The Reason for the Shift from Transactional To Relationship Marketing - Essay Example

Business to Business Marketing Question One: Relationship Marketing Introduction The changing market environment has led to a shift from transactional marketing to relationship marketing. The main reason for the paradigm shift is the augmented need to understand the interaction between the firm and customer in making marketing decisions (Fill, & Fill Ke, 2005). Relationship Marketing entails a marketing course that aims at development of close interaction with chosen suppliers, customers, and competitors for value generation through collaboration and cooperation (Blythe, 2009). Factors that have led to the need for relationship marketing as a marketing mix are increased global competition, advances in communication, shift to service based economies, logistics, fast product development, and computing technologies. This part of the study aims at analyzing various facets of relationship marketing, the reason for the shift from transactional to relationship marketing. Approaches to Relationship Marketing Strategies harnessed by relationship marketers to achieve their goals include focussing on retaining customers and long-term view of business relations as shown by Jaguar Land Rover Plc, focussing on providing value to the customers as depicted by Mercedes-Benz, emphasizes on the provision of great service to clients as depicted at Starbucks (Payne, & Frow, 2013). There is also an emphasis on quality relationships and customer contact through social media, email and text messages with this strategy exemplified by Starbucks and Costa Coffee. Difference of RM approaches in B2B and B2C markets? Business to business (B2B) approach of relationship marketing between one firm to another and focuses on the features of the product and there is lack or very little personal emotion between the representatives of the two organizations involved. The operation guidelines of the business are the main emphasis for understanding through searching more information on the organization, and there is requirement for marketing to be in-depth in business to business marketing (Brennan et al., 2007). The effectiveness of marketing is dependent on the ability of the product to save time, resources, and money (Brennan et al., 2007). On the other hand, relationship marketing approaches on business to consumer is giving a focus on product benefits and decisions have personal emotion attachment. The message has to be short and less informed, focus on product benefits, and getting right to the point. Purchasing decisions by consumers base more on emotion (Fill, & Fill Ke, 2011). In both business to business and business to customer approaches to relationship marketing, there is a need for trust, loyalty, and commitment for the effectiveness of marketing. This will aid the two parties have confidence in the ability of the other party to meet their part of the bargain. These three factors, trust, loyalty, and commitment are very essential in relationship marketing and are discussed below. Definitions Trust: this is the conviction that the other party has integrity, honesty, and reliability for the performance of a particular task. One of the excellent examples is the relation between Toyota and its suppliers who have to deliver high quality products and on time to be able to implement just in time inventory successfully. This makes consumers and suppliers have confidence and gain the commitment in the relationship that is aimed by marketers. Trust has a high relation to competitive advantage and satisfaction when it exists between a supplier and consumer. Trust ensures the performance of their respective promises to the later by both parties in relationship marketing (Payne, & Frow, 2013). Trust is also very important between the organization and the supplier due to access to very sensitive business information like production methods of a new model or the development of a new product, which can greatly affect the business if this information is revealed to the competitors. Commitment: this is the desire for maintenance of a long-term relationship by both parties owing to the value of the relationship. This is the main aim of marketers as they aim at development and maintenance of long-term relationships with customers with strategies including ensuring customer satisfaction, incorporate feedback, and offering loyalty points and discounts (Sheth, 2002). There has been a shift from traditional inventory management to just in time inventory in manufacturing and other organizations. This has led to the high importance for commitment to be maintained between related firms in terms of firm and its suppliers to ensure delivery is made on time and when required, ensuring the minimum order is supplied to the firm as set in the production system, and there is no permit for stock outage. This will affect the ability of the firm to meet production needs; hence the need for commitment by suppliers to ensure supply is made on time, at required quantity, and meeting the quality needs of the firm. Loyalty: this is the ability of the customer to keep purchasing from the same organization even with a price increase owing to high quality, satisfaction, and pricing strategies (Hunt & Morgan, July, 1994). This is very important for any organization owing to the challenges of maintaining customers compared to attracting new customers; hence determines the success of a company. Relationship marketing aids in generation of loyalty owing to emphasis on long-term retention of customer, value to the customer, quality relationships, service and continuous contact. Loyalty between two firms, supplier and the organization purchasing the raw materials, is maintained using contracts where suppliers will not be involved in the production or sell the same raw material to a competitor. This aids in giving the purchasing firm confidence in the supplier and maintenance of loyalty between the two firms. Reasons for the preference of relationship marketing over transactional marketing There has been a preference to relationship marketing owing to a number of failures in transactional marketing approaches that led to a reduction in its efficiencies. These include that transactional marketing assumes non-participation of consumers in the search for marketing information. This is, however, not the case as consumers have access to high amounts of information through the internet, negating transactional marketing in favour of relationship marketing. The other failure point of transactional marketing is the assumption of treating customers in a standard way. Currently, each customer needs a customized product; hence the need to get in touch with the customer often and understand their needs to provide a product that meets their specific needs. For businesses they have their products to be tailors to meet its needs and quality requirements. Transactional marketing focussed on the short-term and one-off relationships with the basis being exchange for money but there is a need for client retention, customer value, client retention, and emphasis on service as depicted by relationship approach in the current global business environment (Palmatier, 2008). This is very important for businesses to maintain relations due to emphasis on quality and value. Other failure points of transaction marketing in business to business relation include focus on sales volume, little emphasis on providing grate service, and moderate connect with purchasing business. This affects relations between the businesses giving the need for relationship marketing between business. Relationship marketing and transactional marketing differ in a number of ways and emphasis points leading to favour of relationship marketing by marketers. This can be explained by different positions taken in relation to price and quality, service driven economies, and competition by transactional and relationship marketing (Sheth, & Parvatiyar, 2000, pp. 384). Price and quality: pricing and quality decisions are more emphasized and tailored to customer needs in relationship marketing as opposed to transactional marketing. Value to the consumer is emphasized through product pricing and quality with consideration to client, requirements, and to their satisfaction. For a business to business case, prices and quality are tailored to the needs of the business ensuring the business gets value for the prices they perform for the mutual benefits in the business of the two organizations. Service driven economies: relationship marketing has been favoured by the shift from product driven to service driven economies limiting the use of transactional marketing. Relationship marketing is appropriate due to the emphasis on augmenting customer satisfaction, value, quality, and maintaining contact with the customer. Transactional marketing cannot meet the needs of a service driven economy that emphasizes on long-term relations and maintaining contact with the customer, as it is meant for a short-term relation and attracting new clients. In a business to business relationship, long-term relations are emphasized through loyalty to the supplier ensuring the company is offered available goods or raw materials Competition: the increase in the competition in the global environment led to the need for development of customer loyalty, commitment, and trust that can only be achieved through the strategies of relationship marketing. Transactional marketing cannot translate to customer loyalty, trust, and commitment, due to emphasis on onetime sales and getting new clients, and lack of further communication, hence the preference for relationship marketing (Sheth, & Parvatiyar, 2000). Examples Organizations have successfully implemented relationship marketing including Starbucks and Starbucks are reaping huge benefits in terms of high customer base, high profitability, increase in market share, and high customer satisfaction (Ellis, 2011). These organizations include Mercedes-Benz that has managed to maintain the loyalty, trust, and commitment of its customers since it was incorporated owing to quality provision, client communication, and innovation. Other companies that have implemented relationship marketing successfully include, British Airways, American Airlines, and Dunkin Donuts. In conclusion, relationship marketing has been necessitated by changes in the economic environment including increased global competition, advances in communication, shift to service based economies, logistics, fast product development, and computing technologies. There is a difference between relationship marketing in business to business models and business to consumer models. Concepts of trust, commitment, and loyalty are very important in relationship marketing as they determine the ability of the organization to meet the aims of relationship marketing. The main factors that translate to a favour of relationship marketing compared to transactional marketing is price and quality, service driven economies, and competition. Question Two: Inter-organizational Relationships The external environment is a very important factor and firms have to consider the avenues available to ensure success and profitability in the business it is operating. The main factor that has led to increase in complexity of the external environment is globalization that has turned the world into a global village. This has led to operations of business all over the world and access to markets from any part of the world but has also led to competition of firms to transcend beyond the national boundary of a firm to competition with a firm operating in the furthest part of the world. To manage in this kind of environment, there has been a need for firms to have inter-organizational relationships to augment their productivity, compete with other firms efficiently, and increase operations in many parts of the world. This part of the study aims at analyzing the dynamics of inter-organizational relationships, value to organizations, and supply chain. Inter-organizational relationships are defined as relations between two or more organizations that could be firms, nongovernmental organizations, government agencies, or voluntary sector organizations (Ellis, 2011). Inter-organizational relationships have a great potential in augmenting the performance of a firm or the business community as a whole. This is due to the ability of a firm to access benefits from collaboration and cooperation with other firms. These benefits include resource use efficiency, increase in influence and power; solve complex issues together, and access new ideas, and other resources that may be required by an organization. Types of Inter-organizational Relationships Inter-organizational relationships between businesses or nonprofits are also known as strategic relationships. The philosophy behind forming an inter-organizational relationship is the idea that both groups can benefit more from working with one another in some configuration than working independently. As such, several different configurations suit a variety of business needs. Inter-organizational relationships are classified based on the relation between the two or more organizations in terms of the level of control. Inter-organizational relationships can therefore be classified into the following forms: a. Partnerships: this is where two organizations work together for the better good of the two companies and does not require the merging of the two organizations to form a single entity. It is a common form of inter-organizational relationships. An organizarion that began as a partnership and achieved tremendous success is Google that began through the partnership between Sergey Brin and Larry Page in 1998. Apple was also started as a partnership and developed to achieve global success. b. Project Groups: this entails the formation of a team composed of members of more than one organizational to work together on a given project. The main reason for this inter-organizational relation is that it results in sharing of new ideas and methods of job performance. The project Group is an example of a business formed as a project group and is involved in provision of business services, consultation, hosting, implementation, and training for project completion. c. Franchises: this is whereby a small organization that is mainly a startup purchases a franchise from a large organization to benefit from the brand name of the organization, as the organization is already established and functional. Examples of organizations that have utilized inter-organizational relationships in the form of franchises include Subway, 7eleven , Dunkin Donuts, and McDonalds. d. Outsourcing: this is where support operations of an organization are given to another company to perform owing to their efficiency, quality, and low costs for the organization to concentrate on the main activities. This translates to the ability of an organization to reduce total costs and increase sales and revenue as well as create business for the outsourced firm. Some of the activities that are mainly outsourced include customer care and hiring of new employees (HRM). This is the most common form of inter-organizational relationships. Dell and Hewlett Packard (HP) buy some of the computer components from other manufacturers to save on costs and manufacturing time yet maintain9ng high quality of their computers. e. Networking, Associations and Alliances: this include organizations joining networks, being members of trade associations, and teaming up with other companies to form market alliances. These inter-organizational facilitates sharing of resources, learning from each other, discovering new methods of conducting business, and promoting one another through social networking (Son et al., 2005). Wi-Fi alliance is a group of compnies that promote Wi-Fi technology and its certification and is composed of 3Com, Aironet, Harris among others forming an example of Networking, Associations, and Alliances. f. Joint research and development: this is where companies come together and generate resources in terms of human resources, time, and capital for the conduct of research and development in an area related or that benefits their line of business. Jaguar Land Rover Plc and Warwick University is a good example of organizations that have formed joint research and development for the design of new models, improve engineering, and provide a research center for the students in Warwick University. g. The use of inter-organizational information systems has led to other forms of inter-organizational relationships including electronic partnerships, electronic market relationships, and virtual integration (Son et al., 2005). Evaluation of inter-organizational relationships Evaluation of inter-organizational relationships aids in decision-making on maintaining or severing a given relationship through judging its success. The benefits and costs are compared for the management to reach a conclusion with reference to the expectations and reality for the organization. Benchmarks used to evaluate inter-organizational relationships include ensuring a relationship between organizations results in the profits of the firm but if an inter-organizational relationship results in reduction in profits, it is discontinued. The other factor considered in evaluation of inter-organizational relationships is promoting a win-win situation for the parties where one organization aspires to augment sales while providing value to the other organization in terms of product quality and on-time delivery. An inter-organizational relationship that does not lead to this situation results in a discontinuation by the party that is on the losing side. A balance of power is emphasized in inter-organizational relationship for the benefit of the interrelated organizations and is the other basis for evaluating inter-organizational relationships. The ability to access databases for information in the related organization is the other evaluation criteria inter-organizational relationships with emphasis on the provision of adequate information by both parties. Participation by all the parties in the decision-making process determines the decision for the continuation or discontinuation of inter-organizational relationships depending on the democracy of the decision-making process with a highly democratic process a good condition for inter-organizational relationships. Emphasis on long-term relationships of mutual understanding is another evaluation of inter-organizational relationships for the organization as the relation adds value to the organization and augments the competitive advantage in the market. When the inter-organizational relationships benefits from the history of the inter-related organizations it is maintained. Toyota and Chrysler applied inter-organization relationships in the automobile industry when they entered into partnerships and maintained long-term relationships with the suppliers of the parts they required in their production process. The inter-organizational relationship was outsourcing where the firm partnered with suppliers to supply parts to the firms. An advantage was access to parts when and where required and the specifications in terms of quality and quantity were met without fail by their supplies. However, the disadvantage that befall the two companies was that competitors were able to purchase similar parts at lower prices than the company did within the supplier ties they had made decreasing their competitiveness. Value of inter-organizational relationships to firms There are some values that come with of inter-organizational relationships that organizations aim at deriving when they make the decision to have relations with other organizations in any of the forms of inter-organizational relationships. Profits may be for the society, each organization individually or where both firms benefit mutually depending on the form of inter-organizational relationship that persists between the organizations being considered. However, there are main values of inter-organizational relationships obtained by each organization in any of inter-organizational relationship, as discussed below: Time Value: inter-organizational relationships save time required by firms for the production and delivery process. This is exemplified by outsourcing where components of computers by Dell are manufactured by different companies and assembled saving on time required if one company could have manufactured the product. This ensures demand is met and supplied product is of high quality increasing profitability within a minor period. Profit: inter-organizational relationships by organizations in the industry allow them to aim at generating extra profits through entering into partnerships or joint ventures. Partnerships allow organizations to pull together resources to augment the ability to meet consumer demand and be in a position to expand to new markets. This generation of extra profits from inter-organizational relationships through partnerships and joint ventures is an added value to an organization. Reputation: inter-organizational relationships allow a small firm to gain a high reputation when it purchases a franchise from a large corporation (Weitz & Wensley, 2002). This reputation allows the new firm to have a good brand name and gain clients through using the name of an established corporation. Organizations that form partnerships with global organizations in the production of a particular good or service increases their reputation. This is evident in the education industry where the reputation of a local university or college is increased when they offer course in collaboration with a global university. Therefore, inter-organizational give firms a huge reputation increasing their ability to meet consumer needs, access huge markets, and gain consumer confidence. This leads to an increase in sales and augmented profits for the firm; hence, positively influencing the financial position of the firm in the industry. Networking: inter-organization relationships allow firms to come together for the benefit of all the organizations in the industry through formation of non-legal contracts resulting in the formation of a group of organizations with each focusing on a given specialization with an overall aim of producing a service, new technology or a product. This assist organizations to learn new methods of production, access new ideas, and benefit from innovation when an idea comes up from the network and the firms in the network work together to achieve the desired result. Networking also aids in getting new customers and access qualified personnel during forums and meetings for the member organizations. Lobbying: the other value of inter-organization relationships is that it allows firm to come together and petition against increased taxes or other factors that affect the business or industry they operate in collectively. When they are more than an organization, they can be more successful than when each individual firm is seeking for change in legislation or for its implementation. Lobbying, therefore, is beneficial as it leads to a better working environment for organizations achieved by inter-organization relations. Therefore, inter-organizational create value to firms through three main ways networking, lobbying, profits, and reputation owing to the competitive advantage they gain when they collaborate with other firms as opposed to when they stand alone (Hair Jr, 2007). Reasons for inter-organizational relationships to be special Inter-organizational relationships are special due to the benefits achieved by organizations as a group compared to when it operates on its own. Inter-organizational relationships are special owing to the fact that it brings together competitor firms in an effort to achieve a common goal. The other reason is that inter-organizational relationships translate to an organization being more efficient and competitive in the market. The other reasons are that the in inter-organizational relationships aid organizations overcome challenges in the global environment, translate to innovation of new products, and lead to development of new production techniques (Little & Marandi, 2003). Supply chain models Supply chain management is an emerging field in the management of a business and the relationship between the organization and other members of the supply chain. There are different supply chain models with the main examples being: a. Logistics Network: this is where a firm has to decide on the best way to transport items from a production center to selling locations in the cheapest and most efficient way. The factors that have to be considered in this case are markets, labor requirements, transportation, and political factors including tax variations and state incentives. b. Route Planning: this model entails an analysis of the transportation routes and its efficiency owing to the current economic environment requiring real time events to be addressed. There is emphasis in finding a low cost route that presents competitive advantage to the organization through simplex process. Factors that affect and influence a company’s supply chain There are many factors that can influences and have an effect on inter organization in term of supply chain models. Christopher & Juttner (1998) found that the quality of a relationship is strongly influenced by its interface structure. Premkumar in Ayers (2002) states that the nature of the IOS technology and partner linkages, including common partner objectives is important to IOS development and implementation linkages, including common partner objectives is important to IOS development and implementation. Production: this entails knowing the amount of products required in the market, amount of products to be produced and by which date, control of quality, maintaining equipment, and capacity of the plants to produce. The ability of the supplier to know the needs of the consumers and the businesses they supplier to in terms of products characteristics affect their relationships with emphasis on better understanding of the product requirements of the firms and consumers. Inventory: This is to be sure that the amount of inventory is optimal to avoid high costs of holding inventory and limit the possibility of shortages in the production process or within the supply chain. An IOS requires the understanding of the supplies than an optimal inventory level is a fundamental aspect for the success and benefits of the relationship affecting the development and maintenance of inter-organizational relations. Information: presence of information on the needs of the customers, fluctuation in demand, change in economic conditions affect supply chain management with high availability of information translating to better coordination and decision-making within the supply chain. These supply chain factor affects inter-organizational relations due to the need of the supplies to keep information from the firm confidential and use it for the mutual benefit of the two firms, without which the relations will be hampered. Location: decisions on the location of production and ware houses for inventory should be determined to ensure lowest cost in production and storage affecting supply chain management. Location decision may be made on the basis and with consultation with supply firms, hence influence inter-organization relations due to the functions of the two firms tailored on the best performance of their different roles. Transportation: the lowest cost and most effective mode of transportation of products have to be chosen depending on the kind of products dealt with by the company. Products that are perishable and light are transported by air freight and truck delivery while non-perishable and heavy products should be transported by means of rail or ship. These types of transportation determine the supplier’s decisions on ensuring the firm gets the supplies in good condition and within the required period. An understanding of the transportation needs, quality, and quantity by the supplier affects the productivity and success by a firm; hence, the choice of transportation by the supplier influences the inter-organization relationships between firms. The factors that influence the supply chain come from the characteristics of the products dealt with by the firm leading to the factor on transportation and location. A perishable product requires air transport and location of plant near the market while non-perishable products can be produced anywhere and transported to the market (Considers production cost). Inventory, production comes from the information available on the market and the conditions of the market to translate to high or low production and/or inventory. Information comes from characteristics in the market place in form of demand, customer needs, and economic conditions. Transportation, production, inventory, and location can be predicted depending on the amount of information on the market and consumers available. Information can be collected and forecasts made to predict the state of the market in future through regression analysis. Production companies can adapt their supply chain through coordinating production, inventory, transportation, and location among the participants in the supply chain for the achievement of the best way to respond effectively and efficiently to the market, they serve. The need for production companies to adapt their supply chain is to ensure losses are not incurred due to shortages, ensure full resource/capacity utilization, meet consumer demand, reduce transportation costs, and reduce procurement costs leading to efficiency and effectiveness in production. In conclusion, marketers can define inter-organizational relationships as the relation between different organizations for the derivation of value. These relations can be classified into a number of forms including partnerships, franchises, outsourcing, networks and alliances, and joint ventures among other forms. 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