Relationship management as a means of developing competitive edge - Assignment Example

Examining relationship management as a means of developing competitive edge in the market Project Aim The aim of this research is to study the concept of relationship marketing and how it can be used by an organization to gain a competitive edge in the market to which they are catering. The company that is the subject of this research is New Star Company. This company was a pop music club and it later merged to become a fans club. In this research we seek to establish how relationship marketing can help the company to keep it existing membership base and gain new members. Project Objectives To review how relationship management is an effective means of achieving business objectives. (Looking at how it can help New Star Company) To examine all the aspects of relationship management such as loyalty, trust and building a long term relationship with the customers by looking into what satisfies the customers To analyze the effective of relations management through various analysis methods To make recommendation on how relati0onship management can be used by new Star company to increase their membership base using their existing members. Context I In order to understand the context of this research it is necessary to explain the concept of relationship management and give an overview of the organization which is used as an example for the implementation of this marketing concept. Area of Research The area of research for this paper is concept of relationship marketing and its application in the business scenario. Relationship marketing (RM) is defined as “the process of identifying and establishing, maintaining, enhancing, and when necessary terminating relationships with customers and other stakeholder, at a profit, so that the objective of all parties involved are met, where this is done by a mutual giving and fulfillment of promises” (Gronroos, 2000, P. 98) Company Overview The company being considered is called New Star Company and it was a pop music club before it merged with another company after which it became a fan club. After the merger, New Star Company still kept the members of its pop-music club with the intention that they would bring in new members into the fans club. They need to gain a foothold into the Chinese market and are looking into business strategies which will enable them to attract new members to their fans club, yet at the same time be able to retain their existing base of members. In this research we will examine how relationship management can work as an effective business stra0tegy for the company to gain new members. Review of Relationship Management Relationship Management is about attracting, maintaining and enhancing the relationships between an organization and its customers. This marketing strategy came about as a result of the effects of low growth rate and deregulation which made it necessary for organization to determine how they could maintain their existing customer base instead of developing new ones. Relationship marketing involves using satisfied customers as a way for attracting n0ew customers. This means using the element of customer loyalty to gain strength in a new market, which calls for interaction between an organization and its customers, wherein it is necessary for both parties to share the same philosophy to successfully interact. The power of relationship marketing is seen in its unique feature of trying to establish a long-term and mutually beneficial relationship between an organization and its customer. In order to do this, relationship marketing focuses on gaining as much knowledge as possible on customer preferences and implementing these preferences into product and service design. “Relationship marketing is a long term orientation, all marketing activities directed toward establishing, developing, and maintaining successful relational exchanges”. Kolter (2000) Difference between relationship marketing and transactional marketing In we need to understand how relationship marketing can benefit an organization we need to see how different it is from transactional marketing. In ding so a company will learn about the benefits of moving away from following transactional management towards gaining a customer base and move into relationship management. Tr0ansactional marketing has a short term orientation and it tends to emphasize on single trade or certain time trade. Customers are retained using the product, company or brand image. This form of marketing looks to increase product sales, but in doing so the organization really does not interact with the customer as they benefit from the market and its economics as a whole. The organization focuses on delivering quality output and customers benefit by the heightened technology they receive in the products they use. This type of marketing focuses on achieving the objectives of the organization and their success is determined by how much sales they achieve. 0 In relationship marketing, the focus is on achieving business objective by focusing on the relationship between the organization and the customers. Relationship marketing has a long-term orientation and its strategy is to gain long-term relationship with customers by providing them with value services or value-added services. The focus is on the customer and in achieving customer satisfaction. According to this concept, if a company wishes to gain a competitive edge in the market they need to involve all human resources in the marketing strategy. In this type of management organizations are seen to collaborate with their customers to achieve business objectives. Levels in relationships marketing There are different view points on the levels in relationship marketing. The most important view points are the ones proposed by Berry and Parasuraman (1991), Philip Kotler (2000) and Dywer et al, (1987) . According to Berry and Parasuraman (1991), there are three levels in relationship marketin0g. In the first level, the focus is to get the customer to buy the product or service as much as possible but this level does not give the organization a competitive edge and certainly does not give the benefit of customization to the customer.(The organization-client relationship is characterized by a financial bond) The second level focus on understanding the customer’s need or desire, and providing special service to customers in order to establish a good relationship with the customer and to enhance customer loyalty. (The organization-client relationship is characterized by a social bond). The third level focuses on satisfying the customer by providing high-level service or extra add-value to customers. (The organization-client relatio00nship is characterized by a structural bond). Both the second and the third levels give the organization a competitive edge and allows for customization in product and services, but in the case of the third level the strategies followed by the organization cannot be duplicated by their competitor, unlike the situation in the first and second level in relationship marketing. Philip Kotler (2000) brings out five different strategies in customer-relationship building in his work ‘Marketing Management’ these are basic marketing, reactive marketing, accountable marketing, proactive marketing and partnership marketing. In basic marketing, the salesperson just simply sells the product, with no attempt to establish any relationship with the customer. Building customer relationship comes into focus during reactive marketing, wherein the customer is encouraged to call if he or she has questions, comments, or complaints on the product or service they are using, but still the relation between the organization and their customer is more of a passive kind. The relationship between the organization and its customer becomes more active when the accountable marketing strategy is adopted wherein the customer is asked their opinion on whether the product meets their expectations after usage. They are also requested to send in their recommendations. Such interactions with the customer benefit the organ0ization by way of helping them to continuously improve performance. In proactive marketing the company salesperson contacts the customer from time to time to ask for suggestions on how to improve the product usage. This concept is furthered in partnership marketing, wherein the organization works continuously with the customer to discover ways to perform better. Dywer et al, 1987 brings out four levels in relationship development which include exploration, expansion, commitment and dissolution. In the exploration level, an organization trying to gain a foothold into the market explores the opportunities and challenges they have to face.0 The expansion level sees the organizations furthering its business activities. The commitment level induces a committed relationship between the organization and its customers. At any time, during any of the level, the relationship can be terminated because expectations on either side are not fulfilled. Trust, trustworthiness and levels of trust When a customer shows trust in an organization’s capability to deliver, it improves the organization-customer relationship. ‘The presence of relationship commitment and trust is central to successful relationship marketing, not power and its ability to condition others’. (Morgan and Hunt (1994). Trust between an organization, its partners, and its customers helps it to build a sound customer base, gain a foothold in the market and retain their market share, obtain the customer loyalty, enhance co-operation, satisfaction, and purchase intention. There are so many important view points on the concept of trust. It is important for an organization to adopt attitudes, which bring about the service and satisfaction of the customer and which lead to customer trust in their ability to deliver. Trust is the factor which leads to confidence and when a customer is confident that an organization product will deliver what is pro0poses the organization stands to gain by customer trust. It leads to a long-term relationship (Berry 1999, Bitner, 1995, Wilson, 1995, Morgan and Hunt, 1994). Trust ensures that one’s vulnerabilities will not be exploited in an exchange. (Barney and Hansen, 1994). I As more trust is built up with the customer, because the organization’s carries out activities which cater to customer satisfaction, it builds up an organization’s trustworthiness. While trust is a concept which is a characteristic of a relationship between exchange partners, trustworthiness is an attribute of individual exchange partner There are many levels in which trust can be built. Trust can be built at the personal level, tru0st can be based on the knowledge that trustee is able to deliver and trust can be built on the institutional norms of confidence in trustees. Another view point on the levels of trust is the one based on what is proposed by Liljander and Roos (2002). These include calculus-based trust, knowledge-based trust and confidence based trust. Understanding the different levels of trust enables to understand how trust is established between customer and a client. Loyalty Relationship management highly values loyalty, and strives to maintain loyalty - both customer loyalty and organization’s staff loyalty because both factors highly influence an organization’s success in the market and contribute towards achieving business objectives. Relationship management seek to induce customer loyalty. Customer loyalty “is an acknowledgement of the personal nature of the commitment of the customer to firm and or its employee.”(Buttle,1996). Customer loyalty is the key to business success. It benefits an organization by way of more purchases from the customer and loyal customers are the ones who recommend a customer to other customers thereby bringing more business to the organization.Loyal customers do not mind to pay more because they are satisfied with the results o0f a particular product or service. Staff loyalty gives an organization a committed working force and one which seeks to achieve the organization business objectives. Berry (1981) defined it as “viewing employees as internal customers, viewing as internal products that satisfy the needs and wants of these internal customers while addressing the objective of the organization”. Loyal staff always strive to build a personal relationship with customers and save the organization lots of money in terms of staff recruitment and training due to the knowledge they posses on customer needs since they personally interact with the customer. In other words, staff loyalty is the key link to external customer satisfaction. Benefits and drawbacks of relationship marketing Relationship marketing enables an organization to retain their market share through focus on building and maintaining customer relationship. This ensures that the organization gets opportunities from these customers in the future. Relationship marketing provides the benefit of a strong and loyal customer base, reduction in marketing cost and enhances an organizational competitive advantage and gives them an edge of their competitors in the market. However, the drawbacks of relationship marketing are that it does not work for all business scenarios. It may not offer the expected returns and high profitability does result sometime from investments made by an organization in building relationships. Case Study The implementation of the concept of relationship management can be more clearly understood if New Star Company looks at an example of another company which has successfully implemented it in China. The company being considered is IBM. Since the Chinese culture was different the company collected plenty of information on their culture, the current situation faced in the country and the needs and desire of the people. They co-operated with the Chinese government and also extended their co-operation to several famous Chinese universities. Due to such efforts to impress the Chinese people, the new company – CASE Company was able to set up software training, basic research on IT, united training and carry out software development. When Chinese government decided to implement a development strategy for the west area of China, IBM took action promptly to expand its business in west area in China. IBM’s capture of the Chinese market is an example of how the company gains foothold in a country with an entirely different culture by following principles which ensures customer satisfaction. Though the business scenario here is the IT field which is entirely different from the market new star company is in, this example is one which shows the success of relationship management implemented and should be considered from this point of view. Research methods In this research the deductive method is sued to understand the effectiveness of relationship marketing in the context of the New Star Company. This research combines Key Mediating Variable Model (KMV Model, Morgan and Hunt, 1994) and Determinants of Behavioral Change (Moore and Sekhon, 1994) together to bring out how the relationship between club and its members can effectively help the club to achieve its business objectives. In the Key Mediating Variable Model (KMV Model), the factors relationship termination costs, relationship benefits, share values, communication, opportunistic behavior, trust to commitment can be adopted as standard of relationship marketing. The right part of KMV model which includes factors such as acquiescence, propensity to leave, cooperation, functional conflict and uncertainty depicts the common results of relationship marketing. In course of the relationship between the club and its members, the trust held by the members in the club services results in the determinants of behavioral change, which is in the range of and accord with relationship marketing. Data was collected from members of the club to understand their opinions through 0questionnaires, which explore the issues covered by relationship marketing. In the questionnaire, questions No.1.2.3.4 ask the members questions on how they were benefited by the club. Questions No 5.6.7.8.9 asked them questions which examined the cost for the member to transfer to other club. Questions No. 10.11.12.13.14.15 posed questions on the member’s and club’s share value and Questions No16.17.18.19 were about how the club shared information with its members. Question No.20.21.22 examined the club on whether it showed any beguiling behavior. The questionnaires were sent to the manager of the company who distributed it to the club’s members during an event such as a new year’s party. Out of the 314 feedbacks received, about 260 gave effective answers. The method used to examine the results was the Statistical Package for the Social Sciences method or SPSS method. It was used because, ‘It will help you to eliminate those long hours spent working out scores, carrying out involved calculations, and making those inevitable mistakes that so frequently occur while doing this.”(Bryman, A. and Cramer, D., 2005 Conclusion The Prescription Statistical Analysis shows that most of the people who were members were young members. Analysis of the correlation among precursors variable, trust and commitment, and determination of behavioral changes indicate that benefit, relationship termination cost and share value have the positive impact on trust; and share value and communication have positive impact on commitment; but opportunistic behavior has a negative correlation with commitment; the middle variable - trust and commitment have positive impact on three outcomes respectively – affective determination, customer expectation, behavioral 0determination; and trust has positive impact on commitment Analysis of the correlation between precursor variables and trust and commitment indicates show that if the club provides certain unique services to its members and if it maintains a effective communication with it members, it will lead to long-term relationship between the club and its members. Analysis of the Correlations between Middle Variables and Determinations of Behavioral Change indicates that affective determinants have the strongest relationship with trust & commitment, so the affective determinants of member are important to keep a good long-term relationship. The Regression Analysis among Precursors Variables, Trust and Commitment, and Determinants of Behavioral Changes shows that when there is effective communication between the club and its members, then they will be able to reach a common understanding. The Regression Analysis between Middle Variables and Determinants of behavioral change shows that members of the club feel that the club is a reliable club and they would like to maintain a long-term relationship with the club. Task List Task Problem Solution Enhance the fan club base How can the club make existing members bring in new members? Provide some concession r attractions for existing members who bring in new members into the club. Get Customer Loyalty The club provides certain services, but will it ensure that its customers are loyal to them? Provide unique services which the club members cannot find elsewhere Induce Loyalty in staff How can the club ensure loyalty from its staff? Provide incentive for staff members who reach certain target because their intangible service will strengthen the club’s relationship with customers. Maintain Long-term relationship with customers Members of the club comprise of youngster who have only a certain income level and are looking to a short-term relationship Encourage young members to take up longer membership service by providing them certain incentives and services. Expressing sincerity to customers How to impress upon the minds of the members about the club’s unique services? Be ready to make investment to strengthen the relationship with members Establish good communication How to have a proper communication link with members Use events happening in the club and important days of the year as a ay fro members to share their opinion on the services of the club Showing that they are trustworthy to their members References: Berry, L.L. and Parasuraman, A., (1991) Marketing Services, Competing through Quality. Free Press/ Lexington Books, Lexington, Barney, J., and Hansen, M., (1994). Trustworthiness as a source of competitive advantage. Strategic Management Journal. Vol. 15, No. 2, pp.175-190 Bryman, A. and Cramer, D. (2005) Quantitative Data Analysis with SPSS 12 and 13: A GUIDE FOR SOCIAL SCIENTISTS, Routledge, East Sussex. Buttle, F., ed. (1996) Relationship Marketing: Theory and Practice, Paul Chapman Publishing Ltd, U. K. Cram, T. (1994) The power of Relationship Marketing: Keeping Customers for life, PITMAN PUBLISHING, London Gronroos, C. (2001) Service Management and Marketing: A customer Relationship management approach, Second edition, John Wiley & Sons, Ltd. Kothler, P. (2000) Marketing Management, Prentice-Hall, Inc Morgan, R., and Hunt, S., (1994) The commitment Trust Theory of Relationship Marketing. Journal of Marketing, Vol. 58, No. 3, pp 20-38 Lilijander,V,. and Roos, I (2002) Customer-Relationship Levels – From Spurious to True Relationship, Journal of Services Marketing. Vol. 16, No. 7, pp593-614 Read More