Relationship Marketing and Customer Service - Literature review Example

Running Head: RELATIONSHIP MARKETING AND SERVICE Relationship Marketing and Service In Harvard Style By Course Name University "As our economy becomes more service and technology oriented, the dynamics of the sales process will change. The on-going nature of services and the growing complexity of technology will increasingly necessitate lengthy and involved relationships between buyers and sellers. Thus, the seller's focus will need to shift from simply landing sales to ensuring buyer satisfaction after the purchase. To keep buyers happy, vendors must maintain constructive interaction with purchasers - which includes keeping up on their complaints and future needs. Repeat orders will go to those sellers who have done the best job or nurturing these relationships." -Theodore Levitt, 1983 1. Relationship Marketing: General Overview The changes in the global business environment necessitates relationship marketing in order for business organizations to compete more efficiently, attract potential, and retain current customers. According to the words of the marketing guru Philip Kotler (2005), the current business arena is turning "hypercompetitive" characterised by the presence of more intense competition among industry rivals and more bargaining power from customers. Thus, in order to survive and succeed in their markets, companies are required to rethink and revamp their current strategies and put their customers into center (Kotler 2005). These trends and developments in the market put strong pressure on companies and put into spotlight relationship marketing. Relationship marketing is an idea which dates back as far as 1960s evolving from direct response marketing during the period. Its reemergence in the 1980s is prompted by the initial research done by Leonard Berry and Jag Sheth at Emory which states that, "What is surprising is that researchers and businessmen have concentrated far more on how to attract customers to products and services than to retain them" (Pressey and Matthews 2000, pg. 272) Relationship marketing has been elaborated and broadened by the marketing theorists Theodeore Levitt in 1983. Relationship marketing is defined as "a philosophy of doing business and strategic orientation that focuses on keeping and improving relationships with the current customer rather than acquiring new one" (Relationship Marketing 2007). Relationship marketing thereby marks a transition from the traditional marketing approach of finding more customers for a product. In essence, relationship marketing is in recognition that a customer contributes to an organization his lifetime purchases of the company's product if it is able to design marketing strategies which can cultivate loyalty and develop good relationships (Kotler 2005). From its origin, relationship marketing has introduced a radical change on how business organizations think and conduct their operations. Traditionally companies have focused on attracting customers thereby facilitating only one-time transactions. However, the loyalty of a customer for a product and brand will facilitate repeat sales transactions thereby enhancing the firm's total profit and revenue. Thus, it becomes imperative for companies to long-term relationship with customers rather than on individual transactions by understanding the needs of the current customer as they go through their life cycles (Relationship Marketing 2007). Developing strong relationship with customer is strongly dependent on ensuring the delivery of satisfaction and delight. Levitt likens company's relationship with its customers into marriage: "The sale, then, merely consummates the courtship at which point the marriages begins The quality of marriage determines whether there will be continued or expanded business, or trouble, or divorce" (Berger 2006). The expansion and facilitation of this new strategic approach to marketing can be directly credited to the advancement in technology specifically the establishment of customer relationship management software. Through this, business organizations are able to track and analyse customers' preferences, activities, likes, dislikes, and even complaints (Relationship Marketing 2007). CRM software has become a powerful software in the current global business arena as it enables the company's to analyse the buying profile of the customers and use these data to design a more targeted approach to marketing (Kotler 2005). Knowledge of customers has become a competitive advantage of large companies like Tesco Plc in designing their direct sales marketing approach. The company's loyalty program boost the company's sales through customer retention which in turn, is due to the retailer's effort in knowing its buyers and marketing the products that he or she prefers while introducing those which he or she be interested in (Tesco Plc 2007). It should be noted that this development has given birth to the new trend in relationship marketing which is personalized selling. This type of relationship goes beyond the entire target market of the business organization by taking individual preferences. Personalized selling entails the creation personalized products to customers and provision of customized service (Relationship Marketing 2007). 2. Fundamental Values & Components of RM From the discussion above, it should be noted that at the core of relationship marketing is customer retention. Gordon (1999) emphasizes that the main goal of relationship marketing is essentially the establishment of a mutually beneficial relationship between buyers and sellers. The company benefits from this arrangement through the purchases of the customer, while the customer ensures the satisfaction of his needs and requirements. As with any relationship, this aims to develop a deep sense of dependence between each party while enhancing the mutual satisfaction that each of the parties derive. The rationale of customer retention is documented in various empirical researches. As opposed to the traditional notion that attracting customer is the main function of marketing, it appears that retaining current ones is more beneficial. Studies in a number of industries conclude that the cost of retaining a customer is only 10% that of attracting a new one. Thus, a company which opts to maximize its financial resources will decide that it makes more economic sense to retain than to attract customers. Furthermore, the study of Reichheld and Sasser (1990) reveals that a 5% improvement in customer retention can significantly improve organizational profitability by 25% to 85% in terms of net present value. Buchanan and Giles (1990) identify the factors which enhance profitability from customer retention efforts and list them as follows: 1. The cost of acquisition occur only at the beginning of the relationship, so the longer the relationship, the lower the amortized costs; 2. Account maintenance costs decline as a percentage of total costs or as a percentage of revenue; 3. Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive resulting into stable unit sales volume and increases in dollar sales volume; 4. Long-term customers may initiate free word of mouth promotions and referrals; 5. Long-term customers are more likely to purchase ancillary products and high margin supplemental products; 6. Customers that stay tend to be satisfied and are likely to switch to competitors making it more difficult for competitors to enter the market and gain market share; 7. Regular customers tend to be less expensive to service because they are familiar with the process, requires less education, and are consistent in their order placement; and 8. Increased customer retention and loyalty make employees' jobs easier and more satisfying. In his book entitled Relationship Marketing: New Strategies, Technologies, and Technologies to Win the Customers You Want and Keep them Forever, Ian Gordon identifies the eight components of relationship marketing. These are culture and values, leadership, strategy, structure, people, technology, knowledge and insight, and process (Gordon 1999). 3. Relationship Marketing-Services Perspective In the world economy, there has been a notable boom in the services industry. Large economies like US and EU have seen the huge shift from the industrial to the services sector. It has been reported that the current US economy consists of a 70-30 services to goods mix (Kotler 2005). Even business organizations which have been primarily engaged in the production and distribution of companies now complement their tangible products with excellent customer in order to maintain a harmonious relationship with their current customers. Thus, companies are offering pure services such as a Mozart concert or as a complementary such after sales customer support through a contact center (Kotler 2005). The use of relationship marketing has been started and primarily prevalent in the industrial market. However, this strategic approach is gaining wide acceptance and popularity in the services industry where customers are very much concerned about its quality. It should be noted that services are very much different from their goods counterpart and requires special consideration in terms of marketing (Kotler 2005). As opposed to tangible goods, services have important features namely intangibility, inseparability, variability, and perishability. Service as the name implies cannot be directly experienced by the customer before the service, thus, a company offering one needs to have enough proof that it can provide the quality of service that it advertises. Inseparability stresses the need for the service provider and recipient to be at the same place in order to experience the service. Variability highlights the difference of service which can be offered by two different providers or even the same one. Thus, it is imperative that business organizations understand their clients and strategically align their workforce in order to extend the quality of service which corresponds or even goes beyond the customer's expectations. Perishability refers to the inability of the company to store service. Service is often consumed as it is provided (Kotler 2005). In the discussion above, it becomes apparent that relationship marketing is very much essential for players in the service sector. The special features which differentiate services from tangible goods stress the need for business organizations to satisfy each customer and tailor the services according to their needs and preferences. In fact, the service industry has much more opportunity in utilizing relationship marketing in its operation because of the greater possibility of customization. It should be noted that the preference varies from customer to customer thereby necessitating the need to modify the service in order to satisfy or her specific requirements. Relationship marketing in the services industry is one of the key in ensuring the survival and profitability of a company. Research of the Nordic School stresses that "the most important issue in marketing is to establish, strengthen, and develop customer relationship: --where this can be done at a profit, and -where individual and organizational objectives are met." Thus, in the services industry, it is also imperative to implement a longer term marketing that is, being able to attract customers, treat them as a single client as opposed to a crowd, segment, or niche, and cultivate profitable relationships with them by delighting them at every opportunity. 4. Implementing Relationship Marketing to Gain Competitive Advantage With the intensity of rivalry in the current global market, players are doing their best in order to compete more efficiently and differentiate themselves in order to win and retain customers. At the beginning of this paper, it has been emphasized that relationship marketing is not just a business approach but a strategy which can be utilized in order for a business organization to succeed in its market. It is irrefutable that relationship marketing can be a powerful competitive advantage that a business organization can capitalize into in its operation. A competitive advantage is by definition "an advantage over competitors gained by offering consumers greater value either by means of lower prices of providing greater benefits and services that justifies higher prices" (Thomson and Strickland 2004). Relationship marketing can be a source of competitive advantage which will propel a company to attain its goals. For a business organization offering a pure service, extending customer service at a lower price or surpassing the ability of the average players can be counted as competitive advantage. One example which is notable for its high quality service is FedEx which ensures the delivery of goods within or even before the expected timeframe. Because of this, the freight forwarding company has been contracted by the largest computer manufacturer in the world Dell, Inc. to deliver customers' orders. It should be noted that Dell, Inc. is employing a Just-in-Time inventory system which requires the fast movement of inventory from the company's assembly plants straight to customers' doorsteps. Its decision to choose the service of FedEx only highlights the latter's established competitive advantage compared to the other players in the industry (Thomson and Strickland 2004). The use of relationship marketing as a competitive advantage is much more apparent in companies which offer a product which has tangible and intangible components. A good example of this is the case of the retail industry. It should be noted that aside from the own brand of the retailer, the merchandise carried in a retail outlet is the same as the other. Thus, in order to compete efficiently and strategically, a retailer may opt to differentiate itself from the other players by offering more services. This can take the form of having a "greeter" which welcomes customers into its premises, having merchandisers which are always on their toes to answer the queries of the customers, having a place where the toddler can stay as the moms shop around, and baggers who carry the customers purchased items to their cars. This can also mean offering financial services like accepting checque, debit card, and credit cards to pay for merchandises. 5. Customer Service-General Overview Customer service is extended by a business organization before, during, or after the purchase of a product. Customer service is usually referred to as the complementary services which accompany a major product. These types of services often have a "thematic connection" with the main product and "properly account for customers' expectations (Hansen and Henig 2000). Customer service should be value adding and into a point, may become the source of a company's sustainable advantage (Hansen and Henig 2000). The study of Meyer and Blumelhuber (n.d.) emphasizes that "complementary services are interesting customer retention tool." As such "they have the potential to prolong and intensify the company-customer relationship, create satisfaction, and build barriers to changes in loyalty." 6. Relationship Marketing and Culture (Customer Service) In maintaining relationship with customers, it is imperative that business organizations especially multinationals exert effort in knowing their customers. Knowledge about customers will irrefutably help a company to tailor different marketing strategies which will be instrumental in attracting and nurturing a long term relationship with a customer (Kotler 2005). As relationship marketing primarily desires to extend customized products and services among each of its customers. The main idea is to see an individual as a client and not just as a customer. As companies expand to other geographical regions aside from their local markets, they expose themselves to customers with different culture. Cultural differences in the market often hinder organization in offering a standardized product instead localizing them according to the specific needs and preferences of each of their markets. A global product within any modification from the original offering often fails to succeed in foreign markets. Thus, it becomes a huge challenge for companies to adapt their products to the markets that they serve in order to attract customers and ensure repeat purchases from them. In this respect customer service is also altered to reflect the differences in national culture. The issue of inter-racial differences even becomes more important as large business organizations in industrial countries outsource back office and support services into developing economies to take advantage of the skilled workforce with lower wage requirements. The rationale given for doing this is for companies to focus on their core competences by freeing up the less important jobs like after sales service and support. However, business process outsourcing has been detrimental in some large business organizations like Dell, Inc. Dell, Inc. has always been noted because of its dedication and commitment of providing excellent customer service before and after a purchase. With the boom in outsourcing, the computer manufacturer decided to outsource customer support to an Indian firm in order to bring down costs. This decision has been met by failure as most customers complaint of the poor service given by the new customer support representatives. These Indian agents lack an understanding of Dell's primary market. This also highlights the firm's inability to bridge the gap between the customers and service provider's preferences, values, and even language. This just shows the importance of understanding, considering, and acting upon the culture of the customer in order to keep a long term relationship with them (McCue 2004). 7. Managing Internal Marketing-Employee's Empowerment The shift of a company's focus from becoming a product oriented to becoming more customer-centric also requires a transition in the culture of the whole business organization from the executives to the front line employees. Relationship marketing as a new strategic approach should be communicated and absorbed as a new culture in the company. The entire human resource of the company would take a huge part in ensuring the success of this new strategic approach. The workforce should always be aligned with the goal of the whole business organization. The importance of human resource in a business organization is emphasized by strategic human resource management. Today, the vast majority of organizations, regardless of whether they produce and sell goods or services, seem to state that their most important resource is their personnel (Holmlund and Kock 1998). Practically nobody denies the importance of human resources to business success, and expressions such as "human resource represent an investment rather than a cost" have become quite usual (Gonzalez 2004). John Purcell who is known to have pioneered in this field, highlighted the importance of employees in his research which emphasized the huge role played by the company's workforce as "strategic partners." This is even stressed by the research conducted by the Nordic School of Services: "In service firms, where the interface with the customers is broad and intense, all contact personnel must be well attuned to the mission, goals, strategies, and systems of the company. Otherwise they cannot represent their firm in successfully handle all those crucial contacts known as 'moments of truth,' that occur in interaction with customers" (Hansen and Henig-Thurau 2000). One of the most successful organizations in terms of aligning human resource with organizational culture is Ritz-Carlton Company which operates in the global hospitality industry. Even in the early operation of Ritz-Carlton, the company has recognized the two components of its product offering; one which is tangible while the other is intangible. The tangible aspect corresponds to the company's infrastructure and amenities. Aside from this, Ritz-Carlton also emphasized excellence in customer service which is the intangible aspect of its product. This is highlighted by the famous words of its founder: "Never say no when a client asks for something even if it is the moon. You can always try" (Lampton 2003). Thus, "guests remark that they are "pampered," "respected," "treated like royalty," and "incurably spoiled" (Lampton 2003). Recognizing the importance of customer service in extending the Ritz-Carlton experience, the company has been passionate in training their staff and treating them as their strategic partners. The hotel chain makes it a point to make employees absorb the core value in the organization, train them, prepare them to serve the market. What is remarkable is the company's strong adherence to strategic human resource management. Ritz-Carlton's staff irrefutably becomes its competitive advantage (Lampton 2003). Training and development in Ritz-Carlton become one of the central functions of the human resource department. Unlike most organizations which require employee to sit for a day or two for the orientation, the hotel chain gives a more thorough programme which could last within a year. After being selected, a new employee will be asked to attend an initial orientation for two consecutive days. Within the span of three weeks, he must be able to pass Ritz-Carlton Certification Exam and will now be deployed to "wow" the customers. Ritz-Carlton believes in giving employees the authority and power to solve problems involving customers. After the well-designed training, the company now empowers the workforce. Upon selection, staffs can commit up to $2000 of the hotel's funds in order to bring immediate resolution of a customer's concern (Lampton 2003). Hotel's employees are also given more than enough say in managing day to day affairs. The business organization treasures feedback from the staff on how customer service can be further improved (Lampton 2003). 9. Conclusion In this current business environment, it is irrefutable that relationship marketing has become one of the primary responses to the more intense competition and higher bargaining power of customers. This strategic approach requires the organization to go beyond attracting customers to retaining them which in turn, is expected to bring in more profit and become a competitive advantage. Relationship marketing, even though, primarily applied in industrial sector can also be adopted in the services industry where it can be customized according to the requirements of individuals. The transition from a product oriented to customer centric approach is easier said than done. The company needs to revamp its strategy and instill within it a new corporate culture. Central to this is turning human resource into strategic partners by giving them the knowledge and skill through intensive training. The workforce should always be aligned with the organizational goals. Being in the front line and having direct contact with the customers, employees should be empowered to do what it takes to keep customers satisfied and delighted. References Berger J. 2006, Thoughts on Relationship Marketing, The Wiglaf Journal, Retrieved 20 August 2007, from http://www.wiglafjournal.com/Articles/2006/06-01-RelationshipMarketing.htm Boxall, P. and Purcell, J. 2003, Strategy and Human Resource Management Palgrave Macmillan Buchanan, R. and Gilles, C. 1990 "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990 Gonzalez, S 2004, Improving human resources management: some practical questions and answers, International Journal of Contemporary Hospitality Management, 16(1), 59-64. Gordon, Ian 1999, Relationship Marketing: New Strategies, Techniques and Technologies to Win the Customers You Want and Keep Them Forever. John Wiley and Sons Publishers, 336. Hansen, U. & Henig-Thurau, T. 2000, Relationship Marketing: Gaining Competitive Advantage Through Customer Satisfaction and Customer Retention, London: Srpinger Lampton B. 2003, Paragon of Customer Service Excellence, Retrieved 21 August 2007, http://www.expertmagazine.com/EMOnline/RC/part1.htm Lampton B. 2003, My Pleasure-Ritz-Carlton Hotel Part 2, Retrieved 22 August 2007, from http://www.expertmagazine.com/EMOnline/RC/part2.htm McCue, A 2004, For Dell, Indian Call Center Failure a Lesson, Cnet.news.com, Retrieved 20 August 2007, from http://news.com.com/For+Dell,+Indian+call+center+failure+a+lesson/2100-1001_3-5182611.html Payne, A, et. al. 1998, Relationship Marketing for Competitive Advantage, London: Elsevier Pressey, A. & Matthews, B. 2000, Barriers to relationship marketing in consumer retailing, Journal of Services Marketing: Volume 14, Issue 3 Reichheld, F. and Sasser, W. 1990, "Zero defects: quality comes to services", Harvard Business Review, Sept-Oct, 1990, pp 105-111 Relationship Marketing 2007, Retrieved 20 August 2007, from http://en.wikipedia.org/wiki/Relationship_marketing Ritz-Carlton Website (www.ritzcarlton.com) Tesco Plc 2007, Retrieved 20 August 2007, from http://en.wikipedia.org/wiki/Tesco Read More