Relationship_Marketing

1.1 Relationship Marketing defined Relationship Marketing clearly does not have a single definition, and it means different things to different people. (Harker,M.J.,1999). However, it is written about to an extent whereby a common understanding of the main characteristics of the approach can be usefully derived. Some studies have only looked at ‘Business to business’ (where Relationship Marketing’ has its roots, and an interesting area concerning how collaborative relationships between businesses, often based on trust, (Selnes,F.,1998), can work in an increasingly litigious environment); but this report will consider conventional models of marketing strategy, including Transactional Marketing, and look at how they compare to the accepted Relationship Marketing approach. More specifically the key areas considered will be:  The broader scope of markets including suppliers, business referral and ‘influence’ sources and importantly, the internal market.  Bringing together quality, customer service and marketing  A focus on customer retention an loyalty issues  An organisation wide approach to a cross-functional, integrated, Marketing strategy  A resolution of the competing interests of customers, staff and shareholders by changing the way in which the organisation is managed. Whether this constitutes a new paradigm or best practice from Marketing theory which is now applicable in twenty-first century business is, arguably, a semantic difference and is therefore not significant. What is important is whether real organisational benefits are demonstrably obtainable, and whether, or not, Relationship Marketing is a model of modern Marketing best-practice.   2 An Overview of Relationship Marketing An overview of the characteristics of Relationship Marketing should clearly differentiate the approach from that of the one-time sale or Transactional model. Some regard this as a transition to a more suitable model for modern business (Payne A. 1995) rather than an alternative strategy, but it is now widely argued that the traditional marketing mix (4p’s model originating in 1960’s) is no longer appropriate (GrÖnroos,C 1994). It may be that Relationship Marketing is particularly appropriate to Services marketing (Palmer, A 1998) but the marketing concepts of value in the complete offer, (and that considering all of the required supporting services which, together, provide the customer value), it may be argued that even in a product focussed organisation, it s application is most suitable. The following sections describe Marketing strategies which are either characteristic of Relationship Marketing, or are viewed from a different manner to the Transactional approach. 2.1 Evolution of Relationship Marketing and the central role of Customer Service in the marketing mix One reason why Relationship Marketing may be perceived as just the most appropriate strategy for contemporary business is the progressive change in the focus of marketing strategies over the decades: Decade Major area of concentration 1950’s Consumer Marketing 1960’s Industrial Marketing 1970’s Non-profit and Societal Marketing 1980’s Services Marketing 1990’s -- > Relationship Marketing The Marketing mix, first described by Borden (1965), where 12 characteristics, or elements, were described which, over the course of time, have been simplified to the 4p’s of Product, Price, Promotion and Place. Relationship Marketing takes the view that this is inadequate, and offers an extended model with the additional elements of People, Customer Service and Processes (shown coloured in the following illustration) and Customer Service being the central focus. (Customer focus and Service being regarded as intrinsically linked). Given that Customers are increasingly more demanding with regard to the service they receive; and that competitors are using Customer Service more in differentiating their sales; it is argued therefore that Customer service requires a central role, and not be subsumed in the various elements of the marketing mix. Customer Service in the Relationship Marketing model also needs to be considered in the context of the complete supply marketing channel and not just its customers – there is need to look upstream and downstream as well, as illustrated in the following diagram: Suppliers ------ Suppliers ------ Company ------ Customers ---- Consumers Suppliers This leads into a broader view of the markets addressed which is central to the concept of Relationship Marketing. Thirty different relationship are identified by Gummesson (1994), but a six market view (Payne and Ballantine 1991) is considered here:   2.1.1 The Customer Market An important element of the Relationship Marketing model is that of moving the balance from attracting new customers to retaining the existing ones. This does not mean ‘locked in’ - unwillingly detained, but freely choosing to continue and develop a valued relationship. (Payne and Ballantine 1991) suggest a loyalty ladder: The suggestion is that generally too much focus is placed on gaining new customers and not enough on retaining the existing customer base. However the balance does need to be right so that the acquisition of new customers at least matches the loss of existing customers. There is a compelling business case for this approach: loyalty in the workplace has become a radically misunderstood concept Frederick Reichheld (2001). (Refer to the discussion on this subject in Appendix 2). 2.1.2 Supplier Markets Supplier markets are particularly significant since it is suggested that there are few companies which spend less than 20 – 30% of the total budget on outside supply (Bain research cited by Payne and Ballantine 1991).The Relationship Marketing approach advocates a move from customer – supplier adversarial confrontation, to a ‘win-win’ philosophy based upon collaboration and trust. 2.1.3 Influence Markets Influence markets include the Regulatory, Government and Financial influences. Plans are important to maximise the benefits from the strategic marketing approach e.g. the promotion of share value. Influence markets are sometimes addressed as “public relations” within organisations. 2.1.4 Internal Markets The concept of Internal markets is an emerging area of interest (Ballantyne 2000). It concerns the notion of the internal customer within an organisation and focuses on quality of service. It is particularly important where internal conflict exists where it can usefully be used to address communications issues and barriers to organisational effectiveness (see also section 3.4) 2.1.5 Employee Markets Employee markets can mean, as the diagram suggests, addressing recruitment and retention issues to attract and retain the best staff, but increasingly it is recognised that people are an organisations best asset and that Organisations should recognise employee’s contributions in getting and keeping customers within the overall marketing mix – and that this will, in turn, substantially increase performance. 2.2 The Relationship between Quality, Customer Service and Marketing Customer service considerations are broad and are largely concerned with building bonds with customers in long-term relationships. The need for Quality goods and services is so well understood by the customer that it is surprising that ‘fixing the problem’ is perceived as a source of competitive advantage. Quality must be seen from the customer’s viewpoint Christopher, Payne and Ballantine (1991). 2.3 Transactional marketing comparisons with Relationship Marketing and the product / strategy continuum Transaction Marketing Relationship Marketing Focus on single sale Focus on customer retention Orientation on product features Orientation on product benefits Short time-scale Long time-scale Little emphasis on customer service High customer service emphasis Limited customer commitment High customer commitment Moderate customer contact High customer contact Quality is primarily a concern of production Quality is the concern of all Gronroos 1994 discusses the concept of a Marketing strategy continuum, with Relationship Marketing at one end and transaction marketing at the other, and has a similar list of comparative characteristics, but has the following additions: Strategy Continuum Transaction Marketing Relationship Marketing Dominating marketing function Marketing mix Interactive marketing (supported by marketing mix activities) Price elasticity Customers tend to be more sensitive to price Customers tend to be less sensitive to price Dominating quality dimension Quality of output (technical quality dimension) Quality of interactions (functional quality dimension) grows in importance and may become dominating Measurement of customer satisfaction Monitoring of market share (indirect approach) Managing the customer base (direct approach) Interdependency between marketing, operations and personnel Interface of no, or limited, strategic importance. Interface of substantial strategic importance The role of internal marketing Internal marketing of no or limited importance to success Internal marketing of substancial strategic impotance In terms of the appropriate strategy, Relationship Marketing is related to a Product continuum:   2.4 A summary - Integration of Relationship Marketing within an Organisation Relationship Marketing implies not just better relations with customers, but better relationships with all the six markets considered earlier and therefore customer service must apply to all key markets. It also considers that customer service is an element of the marketing mix in its own right. Thus a creation of a bond with each of the six key market areas is to be established through the delivery of ‘value satisfaction’ as represented by the quality of the on-going relationship – as well as the goods and services being produced (Ravald and Gronroos 1996). Vertical hierarchies in organisations have often optimised individual functions at the expense of the whole business and the customer (Payne 1998). An alternative approach advocated by (Ostroff 2002), is where work is organised around company-wide processes, as opposed to functions, that ultimately link to the customer needs. This results in a horizontal mode of organisation, in which cross-functional work-flows link internal processes with the needs and capabilities of both customers and suppliers. This structure can be termed a market-facing focus, and is one of the opportunities for benefiting from a Relationship Marketing approach if it is aligned with the corporate strategy in the organisation. By ensuring both an internal and an external focus is placed on the value-adding activities of the business, Relationship Marketing can offer a recognition of the importance of the linkages between discrete activities in the value chain, and the role internal marketing has to play: diminishing rivalries between different primary activities or between support and primary activities, with a focus on quality in customer – supplier (activity – support) relationships. It is this notion of total quality, in the sense of providing customer perceived value, that creates the opportunity to turn Transaction marketing into Relationship Marketing.