Topic 1.1 What is marketing? - Exchange and stakeholders

Summary

The transcript discusses the concept of value and exchange in marketing, emphasizing the importance of transactions and customer relationships. It contrasts one-time transactions, often linked to unethical behavior, with ongoing customer interactions, like those with Starbucks, which focus on long-term value. The idea of stakeholders is explored, highlighting that successful businesses prioritize not only shareholders but also customers, employees, suppliers, and the community. Ethical business practices, sustainable operations, and fostering healthy ecosystems are key to long-term success. The speaker also touches on the evolving nature of business theories and marketing strategies.

Takeaways

• 🔄 An exchange occurs only when a product or service is bought, not when it is made by oneself or stolen.
• 💵 A transaction is the unit of exchange, and repeat transactions are common in businesses like Starbucks, influencing customer relationships.
• ⚖️ One-off transactions, like in the used car market, can lead to unethical behavior due to a lack of ongoing customer relationships.
• 🧑‍🤝‍🧑 Lifetime customer value is crucial for businesses like Starbucks, where maintaining long-term relationships is more important than individual transactions.
• 🧠 Perceived value plays a major role in exchanges, as different people may value the same product differently based on their needs.
• 💼 Stakeholders in a business ecosystem include not only customers and shareholders but also employees, suppliers, governments, and communities.
• 📊 The concept of sustainability in business focuses on ensuring that all stakeholders benefit, or at least are not harmed, to maintain long-term operations.
• 🏢 Shareholders are a specific kind of stakeholder, but they are not the only ones that matter; a healthy relationship with all stakeholders is necessary for business success.
• 💡 Good businesses have always intuitively understood the importance of satisfying all stakeholders, even if it has only recently been given a formal name.
• 📚 The speaker notes that some ideas presented are personal interpretations, while others are based on widely accepted research, encouraging discussion and debate.

Q & A

What are the three ways to satisfy a need according to the speaker?

The three ways to satisfy a need are to make it yourself, steal it, or buy it. Marketing only applies when you buy it.

Why is a single transaction less likely to promote ethical behavior?

A single transaction is less likely to promote ethical behavior because there is no expectation of a future relationship. In such cases, the seller may prioritize immediate gain over long-term trust.

How does the concept of lifetime value impact businesses like Starbucks?

The concept of lifetime value impacts businesses like Starbucks by encouraging them to prioritize customer satisfaction in individual transactions, even if it means taking a loss. They do this because they expect the customer to return multiple times over several years, making the overall relationship profitable.

Why do businesses like used car sales often create perceptions of unethical behavior?

Used car sales often create perceptions of unethical behavior because they typically involve one-time transactions. Without the expectation of a future relationship, sellers may be incentivized to prioritize short-term profits over fairness, leading to distrust.

What role does perceived value play in exchanges?

Perceived value plays a crucial role in exchanges because different people may assign different values to the same product. This difference in perception makes win-win exchanges possible, where both parties feel they are benefiting from the transaction.

Why are long-term relationships important in modern marketing?

Long-term relationships are important in modern marketing because they foster trust and repeat business. Companies that focus on building customer relationships tend to prioritize customer satisfaction over short-term profits, which can result in greater long-term value.

What does the speaker mean by the term 'knowledge differential' in business transactions?

A 'knowledge differential' refers to situations where the seller knows more about the product (e.g., a used car) than the buyer. This can create an imbalance, leading to perceptions of unethical behavior if the seller uses this advantage to benefit themselves at the buyer’s expense.

How does the concept of stakeholders differ from shareholders in business?

Stakeholders include all parties affected by a company’s actions, such as employees, customers, suppliers, and the community. Shareholders, on the other hand, are those who have financial ownership in the company. While shareholders are a type of stakeholder, the stakeholder concept is broader.

Why does the speaker emphasize the importance of considering all stakeholders in business?

The speaker emphasizes the importance of considering all stakeholders because businesses that only focus on shareholders may ignore the needs of employees, customers, suppliers, or the environment, which can lead to long-term failure. A balanced approach benefits all stakeholders and leads to sustainable success.

What does the speaker suggest about the evolving nature of business theories and practices?

The speaker suggests that good business practices have always existed, but the terminology and focus evolve over time. Concepts like stakeholder management have been applied by smart businesses long before they were named or formalized, showing that businesses adapt to new ideas and societal expectations.

Outlines

00:00

🛍️ Understanding the Nature of Exchange and Commerce

This paragraph explores the concept of value, commerce, and exchange. It begins with the premise that to satisfy a need, one can make something, steal it, or buy it, but only buying results in an exchange, which is the foundation of commerce. The speaker explains that transactions are interconnected and often not isolated events. A transaction creates a relationship, especially in businesses like Starbucks, where customer satisfaction over time is crucial. In contrast, one-off transactions, such as buying a used car, often lead to perceptions of unethical behavior due to the lack of a continuing relationship. The speaker emphasizes that long-term relationships in businesses lead to ethical practices, as businesses benefit from ongoing exchanges with customers.

05:02

🧾 The Importance of Customer Relationships in Marketing

This paragraph dives into the significance of customer relationships in marketing. It contrasts the experience of repeat transactions, such as frequenting Starbucks, with one-off transactions like buying carpet or used cars. The example of the carpet business highlights that buyers only engage with carpet retailers infrequently, leading to tactics like 'going out of business' sales to attract attention during that small window. The speaker explains how customer relationships are more valuable in long-term businesses, as opposed to industries where single, one-off transactions prevail. Multiple conditions must be met for an exchange to occur, including value exchange, communication, and voluntary participation, stressing the need for ethics in commerce.

10:04

📊 The Stakeholder Ecosystem in Business

This paragraph introduces the concept of stakeholders in business and their importance to maintaining sustainable operations. Stakeholders include not only the buyer and seller but also employees, suppliers, governments, and communities. The speaker emphasizes that businesses must take care of all stakeholders to remain successful in the long run. In contrast to the traditional view that shareholders are the primary concern, the speaker argues that if employees are unhappy or suppliers aren't well-treated, the business ecosystem will fail, ultimately harming the shareholders too. The focus here is on balancing the needs of all parties involved in business operations for long-term success.

📈 Distinguishing Shareholders from Stakeholders

This paragraph further elaborates on the differences between shareholders and stakeholders. Shareholders hold ownership stakes in the company and have financial investments, while stakeholders represent a broader group that is affected by the company's operations. The speaker explains that traditional business models prioritized shareholders, but modern approaches recognize the importance of addressing the needs of all stakeholders, including customers, employees, and the community. Failure to consider all stakeholders can lead to business failure. The speaker shares their personal perspective on business and the importance of understanding people and their needs in marketing and business practices.

Keywords

💡Exchange

An exchange refers to the act of trading something of value between two or more parties. In the video, it is emphasized that exchanges are central to commerce, as they occur when a customer buys something, not when they make it themselves or steal it. This concept is fundamental to marketing and is influenced by past and future interactions with a business, such as the ongoing customer relationship with Starbucks.

💡Transaction

A transaction is a unit of exchange, representing a single occurrence where goods or services are traded. Transactions are interconnected, as a customer's experience with one transaction (e.g., at Starbucks) is influenced by past and future interactions. In cases of one-time transactions, like buying a used car, there is a higher chance of unethical behavior due to the absence of a long-term relationship.

💡Customer Relationship

Customer relationships refer to the ongoing interactions and connections between a business and its customers. The video highlights the importance of building long-term relationships, as seen with Starbucks, where a small loss in one transaction can be justified by the overall lifetime value of the customer. This contrasts with one-off transactions like in the used car market, where no future relationship is expected.

💡Lifetime Value

Lifetime value refers to the total value a customer brings to a business over the course of their relationship. For example, a Starbucks customer might make frequent purchases over several years, making it worthwhile for the business to prioritize maintaining the relationship, even at the cost of losing money on a single transaction. This concept emphasizes the importance of long-term thinking in business strategy.

💡Perceived Value

Perceived value is the worth that a customer assigns to a product, which may vary from person to person. In the video, it's illustrated by the example of someone valuing an ice cream cone differently based on their circumstances, like having a lot of money but no ice cream. The perception of value drives the exchange process and helps create win-win transactions where both parties are satisfied.

💡Stakeholders

Stakeholders are individuals or groups that have an interest in or are affected by a company’s actions. The video broadens the definition beyond just shareholders to include customers, employees, suppliers, the government, and the environment. Ensuring the well-being of all stakeholders is essential for sustainable business success, as neglecting any one group can harm the company in the long run.

💡Shareholders

Shareholders are individuals or entities that own shares in a company and thus have a financial interest in its success. The video contrasts shareholders with stakeholders, explaining that while shareholders are a subset of stakeholders, focusing solely on them can lead to neglect of other important groups, like employees or customers. Businesses must balance the needs of all stakeholders to thrive.

💡Unethical Behavior

Unethical behavior in business refers to actions that are dishonest or unfair, often occurring in one-time transactions where there is no expectation of future dealings. The video gives the example of used car sales, where the lack of a long-term relationship can incentivize sellers to prioritize short-term gains over fair treatment, in contrast to businesses like Starbucks, where customer satisfaction is prioritized.

💡Knowledge Differential

A knowledge differential occurs when one party in a transaction has more information than the other, which can lead to unethical behavior. For instance, in used car sales, the seller typically knows more about the car's value than the buyer, which can be exploited for profit. This concept highlights the importance of transparency in maintaining fair business practices.

💡Sustainability

Sustainability in business refers to the ability to maintain operations over time while ensuring the well-being of all stakeholders. The video emphasizes that sustainable businesses must consider not just profits, but also the needs of employees, customers, suppliers, and the environment. Without a sustainable approach, a business risks long-term failure, regardless of short-term financial success.

Highlights

Marketing and commerce are based on transactions; exchanges happen when you buy, not when you steal or make something yourself.

Transactions are influenced by previous and anticipated future experiences with a business, especially in recurring situations like going to Starbucks.

One-time transactions are more likely to lead to unethical behavior or the perception of it, as seen in businesses like used car sales.

In businesses focused on customer relationships, taking a loss on a single transaction can be smart to maintain long-term value, like in Starbucks.

Customer lifetime value is important in long-term businesses; a Starbucks customer could provide significant revenue over years of purchases.

One-off transactions, like in used car sales, often focus solely on immediate profit rather than building a customer relationship.

Perceived value plays a key role in exchanges; individuals may place different values on the same product, leading to win-win transactions.

An exchange requires voluntary participation; otherwise, it’s theft or taxes.

Stakeholders are a broader group than just shareholders, including employees, suppliers, and the community, all of whom contribute to a business's sustainability.

In sustainable businesses, all stakeholders, from customers to the government, should benefit or at least not be harmed.

Traditionally, economics emphasized shareholder value, but a shift recognizes the need to balance the interests of all stakeholders for long-term success.

The idea of stakeholders has become prominent in business over the past 30-40 years, although good businesses have always understood this concept.

Marketing focuses on understanding what people want and giving them that, which is essential for creating happy customers and employees.

Rent-seeking behavior, where individuals or companies try to get more than they deserve, is a key issue in perceived unethical business practices.

Successful businesses understand that creating a positive ecosystem of happy customers, employees, and investors leads to sustainable growth.

Transcripts

so we've talked about what value is and

we've talked about this idea of benefit

we've talked about the kinds of utility

that we create um we had talked in our

naive definition about it's all about

buying and selling stuff so in order to

buy and sell stuff you need to make an

exchange and basically if you have a

need there are three ways to satisfy it

you can make it yourself you can steal

it or you can buy

it okay Mark marketing only happens or

an exchange only happens when you buy it

if you make it yourself if you're

self-sufficient there is no Commerce um

if you're stealing it there is no

Commerce that's called theft um and if

you buy it then there is an exchange and

an exchange occurs in transactions a

transaction is the unit of

exchange

um so one of the things about the idea

of an exchange is is that transactions

are not independent of each

other first in the real world there are

very very few situations where I will

have just one transaction with a

customer

right anybody here go to

Starbucks anybody here went to Starbucks

just

once yeah I'm a secret chopper for

pets um so I go to Starbucks a lot of

times so when I make a purchase at a

Starbucks that is influenced by my past

experiences with Starbucks right and

anticipation of future experiences with

Starbucks and um the Starbucks folks

know about it in fact when there is only

a one-time transaction those are the

situations that are most likely to lead

to unethical Behavior or at least

perceptions of unethical Behavior what

are some of the the stereotypes of

unethical business

people I have here an

example um anybody bought a used

car okay um did you buy uh how many used

cars have you bought a lot a lot do you

buy them from the same

people are you like a dealer do you buy

and sell used cars okay so you know what

you're know what I'm talking about when

you're selling a car the customer

doesn't know what you paid for it right

and that's kind of the whole point right

I got a big smile there yep that's

called a knowledge differential um and

again is it is it common to have repeat

business or is it usually oneoff it's

usually oneoff it's usually oneoff

because it's it's just that's the way of

the business so what's your incentive to

treat a customer

fairly I get what I want your incentive

is to get what you want yeah yeah

exactly so when I go into a Starbucks if

I'm unhappy with my Starbucks coffee I

say I'm unhappy with my Starbucks Coffee

what are they going to

say I'm sorry let me fix that for you

okay if I have a problem with your car

you're going to say prove it you know

you had three days to

right again because in Starbucks even

though I might lose money on a

transaction I'm willing to do that

because the relationship is more

important than any individual

transaction which leads to an important

element of exchange and again with

marketing today is we're not really

talking about a transaction related

business we're talking about customer

relationships um and there's a concept

we we we talk about called lifetime

value of a customer so we know just

through research for example that if you

go to a Starbucks you were likely to be

a Starbucks customer for 5 to seven

years and that you will be going to

Starbucks three or four times a week so

if I'm making a buck off of every cup of

coffee that you order I have an expect

of how much that's going to mean over

the life of our relationship so it's

really smart for me to take a $1 loss in

order to maintain the value of that

$1,500 relationship right but in a used

car situation I don't have that

expectation of future benefits so this

is the deal and I need to make my money

on this transaction or I'm not going to

make money and you would

never intentionally lose money on a

transaction right because that's just

not smart business so again that's the

point is because oneoff transactions

don't have an expectation of a

relationship they're much more likely to

either uh have unethical Behavior or

create perceptions of unethical behavior

um I one of my other favorite examples I

just when I was in Furniture um was I

learned this while I was there is in the

carpet

business and in the carpet business um

people generally sh shop for carpet um

say one once every seven years and when

people decide to shop for carpet they

spend about 30 days in the search

process before they actually buy which

is why if you've ever driven by a carpet

store you might see a huge sign in the

window that's kind of old and wrinkled

and yellowed that might say something

like going out of

business or it might say you know sale

30% off this week only um because for

all of the times that you weren't

looking for carpet you might have driven

by that place and not even noticed it

but once you're in the market for carpet

you're paying attention oh wow they're

going out of business there might be

some bargain or oh wow there's a sale on

there um

again whether there's a relationship or

not is an important element of

business okay so if I was to give you a

multiple choice test uh that had the

question what is an exchange on it these

might be some of the things that we

would look at um in order for an

exchange to happen there needs to be be

two or more parties you cannot exchange

with

yourself

um each side has to have something of

value why would you exchange something

that you don't get any benefit out of it

um and this is where the the idea of

perceived value is important because

even though products may be identical

two people might have different

perceptions of the value of those

product and that kind of links into the

economic concept of diminishing returns

if I have a million dollars but I don't

have any ice cream

cones um I might be willing to pay a

good chunk of money for an ice cream

cone if I have 100 ice cream cones and

no money I would be more than happy to

exchange one of my ice cream cones for

some money um so because there's a

perceived difference in the value of the

same object we can make exchanges and

this is where win-win exchanges come

from is the idea is different people

have different perceptions of value for

the same product and you want want to

use that transaction to transfer some of

the value from one person to the other

person and the net result is two happy

people uh it would in it would make

sense that it there has to be a means of

communication because how can I tell you

how great my product is compared to what

you're offering me in exchange if we

can't communicate with each other

participation has to be

voluntary otherwise it's called theft or

taxes

um sorry didn't mean that um and it

needs to be appropriate to deal with the

other

party um for example anybody ever wore a

red shirt into Target or a orange shirt

into Home

Depot what

happens you get asked questions right

did you ever tell them well this is on

sale buy one get one

free go ask the

manager because yeah just because I'm

wearing an orange shirt doesn't mean

that I have the authority to make deals

um more realistically for example when

it comes to Legal contracts um some

minors uh who are not of legal age

aren't able to engage in contract so if

a 12year old buys a car and signs a

finance

contract you know I don't care if it was

there if there's no cooling off period

that was an on invalid transaction

because a 12-year-old can't sign a fin

can't sign a finance contract

and then the last concept that we want

to talk about in in the marketing

definition is the idea of stakeholders

this is a relatively new relatively

saying the last 30 40 years um and the

idea of a stakeholder is marketing

affects more than just the buyer and the

seller of the product there's a whole

ecosystem around business and in order

to be sustainable and sustainable is one

of those words that has lots of meanings

in this context I'm talking about the

ability to keep the doors open day after

day and have profits um all of the

stakeholders need to be considered uh

should benefit or at least not be harmed

so obviously stakeholders are the

company and the customer because without

customers we have no business

right but without happy

employees we're not going to have

products to sell to our customers so

maybe we need to keep the employees

happy right and then if I don't have

suppliers that are willing to supply me

the raw materials for my product I can't

make products that make customers happy

so I probably need to have um suppliers

that are taken care of um and then we

can talk about it's really easy to do

business where the rule of law is in

place so it might be important to have a

healthy government a healthy uh

Community around me um uh shareholders

need to be taken care of um and this is

I think Milton Friedman is uh one of the

big excuses for unethical business

Behavior has traditionally been the

concept that the role of management is

to create value for the shareholders

anybody heard that one which is true uh

but again shareholders are only one of

the stakeholders in the company if you

have Rich shareholders but the employees

um are uh not getting paid enough that

they're going to stay on the job and you

can't get suppli and you can't get

products and your customers don't like

the crap that you're turning out um

you're really not going to be able to

return benefits to the stockholders

because the ecosystem isn't there and

then ultimately it doesn't help us if we

can't breathe the air or drink the water

um know we're making a lot of good news

is we're making a lot of lot of money

bad news is we're

dying so uh spend it now yes difference

between aaker andher so a stakeholder is

uh the best definition of a stakeholder

I've had is if there's a conversation

they should have a seat at the table

they may or may not have an ownership

stake in the company they may or may not

have any official relationship with the

company but they're affected by what the

company does a shareholder is somebody

that has an ownership stake in the

company okay so they're very I have made

I have invested Financial Resources into

the company and I have a piece of

ownership I have a say in how the

company has run um that kind of thing so

share stakeholders is much bigger than a

shareholder shareholder is one kind of a

stakeholder and the point that I'm

trying to make is traditionally in in

economics the thought has been that the

only stakeholder that matters are the

shareholders and what we're recognizing

is that in order for the shareholders to

be taken care of customers need to be

taken care of employees need to be taken

care of there needs to be a healthy

government needs to be a healthy

environment um you know what I mean

everybody needs to be taken care of

otherwise the business is going to fail

yes start implenting this say again when

did they start implementing this Theory

when do we start implementing this

Theory that's a great question good

businesses have always been doing this

um and it's only in recent years that

people started putting a name to

it um I had a I had a a when I was

getting my MBA many many years ago I had

a a interview with a CEO of a of a local

company that I was working with and at

that time uh the key the hot word around

there was strategic planning everything

was strategic planning got to do

strategic plan five-e plan 10 year plan

and you know we're talking to him and he

says yeah strategic planning that's the

latest buzzword is basically everybody's

looking for

attention um we'll call it something

different 10 years from now um so yeah

is good good business is really based on

understanding how people work um and

this is why marketing is so important

because that's what marketing is all

about understanding what people want and

giving them what they want

um and you get into economics you've had

uh economics 101 and 102 uh did they

talk about the idea of rent

seeking rent seeking is where you try to

get an advantage or above and beyond

what the expectation of your

contribution is it's that rent seeking

where people try to get a bigger piece

of the pie than they deserve that leads

to a lot of the perceived problems that

we have in business but solid businesses

have always understood that you know

happy customer cers happy employees

happy investors um happy government

means happy

business I should at this point make a

disclaimer uh much of what we talk about

in this class has been widely researched

and well understood um a lot of what we

talk about in this class is my

perception of the world um and I'll try

to be clear when I'm talking about my

perception of the world and what has

been widely established by fact that's

my perception of the world um I find

that a lot of times I'm right but some

of the times I'm not right and you are

free to disagree with me um and I would

love the discussion if you do um I'm not

only you know I have the microphone and

and I'm in the front of the room so I'm

probably going to win but let's have the

discussion

anyway because I don't like looking

foolish