Contemporary issues in marketing - Essay Example

The definition of RM as stated by Gronroos (1994, p.22) is: "Relationship Marketing is to establish, maintain, and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfilment of promises." Furthermore Harker (1999) was able to use the results of his research to build a new definition of RM. According to Harker (1999, p.16) RM is when an organisation is engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers overtime.

" Gronroos (1994) further added to the RM debate when he recognised that marketing mix management was beginning to lose its position as the dominant marketing paradigm. He noted that relationship building and management, or "relationship marketing", was one leading new approach to marketing which was becoming increasingly popular amongst marketing literature (Gronroos, 1994). . The Benefits of Relationship MarketingReichheld and Kenny (1991) conducted their research and looked at the benefits derived by firms from retaining long-term loyal customers.

They noted that contemporary strategies for improving profitability involved cost reduction and price increases. They found these strategies, while successful in the short-term actually undermined long-term profits (Reichheld & Kenny 1991). By comparing the performance between banks participating in the study (Reichheld & Kenny 1990-1991) found that those who focused on retaining deposit customers outperformed their competitors. Reichheld and Kenny (1991) attributed the increase in growth to the 'shifting of competition from the "open market" where the banks had little control,' to inside their branches, where they could exercise greater control.

Reichheld and Kenny (1991, p.20) identified five key areas that affected long-term performance and increased profits. 1) Balances grow over time; 2) The expense of acquiring new customers is incurred only in the first year, therefore the longer the relationship the lower the amortised cost; 3) The cost of maintaining customers is somewhat fixed, therefore maintenance expenses decline as the relationship lengthens; 4) Long-term customers are more likely to expand their relationship to other products or services; and 5) Long-term customers are more likely to refer their friends and relatives to the bank.

Reichheld and Kenny (1991) concluded by noting that the banks that successfully manage retention will establish themselves as growth and profit leaders within the retail banking industry.After recognising that RM literature focused predominantly on the benefits of customer loyalty from the perspective of the firm, Gwinner, Gremler, and Bitner (1998)