below, and then ask other questions as the discussion allows. Throughout the discussion,
keep your objective firmly in mind: to emphasize that good marketing is all about creating value for customers and
managing customer relationships in order to capture value from customers in return. The final question leads the
class into Chapter 1 and the discussion for the day. Have fun with this one!
Discussion Questions
1. The first marketing story in the text is about Amazon. Let’s go to Amazon’s Facebook page. What stands
out about Amazon? Go to Amazon’s other media channels to find examples of how Amazon connects the
company and the customers.
2. How does the Amazon shopping experience affect performance? The company has grown astronomically
in market share and strength of customer relationships, due largely to its customer satisfaction and
customer experience.
3. Why did the authors choose Amazonas the very first company to highlight in the first chapter of the text?
How does this opening story relate to the major points made in the rest of the chapter? (This question
should lead naturally into major Chapter 1 concepts: What is marketing and what is the marketing process?
What is customer-driven marketing? Why are customer value, customer satisfaction, and customer
relationships so important?)

CHAPTER OVERVIEW
Use Power Point Slide 1 Here
In this chapter, we introduce the basic concepts of marketing. It starts with the question, “What is
marketing?” Simply put, marketing is managing profitable customer relationships. The aim of
marketing is to create value for customers and to capture value from customers in return. Next,
the five steps in the marketing process are discussed—from understanding customer needs, to
designing customer-driven marketing strategies and integrated marketing programs, to building
customer relationships and capturing value for the firm. Finally, there is a discussion of the
major trends and forces affecting marketing in this age of customer relationships.
CHAPTER OBJECTIVES
Use Power Point Slide 1-2 here
1. Define marketing and outline the steps in the marketing process.
2. Explain the importance of understanding the marketplace and customers and identify the
five core marketplace concepts.
3. Identify the key elements of a customer value–driven marketing strategy and discuss the
marketing management orientations that guide marketing strategy.
4. Discuss customer relationship management and identify strategies for creating value for
customers and capturing value from customers in return.
5. Describe the major trends and forces that are changing the marketing landscape in this
age of relationships.
CHAPTER OUTLINE
p. 2 INTRODUCTION
PPT 1-3 Opening Vignette Questions
1. The first marketing story in the text is about
Amazon. What stands out about Amazon?
2. How does the Amazon shopping experience affect
performance?
3. Why did the authors choose Amazon as the very
first company to highlight in the first chapter of the
text? How does this opening story relate to the major
points made in the rest of the chapter?
p. 3
Photo: Amazon

PPT 1-4
PPT 1-5
p. 4
p. 5
Define marketing and outline the steps in the marketing
process.
WHAT IS MARKETING?
A simple definition of marketing is engaging customers and
managing profitable customer relationships.
Marketing must both attract new customers and grow
current customers.
Every organization must perform marketing functions, not
only for-profit companies.
Nonprofits (colleges, hospitals, churches, etc.) also must
perform marketing.
Marketing Defined
Most people think of marketing only as selling and
advertising or “telling and selling.”
Marketing must focus on satisfying customer needs.
We define marketing as the process by which companies
engage customers, build strong customer relationships, and
create customer value in order to capture value from
customers in return.
Learning Objective
1
p. 4
Key Term:
Marketing
p. 6
Photo: Social
media marketing on
mobile devices
 Troubleshooting Tip
For most students, this will be their first introduction
to marketing and all its ramifications. To most of
them, marketing is nothing more than selling and/or
advertising, and this gets reinforced daily when they
see “marketing” job ads that are really sales
positions. It helps to get students talking about what
marketing is, and to give examples of what they
consider good marketing. Try to bring in
contemporary examples that the students can relate
to.
p. 6
PPT 1-7
The Marketing Process
Figure 1.1 shows the five-step marketing process.
1. Understand the marketplace and customer needs and
wants.
2. Design a customer value-driven marketing strategy.
3. Construct an integrated marketing program that
delivers superior value.
p. 6
Figure 1.1: The
Marketing Process:
Creating and
Capturing
Customer Value

4. Engage customers, build profitable relationships,
and create customer delight.
5. Capture value from customers to create profits and
customer equity.
In the first four steps, companies work to understand
consumers, create customer value, and build strong
customer relationships.
In the final step, companies reap the rewards of creating
superior customer value. By creating value for consumers,
they in turn capture value from consumers in the form of
sales, profits, and long-term customer equity.
Review Learning Objective 1: Define marketing and
outline the steps in the marketing process.
p. 6
PPT 1-8
PPT 1-9
Explain the importance of understanding the
marketplace and customers and identify the five core
marketplace concepts.
UNDERSTANDING THE MARKETPLACE AND
CUSTOMER NEEDS
Five core customer and marketplace concepts are critical:
(1) needs, wants, and demands; (2) market offerings
(products, services, and experiences); (3) value and
satisfaction; (4) exchanges and relationships; and (5)
markets.
Customer Needs, Wants, and Demands
As the first step in the marketing process, the company must
fully understand consumers and the marketplace in which it
operates.
The most basic concept underlying marketing is that of
human needs.
Human needs are states of felt deprivation. They include
physical, social, and individual needs. These needs were not
created by marketers; they are a basic part of the human
makeup.
Wants are the form human needs take as they are shaped by
culture and individual personality. A typical American
needs food but wants a Big Mac.
Learning Objective
2
p. 6
Key Terms: Needs,
Wants, Demands
p. 7
Photo: Airbnb

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When backed by buying power, wants become demands.
The best marketing companies go to great lengths to learn
and understand their customers’ needs, wants, and demands.
p. 7
PPT 1-10
Market Offerings—Products, Services, and Experiences
Needs and wants are fulfilled through market offerings—
some combination of products, services, information, or
experiences offered to a market to satisfy a need or want.
Market offerings include products and services—activities
or benefits offered for sale that are essentially intangible
and do not result in the ownership of anything.
Marketing myopia occurs when a company becomes so
taken with their own products that they lose sight of
underlying customer needs.
p. 7
Key Term: Market
offerings
p. 7
Key Term:
Marketing myopia
p. 7
Photo:
Apple Store
p. 8
Real Marketing 1.1
p. 9
p. 9
PPT 1-11
Customer Value and Satisfaction
Customers form expectations about the value and
satisfaction that various market offerings will deliver and
buy accordingly.
Satisfied customers buy again and tell others about their
good experiences.
Dissatisfied customers switch to competitors and disparage
the product to others.
Customer value and customer satisfaction are key building
blocks for developing and managing customer relationships.
Exchanges and Relationships
Exchange is the act of obtaining a desired object from
someone by offering something in return.
Marketing consists of actions taken to build and maintain
desirable exchange relationships with target audiences.
p. 9
Key Term:
Exchange

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p. 9
PPT 1-12
PPT 1-13
Markets
A market is the set of actual and potential buyers of a
product.
Marketing means managing markets to bring about
profitable customer relationships.
Figure 1.2 shows the main elements in a modern marketing
system.
Review Learning Objective 2: Explain the importance of
understanding the marketplace and customers and identify
the five core marketplace concepts.
p. 9
Key Term: Market
p. 10
Figure 1.2: A
Modern Marketing
System
p. 10
PPT 1-14
PPT 1-15
Identify the key elements of a customer value-driven
marketing strategy and discuss the marketing
management orientations that guide marketing strategy.
DESIGNING A CUSTOMER VALUE-DRIVEN
MARKETING STRATEGY AND PLAN
Marketing management is defined as the art and science
of choosing target markets and building profitable
relationships with them.
The marketing manager must answer two important
questions:
1. What customers will we serve (what’s our target
market)?
2. How can we serve these customers best (what’s our
value proposition)?
Learning Objective
3
p. 10
Key Term:
Marketing
management
p. 10 Selecting Customers to Serve
A company must first decide whom it will serve.
It does this by dividing the market into segments of
customers (market segmentation) and selecting which
segments it will go after (target marketing).
Marketing managers know they cannot serve all customers.
By trying to do so, they end up not serving any well.
Marketing managers must decide which customers they
want to target, and on the level, timing, and nature of their
demand.
 Troubleshooting Tip

Loading page 8...

The concept of not serving all customers may be
confusing to students. Most of them have not yet
encountered anything like it. However, the light bulb
seems to go on with a discussion of crowded
national parks and the efforts made to have people
visit them during off-peak travel times. Having
students come up with their own examples will
increase the level of understanding.
p. 11
PPT 1-16
p. 11
PPT 1-17
Marketing management is customer management and
demand management.
Choosing a Value Proposition
A company’s value proposition is the set of benefits or
values it promises to deliver to consumers to satisfy their
needs. (BMW promises “the ultimate driving machine.”)
Such value propositions differentiate one brand from
another.
Marketing Management Orientations
Marketing management wants to design strategies that will
build profitable relationships with target consumers. But
what philosophy should guide these marketing strategies?
There are five alternative concepts under which
organizations design and carry out their marketing
strategies.
The Production Concept
The production concept holds that consumers will favor
products that are available and highly affordable.
Management should focus on improving production and
distribution efficiency.
The Product Concept
The product concept holds that consumers will favor
products that offer the most in quality, performance, and
innovative features.
Under this concept, marketing strategy focuses on making
p. 11
Photo:
Sonos
p. 11
Key Terms:
Production concept,
Product concept,
Selling concept

Loading page 9...

p. 11
PPT 1-16
continuous product improvements.
The Selling Concept
The selling concept holds that consumers will not buy
enough of the firm’s products unless the firm 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
insurance or blood donations.
These industries must be good at tracking down prospects
and selling them on product benefits.
The Marketing Concept
The marketing concept holds that achieving organizational
goals depends on knowing the needs and wants of target
markets and delivering the desired satisfactions better than
competitors.
Under the marketing concept, customer focus and value are
the paths to sales and profits.
Rather than a “make and sell” philosophy, it is a customer-
centered “sense and respond” philosophy.
The job is not to find the right customers for your product,
but to find the right products for your customers.
Customer-driven companies research current customers
deeply to learn about their desires, gather new product and
service ideas, and test proposed product improvements.
Customer-driven marketing requires understanding
customer needs even better than customers themselves do
and creating products and services that meet existing and
latent needs.
Designing a Customer Value-Driven Marketing Strategy
Figure 1.3 contrasts the selling concept and the marketing
concept. The selling concept takes an inside-out
perspective. It starts with the factory, focuses on the
p. 12
Key Term:
Marketing concept
p. 12
Figure 1.3: Selling
and Marketing
Concepts
Contrasted

Loading page 10...

p. 13
PPT 1-17
company’s existing products, and calls for heavy selling and
promotion to obtain profitable sales. It focuses primarily 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. The marketing concept starts with a well-
defined market, focuses on customer needs, and integrates
all the marketing activities that affect customers. In turn, it
yields profits by creating relationships with the right
customers based on customer value and satisfaction.
The Societal Marketing Concept
The societal marketing concept questions whether the pure
marketing concept overlooks possible conflicts between
consumer short-run wants and consumer long-run welfare.
The societal marketing concept holds that marketing
strategy should deliver value to customers in a way that
maintains or improves both the consumer’s and society’s
well-being.
As Figure 1.4 shows, companies should balance three
considerations in setting their marketing strategies:
company profits, consumer wants, and society’s interests.
p. 12
Key Term: Societal
marketing concept
p. 13
Figure 1.4: Three
Considerations
Underlying the
Societal Marketing
Concept
p. 13
Photo:
Jeni’s Splendid Ice
Creams
 Troubleshooting Tip
Societal marketing is also something that can be a
little unclear to students. Why should fast food
chains, for instance, be responsible for the nation’s
obesity (just one very topical discussion point)?
Understanding how one should balance the need for
profits with what some might consider “soft” issues
can be difficult at times. That can be even more
difficult among the politically astute students, as
they can easily lead the class into a left versus right
discussion on individual versus corporate versus
governmental responsibility. Try not to let that
happen by focusing on how companies can increase
revenues and profits by showing that they care about
customers and communities. Newman’s Own is a
potential brand to discuss because the company
donates most profits to charities and strives to ensure
a sustainable environment.
p. 14 PREPARING AN INTEGRATED MARKETING PLAN

Loading page 11...

PPT 1-20
AND PROGRAM
The company’s marketing strategy outlines which
customers the company will serve and how it will create
value for these customers.
Next, the marketer develops an integrated marketing
program that will deliver the intended value to target
customers.
The marketing program consists of the firm’s marketing
mix, the set of marketing tools the firm uses to implement
its marketing strategy.
The marketing mix tools are classified into the four Ps of
marketing: product, price, place, and promotion.
The firm blends these marketing mix tools into a
comprehensive integrated marketing program that
communicates and delivers the intended value to chosen
customers.
Review Learning Objective 3: Identify the key elements
of a customer value-driven marketing strategy and
discuss the marketing management orientations that
guide marketing strategy.
p. 14
PPT 1-21
PPT 1-22
Discuss customer relationship management and identify
strategies for creating value for customers and
capturing value from customers in return.
ENGAGING CUSTOMERS AND
MANAGINGCUSTOMER RELATIONSHIPS
Customer Relationship Management
Customer relationship management is perhaps the most
important concept of modern marketing.
Customer relationship management is the overall process
of building and maintaining profitable customer relation-
ships by delivering superior customer value and satisfaction.
It deals with all aspects of acquiring, keeping, and growing
customers.
Learning Objective
4
p.14
Photo:
Patek Phillippe
p. 15
Key Terms:
Customer
relationship
management,
Customer-
perceived value

Loading page 12...

p. 15
p. 16
Relationship Building Blocks: Customer Value and
Satisfaction
The key to building lasting customer relationships is to
create superior customer value and satisfaction.
Customer-perceived value is the customer’s evaluation of
the difference between all the benefits and all the costs of a
market offering relative to those of competing offers.
Customers often do not judge values and costs “accurately”
or “objectively.”
Instead, customers act on perceived value.
Customer satisfaction depends on the product’s perceived
performance relative to a buyer’s 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
delighted.
Although the customer-centered firm seeks to deliver high
customer satisfaction relative to competitors, it does not
attempt to maximize customer satisfaction.
A company can always increase customer satisfaction by
lowering its price or increasing its services. But this may
result in lower profits.
The purpose of marketing is to generate customer value
profitably.
Customer Relationship Levels and Tools
Companies can build customer relationships at many levels.
At one extreme, a company with many low-margin
customers may seek to develop basic relationships with
them.
At the other extreme, in markets with few customers and
high margins, sellers want to create full partnerships with
p. 15
Key Term:
Customer
satisfaction
p. 15
Photo: L.L.Bean
p. 16
Photo:
Uber Rewards

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customers.
Many companies offer frequency marketing programs that
reward customers who buy often or in large quantities.
p. 17
PPT 1-23
Customer Engagement and Today’s Digital and Social
Media
Yesterday’s big companies focused on mass marketing to
all customers at arm’s length.
Today’s companies are building deeper, more direct, and
more lasting relationships with carefully selected customers.
The new marketing is customer-engagement marketing,
fostering direct and continuous customer involvement in
shaping brand conversations, brand experiences, and brand
community. It involves using a rich mix of online, mobile,
and social media marketing that promotes engagement and
conversation.
Customer-engagement marketing goes beyond just selling a
brand to consumers. Its goal is to make the brand a
meaningful part of consumers’ conversations and lives.
The burgeoning internet and social media have given a huge
boost to customer-engagement marketing.
Today’s consumers are better informed, more connected,
and more empowered than ever before. Newly empowered
consumers have more information about brands, and they
have a wealth of digital platforms for airing and sharing
their brand views with others.
Customer brand advocacy is actions by which satisfied
customers initiate favorable interactions with others about a
brand.
The marketing world is now embracing customer-managed
relationships.
Companies can no longer rely on marketing by intrusion.
Companies must practice marketing by attraction—creating
market offerings and messages that involve consumers
p. 17
Key Terms:
Customer-
engagement
marketing,
Customer brand
advocacy
p. 17
Photo:
Bark Box

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p. 18
PPT 1-25
rather than interrupt them.
Consumer-generated marketing has become a significant
marketing force. Here, consumers themselves are playing a
bigger role in shaping their own brand experiences and
those of others.
As consumers become more connected and empowered, and
as the boom in digital and social media technologies
continues, consumer brand engagement, whether invited or
not, will be an important marketing force. Brands must
embrace this trend or risk being left behind.
p. 18
Key Term:
Consumer-
generated
marketing
p. 18
Photo:
Consumer-
generated
marketing
p. 18
PPT 1-26
Partner Relationship Management
Today’s marketers know they must work closely with others
inside and outside the company to jointly bring more value
to customers.
Today, firms are linking all departments in the cause of
creating customer value. In today’s connected world, every
functional area in the organization can interact with
customers.
Rather than assigning only sales and marketing people to
customers, firms are forming cross-functional customer
teams.
Marketing channels consist of distributors, retailers, and
others who connect the company to its buyers.
The supply chain describes a longer channel, stretching
from raw materials to components to final products that are
carried to final buyers.
Through supply chain management, many companies today
are strengthening their connections with partners all along
the supply chain.
p. 18
Key Term: Partner
relationship
management
p. 20 CAPTURING VALUE FROM CUSTOMERS
The first four steps in the marketing process involve
building customer relationships. The final step involves

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p. 20
PPT 1-27
capturing value in return.
By creating superior customer value, the firm creates highly
satisfied customers who stay loyal and buy more.
Creating Customer Loyalty and Retention
The aim of customer relationship management (CRM) is to
create both customer satisfaction and customer delight.
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.
Companies are realizing that losing a customer means
losing more than a single sale. It means losing customer
lifetime value.
p. 19
Photo: Stew
Leonard
p. 19
Key Term:
Customer lifetime
value
p. 20
PPT 1-28
PPT 1-29
Growing Share of Customer
S hare of customer is defined as the portion of the
customer’s purchasing that a company gets in its product
categories. Thus, banks want to increase “share of wallet.”
To increase share of customer, firms can offer greater
variety to current customers.
Or, they can create programs to cross-sell and up-sell to
market more products and services to existing customers.
Building Customer Equity
Companies want to not only create profitable customers, but
to “own” them for life, capture their customer lifetime
value, and earn a greater share of their purchases.
What Is Customer Equity?
Customer equity is the total combined customer lifetime
values of all of the company’s current and potential
customers.
Clearly, the more loyal the firm’s profitable customers, the
higher the firm’s customer equity.
p. 20
Key Term: Share of
customer
p. 20
Key Term:
Customer equity
p. 21
Photo: Cadillac

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