Question: Why is there a growing trend towards relationship marketing? What are the benefits to the company? What are the benefits to the customer? Please illustrate your response with example. Answer: Relationship marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions.
As a practice, relationship marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages. First of all, the marketing mix is very important in relationship marketing. The concepts of the marketing mix and the 4Ps of marketing are product, price, place and promotion. The marketing mix is actually a list of categories of marketing variables and to begin with, this ways of defining or describing a phenomenon can never be considered a very valid one.
A list never includes all relevant elements, it does not fit every situation, and it becomes obsolete. Marketing is separated from other activities of the firm and delegated to specialists who take care of the analysis, planning and implementation of various marketing tasks, such as marketing analysis, marketing planning, advertising, sales promotion, sales, pricing, distribution and product packaging. Marketing departments are created to take responsibility for the marketing function of the firm, sometimes together with outside specialists on, for example, market analysis and advertising.
The existence or introduction of such a department may be a trigger that makes everybody else lose whatever little interest in the customers they may have had. The marketing department approach to organizing the marketing function has isolated marketing from design, production, deliveries, technical service, complaints handling, invoicing and other activities of the firm. It has made it difficult, often even impossible, to turn marketing into the “integrative function” that would provide other departments with the market-related input needed in rder to make the organization truly market oriented and reach a stage of “co-ordinate marketing”. In many situations long-lasting relationships between service providers and their customers may develop. During the last few years there has been a growing interest in studying the economics of long-lasting customer relationships. Additionally, a mutually satisfactory relationship makes it possible for customers to avoid significant transaction costs involved in shifting supplier or service provider and for suppliers to avoid suffering unnecessary quality costs.
However, customer retention is not enough. Some long lasting customer relationships, where the customers are obviously satisfied with what they get, are not profitable even in the long run. Therefore, segmentation based on customer relationship profitability analysis is a prerequisite for customer retention decisions. “Marketing is to establish, maintain, and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfilment of promises”.
Establishing a relationship, for example with a customer, can be divided into two parts: to attract the customer and to build the relationship with that customer so that the economic goals of that relationship are achieved. An integral element of the relationship marketing approach is the promise concept which has been strongly emphasized by Henrik Calonius. According to him the responsibilities of marketing do not only, or predominantly, include giving promises and thus persuading customers as passive counterparts on the marketplace to act in a given way.
A firm that is preoccupied with giving promises may attract new customers and initially build relationships. However, if promises are not kept, the evolving relationship cannot be maintained and enhanced. Fulfilling promises that have been given is equally important as means of achieving customer satisfaction, retention of the customer base, and long-term profitability. Another important thing is trust. There has to be a belief in the other partner’s trustworthiness that results from the expertise, reliability or intentionality of that partner.
Futhermore, it views trust as a behavioural intention or behaviour that reflects reliance on the other partner and involves uncertainty and vulnerability on the part of the trustor. Relationship marketing is still in its infancy as a mainstream marketing concept, although it has established itself as an underlying paradigm in modern industrial marketing and services marketing. Its importance is recognized to a growing extent. However, Philip Kotler concludes in a recent article that “companies must move from a short-term transaction oriented goal to a long-term relationship-building goal”.
Market communication is a central means of reaching customers, and the focus on relationship building leads to an interest in emphasizing dialogues and creating, for example, advertising campaigns that facilitate various types of dialogues with identified customers. The major problem with the marketing mix and its Four Ps has been their position as the major, and in many situations as the only, acceptable marketing paradigm. Relationship marketing must not become such a straitjacket.
However, developing enduring customer relationships and achieving exchanges in such relationships through a relationship marketing approach is not only another addendum to marketing mix management. Relationship marketing is placed at one end of the continuum. Here the general focus is on building relationships with customers. At the other end of the continuum is transaction marketing where the focus of marketing is on one transaction at a time. The continuum and some marketing and management implications are illustrated in table 1.
Table 1: In marketing focus, Because of the lack of personal contacts with their customers and their focus on mass markets, firms pursuing a transaction-type strategy will probably benefit most from a traditional marketing mix approach. The Four P model will give guidance in most cases. For a firm applying a relationship strategy the marketing mix often becomes too restrictive. The most important customer contacts from a marketing success point of view are the ones outside the realm of the marketing mix and the marketing specialists.
In relationship marketing interactive marketing becomes the dominating part of the marketing function. In customer perceived quality, there are two dimension called technical quality and functional quality. In other words, the technical quality can be define as A transaction marketing approach includes no or minimal customer contacts outside the product and other marketing mix variables. The benefits sought by the customers are embedded in the technical solution provided by the product. In addition, in relationship marketing the functional quality dimension grows in importance and often becomes the dominating one.
For a consumer packaged goods marketing firm, which typically would apply a transaction marketing strategy, there are no ways of continuously measuring market success other than monitoring market share. A firm that applies a relationship-type strategy can monitor customer satisfaction by directly managing its customer base. In transaction marketing, most or all of the firm’s customer contacts are related to the product itself and to traditional marketing mix activities. Marketing and sales specialists are responsible for the total marketing function.
In relationship marketing the situation is different. The customer interface is much broader involving often even a large number of part-time marketers in several different functions. This is the case, for example, in most industrial marketing and services marketing situations. A successfully implemented interactive marketing performance requires that all parts of the firm that are involved in taking care of customers can collaborate and support each other in order to provide customers with a good total perceived quality and make them satisfied.
Thus, for a firm pursuing a relationship marketing strategy the internal interface between marketing, operations, personnel and other functions is of strategic importance to success. There are lot of various factors that contributed to the development and growth in importance of relationship marketing; they include the increasingly global and intense nature of competition, more demanding and sophisticated customers, the inadequacy of quality in itself to create sustainable competitive advantages and the influence for technology in almost all products and services.
Furthermore, relationship marketing will assist the firm to focus on customer retention, offer superior product or service benefits, pursue long term vision, emphasise exemplary customer service, engender customer commitment and ensure that quality is the concern of all. In addition, the five important benefits as organisation will gain by adopting the concept of relationship marketing such as increased purchases, reduce costs, free advertisement through word of mouth, employee retention and the lifetime value of the customer.
In consequences, the numerous benefits available to customers who engage in a long term relationship with the firm like achieving greater efficiency in their decision making, reducing the task of information processing, achieving more cognitive consistency in their decisions and reducing the perceived risks associated with future purchase choices. In other word, the relationship marketing is exercised on multiple levels to gain customer loyalty and sustain a competitive advantage.
For example, level 1 is relies primarily on price incentives, levels 2 is relies on nurturing social bonds and level 3 is utilises structural bonds to solidify relationships in addition to social and financial bonds. Moreover, it has become imperative for the firm to develop and maintain a network of relationships in order to be able to offer to be able to offer products/services which are capable of gaining customer recognition. Every organisation, whether profit orientated or non-profit orientated, has one uncompromisable function; that is, they all seek to satisfy their customer.
Moreover, a firm’s success in the marketing place is no longer determined merely by its ability to satisfy the customer, but to engender a loyal relationship. In this regard, service firms are dependent on their employees while manufacturing firms require retailers to develop a relationship with their customer. Employee and retailers have thus become an indispensable part of the relationship. All the firms require some form of human input (employee) because rendering a relationship between the employees and the customer almost inevitable.
Moreover, it is this primary relationship which proffers stability and ensures the firm’s long term success. This loyalty and customer retention are enhanced by offering packages complied through networks of relationships which add value to the offer. The proposition in support of secondary relationship is founded on the fact that competitive advantage today is dependent on the holistic competency of the firm, developed through strategic alliances with various networks of stakeholders capable of satisfying customers’ holistic needs. More, it has become imperative for irms not only to develop relationships with various stakeholders, but also to market and manage (nurture) these relationship on an ongoing basis. The more a firm moves to the right on the marketing strategy continuum away from a transaction-type situation, the more the market offer expands beyond the core product. Furthermore, the more the firm adopts a relationship marketing strategy, the more it has to understand how to manage these service elements of its market offer. In the past, a firm’s main focus of the interest was on selling their product or service and pertained to the attraction and fulfilment of one time sales.
The customer, perceived as having little or no direct association with the firm’s operation, thus designated as being of limited economic important. The important, for the firm, is to understand the underlying factor which predispose customer to avail themselves of a product or service. Moreover, a firm’s competitive advantages derive from its ability to nurture long the term relationship with customers and engender customer loyalty. Thus, firms who understand customer’s holistic needs will be able to mix and match various products and service commensurate with customers’ specific needs.
In addition, they propose that if customers require products or services that are not within the realm of a firm’s core competency, then the firm should find ways to procure those competencies for the benefit of the customer by creating strategic alliances (relationships) with other firms. The firm should thus focus on retention marketing by achieving long term relationships through fulfilment of the service promise. Firms have realised that their success in the marketing place is largely dependent on the network of relationship they maintain.
Therefore, relationship marketing provides an approach that will assists firms to create relationships with customers and other parties involved in the business process, to affect both a profit and fulfilment of the objectives of all the concerned parties. It became evident that a focus on sales transactions essentially inhibits a firm’s long term orientation, as it does not provide for the laying of a foundation for future sales. The long term orientation is essential if a firm is to succeed in a changing global marketplace, in which competition denotes a surplus of products, services, employees, suppliers, retailers etc.
In conclusion, a firm’s long term success is dependent on the networks of relationships that it is able to maintain with various stakeholders to both outside and inside the organisation. This study suggests that relationship marketing can be utilised to assist the firm to connect with all its stakeholders namely: customers, employees, suppliers, retailers, shareholders etc. Relationship marketing is systems-oriented, yet it includes managerial aspects. Most certainly relationship marketing will develop into such a new approach to managing marketing problems, to organizing the firm for marketing, and to other areas as well.