analyzes the concept of relationship marketing
Traditionally, marketing has focused on market share and customer acquisition rather than on retaining existing customers and on building long-lasting relationships with them. More recently, however, market share has been gradually losing its revered status as marketing's holy grail and the wisdom of focusing solely on customer acquisition (hoping that this effort will compensate for high levels of defection) is now being seriously questioned and considered as very high risk since ever more players enter an increasingly crowded marketplace (Baker,2000). One of the reasons for the great popularity of relationship marketing is the recognition that losing a customer means in fact more than a single sale: it means losing the entire stream of purchases that a particular customer would make over a lifetime of patronage - also known as the “customer lifetime value”(Kotler and Armstrong,2001). In response to these changes there has been a new emphasis on relationship marketing, which focuses on holding on to existing customers and getting more custom from them (higher “share of customer”), in contrast to activities which focus on winning new customers. Retention is even more important for business customers because of the fact that business customers bring a huge amount of revenue. The study analyzes the concept of relationship marketing with particular reference to business customers. It discusses the goals of relationship marketing, how they can be achieved and how these goals once achieved can provide the firm with a competitive advantage.
Analysis
Relationship marketing has been one of the most misunderstood concepts. It is used interchangeably with other constructs, including customer repeat purchasing behaviour and customer retention. However, the construct of relationship marketing differs from the one of repeat purchasing behaviour in the way that it implies an intentional component, i.e. there is always a reason for the customer's repeat purchase and it does not happen by chance (Hansen,2000) .It also differs from the one of customer retention in that customer retention has a purely behavioural character, whereas today's interpretations of the loyalty construct usually include both behavioural and attitudinal dimensions; moreover, while the construct of customer retention considers the marketer as the active party, relationship focuses more on intrapersonal aspects of customer behaviour.
Relationship is a dual communication process shaped by two dimensions: the degree of preference (the extent of the business customer‘s conviction about the product or service) and the degree of perceived product differentiation (how significantly the business customer distinguishes the product or service from alternatives). The highest attachment occurs when a buyer feels a strong buying preference coupled with a high degree of perceived product differentiation. (Lewin, 1997) A customer establishes a relationship with the brand, product or service and the level of attachment a customer feels toward a product or service is a prerequisite to a long term relationship. O'Malley L. and Tynan C. (2000, p9) describe the objectives of establishing business relationships ‘as being to identify and establish, maintain and enhance and, when necessary terminate relationships with customers and other stakeholders, at a profit so that the objective of all parties involved are met, and this is done by a mutual exchange and fulfillment of promises.'
Marketers have long argued over the definition of ‘relationship' in marketing terms and its drivers. (Ehrenberg 1988; Fader and Hardie 1996; Kahn, Kalwani and Morrison 1988; Massy, Montgomery and Morrison 1970) believe that the strength of relationship can be gauged and is driven by customer behavior, therefore, relationship should be defined mainly with reference to the pattern of past purchases with only secondary regard to underlying consumer motivations or commitment to the brand. They believe that business customers stick with their supplier not because of strongly-held prior attitude or deeplyheld commitment towards a supplier (or brand) but because it is not worth the time and trouble to search for an alternative.
But, relationship is a mutual agreement between the two parties and this theory does not capture the full richness and depth of the definition of relationship. Relationship between a business consumer and the supplier can be because of habit, due to situational reasons, or due to other more complex psychological reasons. Theorists like Odin (2001) believe that relationship develops because of a deeply held commitment of the business customer to re buy or re patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts. Consequently, when suppliers look at winning and retaining their business customers they are looking to achieve a little extra goodwill, a slight margin of preference, an incremental shift in buying behaviour. (Fournier et al., 1998)
Oliver (1999) suggests that the buyer satisfaction is the starting point of a long term relationship. Commitment and trust - not just one or the other - are the key to success in relationship marketing, since trust implies that the business consumer has confidence in the brand/firm and is willing to rely on it though there is an evidence of risk involved. Commitment reflects a psychological attachment to the brand/firm and an enduring desire to maintain the relationship.
Achieving long term goals through establishing a profitable relationship
Organizations employ relationship marketing as a strategic approach to improving shareholder value through the development of appropriate relationships with key customers and customer segments. Relationship marketing is seen as a vehicle to increase single-brand loyalty, decrease price sensitivity, induce greater consumer resistance to counter offers or counter arguments (from advertising or sales-people), dampen the desire to consider alternative brands, encourage word-of-mouth support and endorsement, attract a larger pool of customers, and/or increase the amount of product bought(Rundle-Thiele S. and Bennet R. (2001) For business customers, two main aims of relationship marketing stand out. One is to increase sales revenues by raising purchase/usage levels, and/or increasing the range of products bought from the supplier. A second aim is more defensive, by building a closer bond between the brand and current business customer. The goal of relationship marketing is based on the fact that profits can be increased significantly by achieving either of these two aims. It also serves the goal of more business more often, gives the ability to mass customize marketing communication, minimize waste and help promote trust. It attempts to win a slightly larger share of the customer's spend than would otherwise be the case (McAlexander,2002).
Another reason for the rapid increase in popularity of relationship marketing can be found in the impressive array of “suggested” evidence in support of relationship marketing, such as the figures provided by the associates of Bain & Company, claiming that the net present value increase in profit that results from a 5% increase in customer retention lies somewhere between 25 and 95% in over 14 industries (Oliver, 1999). Relationship transforms into loyalty and loyal customers are supposed to buy more, pay higher prices and bring in new customers. Another “profitability-argument” in favour of relationship includes that in many cases the management of loyal business customers is supposed to be cheaper since they are usually better informed and therefore ordering and delivering procedures can become routine (Odin, 2001). However, some of these “profitabilityarguments” have been challenged by Reinartz and Kumar (2002), who compared the behaviour, revenue, and profitability of more than 16,000 individual and corporate customers over a four-year period, concluding that they discovered little or no evidence to suggest that customers who buy on a steady basis are necessarily cheaper to serve, less price sensitive, or particularly effective at bringing in new business. They also found that a considerable amount of loyal customers were only marginally profitable, while a large percentage of short-term customers were very profitable. A recent ‘Best of Biz' (2006) report has also questioned relationship marketing as the driver of profitability, arguing that profitability might ultimately be more related to business fundamentals such as superior products, services or processes. Woolf (1996) points out, that success comes from a marketing strategy base firmly on understanding customer economics and only secondarily on establishing a relationship with the customer. Other pro-relationship marketing arguments include that loyal business customers may bring more certainty into the business, e.g. through increased customer immunity to competitive offers and through higher tolerance of mistakes made by the supplier. On the other hand, however, loyal customers may also seduce suppliers into complacency and encourage inactivity and carelessness or the supplier may become too reliant on them, which may mean that they fail to adapt to changes in market structure or to respond to the changing importance of certain market segments (Diller,2000).
There is some confusion regarding the nature, scope, role and influence of relationship marketing. From a functional perspective, many marketers believe that the route to establishing a relationship is through the operation of a number of mechanistic, tactical initiatives such as loyalty cards (Tesco), events and promotions. It is hoped that customer incentives and rewards are a sufficient basis to build loyalty, generate knowledge and change customer behaviour. On the other hand, an organizational perspective views relationship marketing as a total firm customer orientation - one that seeks to integrate and align multiple sources, processes and activities for creating superior customer value on a consistent basis.
However, despite their criticism, even critics themselves have suggested that establishing relationships with customers is a worthy contributor to the shareholder value of a company and that firms are encouraged to study their position and options in the pursuit of this goal(Oliver,1999; pg37).
Goals of relationship marketing
While profitability and retention are the major goals of relationship marketing, Butscher (2001) argues that profitability should be considered as a medium- or even long-term goal which can only be achieved if other intermediate goals are reached first, such as building a strong customer base. Relationship marketing is concerned with strengthening the existing bond between the business customer and the supplier, so that the supplier can find out what the business wants, and give the customers more of it. Its aim is to establish a two way dialogue so that the supplier can act to improve the basic offer according to the customers needs. (Rayner, 1998).
It has been suggested that in any marketing relationships, all business partners engage to some extent in economic, resource and social exchanges and these three areas of relationship content build the starting point for the relationship and should serve as the three-pronged goal of relationship-building
- Economic Content- The economic content of relationships deals with the economic benefits and costs of participating in the relationship and it has been suggested that business customers are only willing to participate actively in a relationship if their individual cost-benefit calculation leads to a positive result, which then provides the partners with an incentive to explore the relationship further. (Roberts, 2004)
- Resource Content. It has been suggested that parties engage in relationships to secure valuable resources that they would not be able to acquire more efficiently elsewhere, which, in a business/consumer exchange means that the business requires the purchasing power and effort of the consumer, while the consumer wants reliability, status, safety, and other facets of reputation and tangible value in the products and services they purchase. According to Morgan et al.(2000), the resource content of relationships can contribute to commitment among exchange partners through dependence, strategic interest, reciprocity and equity.
- Social content. Social content suggests that although economics and resources may indicate a prosperous relationship, no relationship can be successful in the long-term without a social environment that nurtures communication, honesty, fair play and an awareness of mutual interests and therefore a business relationship should accommodate opportunities for interactions so that friendly relationships may be developed.
Customers are perverse, emotional, awkward, unreasonable people who want things done on their terms. Understanding what things really matter most to the customers, company's should not only think in terms of appropriate service and quality strategies that match the most important needs of the target customers but also should have the ability to deliver. Relationship building should be a mutual process and organizations that listen to the customers are more successful in attaining their goals. Organizations that labour under the illusion that relationship marketing offers a quick-fix to a customer retention problem soon founder. “...organizations need to adopt a more structured and rigorous approach to development, based on a real understanding of what their customers actually want from them. The bottom line must always be to start with the basics of what is most important to the customer and build from there.“ (Jeremy Braune, Head of Customer Experience at Detica)
Organizations have to keep in mind that merely establishing a relationship with the customer will not reap dividends. Through this relationship, they have to make customers loyal and change their habit which is not a very easy task. Relationship building is a listening relationship and the marketing process should try to understand the customer, communicate value to them and should be a symbol of commitment.
Conclusions
It should be kept in mind that goals of relationship marketing can only be achieved if the basics of marketing like differentiated product, better price, quality service etc are followed. In order to be a source of sustainable competitive advantage, the relationship marketing initiative must always take into account what its loyal customers value. Since, loyalty is inextricably linked to the creation of value, making sure that their initiative directly supports the value proposition. The greater is the perceived value of a company's offerings, the stronger the relationship. Organizations have to make sure that relationship building is a coherent element of the overall business strategy and the initiative should take into account the nature of the business, its market position and strategic goals, and the competitive landscape. The goals of relationship marketing should not only be to evaluate the current performance of relationship with its business customers, but also to drive the organization's strategic direction. It is worth pointing out that organizations should also realize that all business customers may not be keen to develop an intense and devoted relationship. Marketers should not try and force a relationship because then the very things they do to build a relationship can actually destroy it.
Relationship marketing to achieve its goals has to be regarded as a strategic tool of the business, reflecting the brand's core strengths. Just as marketers and managers have to love the brand, they have to equally commit to building a business relationship that represents its brands to its customers. In order to feel loyal to an organization, a customer must feel that all his need and desires are not only satisfied, but intelligently predicted and understood. Before an organization can expect loyalty, it must inspire loyalty by demonstrating that it cares about its customers. It is about behavioral and attitudinal change and combined together these two things add up to genuine customer commitment. Mutual relationship should cater to both emotional and rational aspects of behavior.
