Relationship Marketing - Essay Example

Relationship Marketing Name: Tutor: Course: Date: 2.1 Relationship marketing defined Scholars and practitioners in the marketing field has grabbed the attention of relationship marketing as a marketing discipline that has triggered a paradigm shift to relationship focus away from transaction-based marketing. The term relationship marketing was first introduced by Berry in 1983 as a concept relating to customer attraction, maintenance and relationship enhancement. After two decades, relationship marketing was described by Aijo (2006) as networks of relationships in marketing based on interaction. Furthermore, in maintaining and creating sustained and positive attitudes, Vargo and Lush (2010) defined relationship marketing as a set of tools and policy to develop interactive and individualized relationships with customers against a brand or company. Relationship marketing is about dynamic processes and engagement activities throughout the relationship lifecycle stages evidenced by exchange characteristics and relationship marketing activities (Palmatier, 2008, p.1). Moreover, Khalifa (2014, p. 947) while defining relationship marketing views it as a strategy intended to improve and maintain customer-business relationship oriented towards the profitable customer that is willing to engage in a relationship. This shows that relationship marketing is a personalized and continuous interaction that creates social ties between the company and the customer and is associated to an exchange relationship. 2.2 Theoretical perspectives of relationship marketing Relationship marketing efforts as suggested by a number of researchers involve customer loyalty reward programs and direct mailings (Matz, et al., 2008; Khalifa, 2014; Palmatier, 2008). Rather than centered on calculative commitment, these efforts are bound to increase share of wallet and customer retention as they influence affective commitment of customers. In the 1950s through the 80s, Thibault, Kelly and McNeil developed the theory of social exchange that engendered relationship marketing as a critical element of a company while formulating marketing strategies (Payne, 2013; Rao & Perry, 2012). Yet, in 1983, Berry introduced Social exchange theory as significant to both consumers and marketers, especially when dealing with high involvement products or where interaction is frequent and demand is inelastic (Berry, 2012). Instead of being distant and discrete, majority of consumer relationships are neither long-term nor close. As a way of thinking, relationship marketing is experiencing a considerable development and success due to rapid growth of Information and Communication Technologies (ICT) and environment features (Khalifa, 2014; Egan & Harker, 2011). As a result, businesses have been enabled by these elements to migrate to customer management from product management and to the current customer relationship management (CRM) at individual level. In relationship marketing thinking, the nature of exchange time and perspective of analysis according to Egan and Harker (2011) are the two elementary factors that characterize customer relationships. The rationale is that it is less expensive to conquer new customers than to retain existing ones. Therefore, companies should have desires of customers and a long-term vision to anticipate needs. The relational approach studies jointly the social and economic dimensions while the transactional approach focuses solely on the economic dimension under the nature of the exchange. A common feature of exchange is long-term contracts that define the relationship marketing of a given industry. A very beneficial sector to implement long-term relationships involves the service activities. Over a decade ago, scholars in marketing can trace the roots and key concepts of relationship management given the shift towards relationships and the time frame (O’Malley & Tynan, 2011). Some of the key issues in relationship marketing and consultant-driven literature are the rapidly developing information technology, managing long term consumer relationships, direct marketing activities and creating practice-based technologies through databases (Egan & Harker, 2011; Möller & Halinen, 2009; Rao & Perry, 2012). In this case, the heavy emphasis is on one-to-one marketing, customer loyalty and marketing communications. Nearly a decade ago, it was not feasible to appropriate and transfer the relational perspective into mass consumer markets. However, in a wide range of contexts and markets today, relationship marketing is embraced by both academics and practitioners (O’Malley & Tynan, 2011). Aijo (2006) while attempting to cast more light on the nature of relationship marketing doubts if this is a fad. He argues that the new emerging school of marketing could herald new marketing paradigm, marketing concept, marketing strategy and a new area of marketing. Although relationship marketing was not under the wings with the hope of being discovered, relationship marketing was initially taken as a substitute to mainstream marketing (Dibb & Meadows, 2012). This was a new inter-organizational approach in service situations suited to heterogeneous markets and where sellers and buyers were equally active (O’Malley & Tynan, 2010), demonstrating that relationships and interaction were important. Several marketing scholars witnessed the birth of an alternative paradigm maintain that it is insufficient and obsolete to explain the current market context given the prominent exchange paradigm dominating mass consumer goods markets (Grönroos, 2010, Fernandes & Proenca, 2014; Sisodia & Wolfe, 2009; Dibb & Meadows, 2012). Many scholars have welcomed relationship marketing as a new scientific empire built on its shoulders from the detrimental impact of marketing mix theory or traditional marketing (Möller & Halinen, 2009). 2.3 Significance of relationship marketing to marketers Historically from the pre-industrial era, relationships have strong antecedents where sellers individually knew each of their buyers so as to suggest customized and appropriate product offerings. Marketers shifted their concerns during the industrial era when the situation changed towards goods sales and promotions (Nystrom, 2013). This happened when individualized practices and relationship enhancement were replaced by mass marketing. However, in the post-industrial era, marketers intensified competitive pressures and started realizing the limitations of their transaction-oriented strategies. Dibb and Meadows (2012) observed that the situation was aggravated by increasingly saturated markets under the pressure of eroding repeat purchases. To develop and manage relationships, there was a clear shift to anonymous masses of customers from marketing with at least identifiable and more or less well-known customers (Grönroos, 2011). According to Zolkiewski (2014), marketers demonstrate the ability and willingness to engage in relational marketing with an intention to treat consumers as individuals and not like a homogeneous market (Sisodia & Wolfe, 2009; Bolton & Tarasi, 2013). However, it is a challenge that cannot be met without customer relationship management (CRM) and information technology (IT). While CRM in the recent past has dominated the management literature, it is still limited in tackling the dynamism of relationships (Fernandes & Proenca, 2014; Payne, 2013).However, many scholars and academicians remain skeptical arguing this approach is inappropriate given the anonymity of customers, the nature of competition and the size of consumer markets (Zolkiewski, 2014; Rust, et al., 2005; Nystrom, 2013; Bolton & Tarasi, 2013). In the real sense, developing relationships in consumer markets is constrained by the difficulties associated with potentially intrusive technology and limited by the interaction between consumer and organization (Fernandes & Proenca, 2014; O´Malley & Tynan, 2011). Pioneers in the marketing field had an idea of how to maintain good relationships with its clients long before the emergence of relationship marketers (Payne, 2013). Compared to contemporary marketers, they may have lacked some of the sophisticated tools edged on technology and not orientation. Recent research shows that marketers look for value from customers and vice-versa thus providing a more balanced view of relationship marketing as a two-way street (Rust, et al., 2005). Furthermore, relationships are characterized by increasing mutual adaptation that have evolved over time and thus considered as increasing commitment, reducing distance and traversing a series of stages (Nystrom, 2013). Industrial networks are hard to manage, predict or plan and regarded as complex aggregations of relationships (Fernandes & Proenca, 2014). Business marketers represent selling and buying companies where previous experiences and interacting with each other to influence attitude and behavior. In contrast with previous traditional studies, Vargo and Lush (2010) argue that this view tends to see markets as consisting of a large number of less or more anonymous customers and atomistic with which marketers dealt at a distance. Recently, Vargo and Lush (2010) discussed and presented the service-dominant logic of marketing where service provision in the exchange process is considered as the core element. They consider differences between goods and services as artificial and their boundaries as blurred (Payne, 2013; Vargo & Lush, 2010). Products are considered as distributions mechanisms for service provision under the new perspective because customers obtain services from the product they buy. As opined by Rust and Thompson (2006) product lines adopt certain strategies based upon relationships while marketing strategies are based upon brands. Relationship marketing replaces the old short term marketing practices conveniently labeled as ‘transactional marketing’ to stress sales and promotions. There is nothing new in relationship marketing according to one school of thought and that it is something of a paradigm shift based on just setting up a straw man to make real the concept of relationship marketing (Bolton & Tarasi, 2013). To contemporary marketers, relationship marketing has been taken to the social media and enterprise social networks. Being crucial components of relationship marketing, sites like Twitter and Facebook make it easy and fast for firms and businesses to communicate information and get feedback from their customers. They have to make their customers as regular followers of their social media profiles in order to make this a long term relationship. Social media followers do not elect to follow a company out of mere curiosity but become attracted to insider information or incentives like coupons. 2.4 The potential implications of relationship marketing issues for businesses Acquisition of new customers is one of the most difficult and expensive tasks facing any businesses today. Given that relationship marketing is about the improvement of internal operations, many customers leave a company because of frustration with the customer service and not because they did not like the product. Customers become happier where businesses streamline their internal operations and satisfy all their customers’ service needs of despite them facing product problems (Rust & Thompson, 2006). In relationship marketing, technology is now playing a very important role. For instance, the Internet has made it easier for businesses to utilize vast amounts of information, analyze, store, and track information about their customers. Firms offer tokens of appreciation for their loyalty through expedited service, special deals and personalized ads. In an ongoing and informal way, social media sites are facilitating businesses to engage their customers. Businesses can automate their marketing efforts courtesy of technology because it was impossible, previously, to keep useful records about every single client (Palmatier, 2008). Secondly, branding is another component of relationship marketing where firms form a long-term relationship with clients. If the brand image matches with the self-image of the client, they latter feels like they have to purchase reflect their inner self or their expectations. A brand that makes a statement about the customer’s identity will make them less inclined to switch to a different company or brand. According to Dibb and Meadows (2012), relationship marketing has a lot in common to customer relationship management, brand management, channels marketing, business-to-business marketing and services marketing. However, it overlaps with channel marketing, business-to-business and service marketing owing to the differentiation of their focus (Khalifa, 2014). In contexts with specific features, they improve performance in areas like channel members, exchanges between firms, intangible services and by changing relationships to improve performance (Rao & Perry, 2012). With varying degrees of effectiveness, relationship marketing applies to many different contexts. For instance, a meta-analysis shows that building strong relationships among services is more effective than improving performance among product offerings of more than 38,000 relationships. This applies for channel partners rather than direct customers and business-to-consumer against business-to-business markets (Palmatier et al., 2006). Research and practice in services, not surprisingly, often include relational constructs in the business-to-business and channels contexts. The roots for many key relationship management concepts in early research are in the service context (Möller & Halinen, 2009). In this case, producers represent both retailers and manufacturers, and are embedded within the relationships among consumers and producers. Owing to the existence of a few institutionalized protections, businesses provide the trust and the norms necessary to conduct the transactions. For the combined experience of the participants, it means that relationships between companies are the ‘catch-all’ situation. The long-run value of current and potential customers is recognized under the customer relationship management (CRM) literature (Bolton & Tarasi, 2013). The results of marketing activities are directed towards increased shareholder value, profits and revenues of the business. Relationship marketing enhances, maintains and develops successful customer-company relationships. Marketing activities are the underlying sources of value delivered to customers and what the firm derives from customers (Payne, 2013). From the business perspective, customers are the company’s building blocks and are required to endure long-term success. Relationship marketing provides a valuable customer portfolio and contributes to the building of strong market assets. While the input of CRM should be actively considered in decisions, the integral part of a company’s strategy is centered on relationship marketing and the development of organizational capabilities. This should dictate how the business will allocate resources and manage value creation. The aim of relationship marketing is to secure life time custom and create customer loyalty. A successful relationship marketing campaign is one in which costs are a fraction of the benefits for firms that choose to invest in relationship marketing programmes. More than two-thirds of all businesses report who strive to keep their previous customers is able to get better return on investment than when they put more effort in getting new ones. Keeping the customer happy is the cornerstone of relationship marketing (Payne, 2013). For example, happy customers help firms to attract more customers and provide great positive reviews with deeper impact on the business. They will share their opinions more often after developing lasting relationships. Customers trust companies and expect their concerns and needs to be met (Turnbull et al., 2006). As a result, they would want to see improvement in company products or services as they become share their minds on available opportunities. Möller and Halinen (2009) opine that customer feedback is invaluable to an extent that when firms act on it, they prove that they have a listening ear and are able to raise their opinions and concerns to greater heights. Compared to any other form of advertising, people tend to trust the opinions of family members and friends. A customer who likes a company brand and recommend to others is an effective marketer more than the company staff (Sisodia & Wolfe, 2009). Relationship marketing is evidenced by the snowball effect where new customers are more valuable as firms work hard to obtain more purchases from each customer. They see better returns from attracting new customers during marketing campaigns launches. While no single strategy is without flaws, relationship marketing for many companies is an expensive affair (Rust & Thompson, 2006). If they fail to pique customers’ interest, customer service becomes very costly as do promotions. Furthermore, some business models are not compatible with relationship marketing (Zolkiewski, 2014). For example, there might be little effect to a firm that sells a product in which most people only buy once. Before trying it out it is important that a company considers if it really works for them. In addition, CRM and the Internet are becoming extremely important in business life. Most firms take this as an opportunity to enable mass customization, personalize marketing messages, tighten customer relationships and reduce customer-service costs (Akers, 2015). By recommending the business to family and friends, loyal customers help expand the business. Because of their trust on the company, they demonstrate willingness to try new products. They are also likely to trust company’s products and services, become loyal and even accept price increases. Businesses are able to improve on their product and services because loyal customers easily provide feedback and support innovation by suggesting ideas for the business and identifying gaps in the market (Bolton & Tarasi, 2013). Even with a lapse in customer service, loyal customers usually continue to provide the business with custom only that the situation must be resolved very swiftly and to their satisfaction. Companies are able to establish personalized and lasting relationships with the combination of networks, databases and computers in an economically advantageous and technically feasible environment to relate with clients individually (Zolkiewski, 2014). In the early 90s, ‘new’ business models engendered ‘new’ consumer behavior as Information Technologies expanded. This created a paradigm shift in marketing owing to the emergence of new marketing concepts such as the ‘One to One’ (Rao & Perry, 2012). This concept emerged with the gain in momentum by Customer Relationship Management and the development of e-business. While CRM refocuses strategies and activities around their customers, they reflect the willingness by companies to optimize and enhance each client contact. As the most cost-effective marketing strategies available, the benefits of relationship marketing are immense for the majority of businesses. Aggressive firms finally finish first since their focus is on keeping customers happy. 2.5 Industry application of relationship marketing: IKEA and Dell From developing long-term relationships with their customers, many types of companies have something to gain. Smaller businesses make little effort to draw in new customers because they often serve a steady stream of regulars (Bolton & Tarasi, 2013). For example, a small restaurant with steady stream of customers from the morning commute takes advantage of their daily presence to boost daily sales. However, for large companies, carrying out sophisticated relationship marketing campaigns typical and commonplace. Relationship marketing, in some major companies with a client facing purpose, is a strategy that affects every department such as shipping, customer service or sales. Industry leaders providing similar goods with a higher-quality level of service constantly face competition from new companies (Egan & Harker, 2011). The only way to be at the top of their industry and maintain their position is to hold onto their existing customers. This is true from cell phones to baby food and to businesses in all industries. To understand their customers, such companies first look at historical and demographic data to know how to provide for them and understand what they buy over the long-term. To do so, companies should understand the desire for repeat business among consumers. Customers returning to the company may not be because they were served well, but could be a result of proximity of their stores to their homes or due to the existence of stocks or product in particular stores or outlets. Developing a working relationship marketing plan starts with the analysis of the nature of customer loyalty (Zolkiewski, 2014). Two companies, IKEA and Dell are of special interest in discussing relationship marketing as described below. 2.5.1 IKEA IKEA has a worldwide base of intensely loyal customers and being a Swedish furniture maker, it has changed the font in their ubiquitous catalog. IKEA changed the font back in the next catalog after their loyal customers took to the Internet to air their complaints. They did not alienate their customers for the trivial reason. In theory, Peck developed a Six Markets Model that shows an interaction with stakeholder relationship marketing where companies and their stakeholders engage in an on-going interactive process (Matz et al., 2008). The customer is at the center all others within relationship marketing and is the company's main interest group. Aligned by customer’s needs and regarding the other markets are sub-items, customer relationships enhance the company's service offering within these markets. As part of the internal market, suppliers and employees are IKEA’s most important partners (Matz et al., 2008). IKEA achieves and keeps its promise by relying on suppliers to deliver them with reasonable products or materials so that staff reflects their service approach and create a better everyday life for many people. In particular, IKEA launched a loyalty card called the ‘IKEA Family card’. The name of the card is specific to the customer and owning automatically qualifies a member to be part of the ‘IKEA Family’. IKEA derives social and psychological benefits by trying to personalize their speech to the customers. In their website, IKEA has a link ‘About IKEA’, where customer is bombarded with expression like good quality products at low prices which is a well formulated impression. Long-term relationships are related to the economic benefits and ‘IKEA Family’ is concerned with knowledge and activities (Matz et al., 2008). They use catalogs to contribute to improve the lives of customers at home. Although it does not have a bonus system, ‘IKEA Family’ promotion treats all customers as equal and provides them with similar opportunities for access. Social media such Facebook and Twitter have been employed as important platforms to obtain customer feedback and co-create value (Murphy, 2014). In this platform, customers are able to share values and ideas, and work together to develop and improve company products through shared development. 2.5.2 Dell Dell computers tailored the ordering process to the specific needs of customers and created a special online store for high volume corporate customers (Mehta, 2009). The company has been able to expedite many of the hassles faced by corporate technology buyers. Hotlink makes the software used by Dell to increase relationship marketing. Dell is right on tract in talking to all its customers and has been hailed as the pioneer of personalization. The direct PC manufacturer being a star of e-commerce is already making half its money online. For example, its websites are raking in around $25 million every single day and are receiving 390,000 visitors which is a sparkling performance by any measurable standards (Mehta, 2009). Although it has not achieved its legendary success, the figures courtesy of relationship marketing continues to climb inexorably. Dell cultivates a reputation for personalized marketing and does not simply bombard all its customers with its product portfolio. Compared to other firms, their personalization comes naturally. Dell customers' needs are paramount from the outset because the company sells PCs that are built to order. To keep its customers loyal and attract repeat purchases it has exploited the interactivity of the internet so as to provide an ongoing service that is tailored to meet their requirements. Nonetheless, some degree of classification is necessary because no large company can provide a personalized service to individual customers. Dell tends to view customers as static units and that is why its customer-centric service is not organized based on demographic market segmentation (Akers, 2015). They ask customers for little more than their addresses and names giving more dynamic flavor to their personalization techniques. Conversely, more small businesses are now opening accounts after the strategy initially attracted large organizations (Murphy, 2014). Business customers have their needs are addressed more directly because they are much larger entities compared to individual consumers due to the concept of clusters of behavior. Dell has developed one-to-one relationships with specific people who happen to be business customers within the organization. This relationship moves from being human and gets translated into a personalized offering. 2.6 Summary From the two organizations above, relationship marketing provides a wealth of customer data and a higher level of service that lead to increase in customer loyalty. For each customer segment, companies develop unique marketing strategies segment using IT and new media to attract and retain customers. A customer with helpful customer service experience has different qualities that the one who simply appreciates the value of the product. With tailored relationship marketing strategies, customers become loyal to the company for different reasons. Moreover, a constant evaluation to determine its success once the marketing strategy has been implemented. Firms are able to hold onto their customers, based on a number of hard metrics, to obtain repeat sales and observe the customer behavior. With relationship marketing customers tend to spend more, follow them on social networks, refer the company to friends and open up email newsletters which are indicators of customer loyalty. References Aijo, T.S. (2006). The theoretical and philosophical underpinnings of relationship marketing, European Journal of Marketing, 23(1): 13-18. Akers, H. (2015). The impact of relationship marketing strategy on customer loyalty. 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