ARLA Foods Relationship Marketing Practices - Essay Example

MILKING THE MARKET: A Case Study of ARLA Foods Relationship Marketing Practices Introduction “In a few hundred years, when the history of out timeis written from a long-term perspective, it is likely that the most important event those historians will see is not technology, not the Internet, not e-commerce. It is an unprecedented change in the human condition. For the first time – literally – substantial and rapidly growing numbers of people have choices” (Drucker, 2000). The advent of the information economy has fostered in new challenges for the marketer. Most organizations, in reference to Michael Porter’s model of competitive analysis, will be able to relate to the increased threat of new entrants or competitors, the availability of substitute products, decreased bargaining power of suppliers, increased bargaining power of buyers, and increased intensity of rivalry within the industry. Government deregulation, globalization, and technological advances have changed the “minimum requirements” for organizations to remain competitive. Dairy industry producers and farmers have been hard hit by these changes. Increasing production levels, rising production costs, and softening market prices have resulted in the commoditization of dairy products. Companies such as ARLA Foods have had to re-examine its way of doing business in order to adapt to this new environment; in particular, ARLA Foods has redefined its business with its focus on customer relationship marketing. This proposal will examine ARLA Foods’ implementation of new strategies of relationship marketing and its corresponding self-realignment activities. The proponent of the study is currently employed with ARLA Foods. Literature Review Traditional Marketing: Transactions and Exchange Kotler (2000) defines marketing as: “the process of planning, and executing the conception, pricing, promotion, and distribution of goods, ideas, and services, to create exchanges that satisfy individual and organizational goals.” Through manipulation of the “4 Ps” (Product, Price, Place, Promotion or the marketing mix), marketers seek to meet and satisfy customer’s needs and wants through a process of exchange that may culminate in a transaction. What forms the bases of the “4Ps” framework? Christopher, Clark, Peck, and Payne (1999) trace the framework’s origins to Borden’s work in 1960s. Borden identified 12 factors that comprised the “marketing mix” that influenced demand. These 12 factors would later be simplified in the popular “4Ps” framework. The prevailing mass manufacturing – mass marketing conditions of the 1950s and 1960s, with its emphasis on customer acquisition rather than retention, provided ample evidence of transaction-based marketing’s efficacy. Beyond The Transaction: Establishing Long-Term Relationships Government deregulation has resulted in increased competition in industries such as transportation, energy, and telecommunications. Companies have broader geographic market scope and partnering with international suppliers. Efficient supply chains and the Internet have allowed for more sophisticated customer needs acquisition, fulfillment, and tracking. Christopher et al (1999) relates the eventual inadequacy of the transaction-based model: “Critics have long argued that these models and the assumptions on which they were based were inappropriate for industrial and services contexts, where relationships with customers were often on-going and of pivotal importance. They were also felt to be inadequate when applied to marketing in the international arena. Marketing management, as it was usually taught, represented neither the aspirations nor the reality of these branches of marketing. With the arrival of the recession in the 1990s it became widely recognized that, even in consumer markets, this classical marketing paradigm had lost its potency.” Gummesson (2002a) points out the shortcomings of current marketing theory: “The texts (referring to marketing textbooks) do not interlink phenomena in a deeper sense although they may offer some overriding framework. The continuous building of core variables to an increasingly more general level does not take place. For that, basic and scholarly research is required.” By the 1980s, the concept of relationship marketing began to emerge. Defining Relationship Marketing The theoretical values of relationship marketing are organic and developing in new beliefs and direction as it faces changes in the market place (Christopher, 1999; Stone, Woodcock, and Machtynger, 2000; Gordon, 1998; Gummesson, 2002b) as well as changes in the methodologies and tools (Gummesson, 2003; Perry & Gummesson, 2004) with which to assess it. For example, relationship marketing has often been seen as a means of creating value with individual customers (Gordon, 1998), “marketing based on interactions within networks of relationships” (Gummeson, 2002b), interactions stages of development (Stone, Woodcock, and Machtynger, 2000; Sharma, 1994; and York, 1990), customer retention (Reichheld, 1993). While relationship marketing has often been defined as the relationship between the company and the customer, recent literature has also introduced the concept of being concerned with other parties external to the company, such as distributors, suppliers, etc. (Christopher et al., 1999). This variation may be attributed to the differences in interpretation of phenomena; Gummesson (2003) points out the interpretation-research connection: “Let’s stop fooling ourselves: All research is interpretive!... There is interpretation all along, from the very start of the project until the very end.” Despite the variations in definitions, relationship marketing borrows heavily from studies on customer service and customer retention. Scholars suggest that more than single-sale transactions, it is often desirable for companies to establish a longer-term, mutually beneficial (value-creating) relationship between the organization and its customers (Stone, Woodcock, & Machtynger, 2000; Christopher et al., 1999; Gordon, 1998; Gummesson, 2002b). Blattberg & Deighton (1996) posit that the growth of a business may be viewed as acquiring and retaining customers so as to realize the full potential value of the customer base. From the seller’s point of view, such relationships serve as effective entry barriers, improve differentiation, and in the long-term, result in more profitable returns. (Venetis & Ghauri, 2004). Christopher et al (1999) report that while relationship marketing’s initial phases delved into establishment of long-term, mutually beneficial relationships, the concept rapidly evolved to include internal marketing. Internal Marketing Literature on internal marketing has been linked with relationship marketing in recognition of the cross-functional dynamics involved in implementing any strategy. Kotler (1997) provide this definition of internal marketing: “Internal marketing is the task of successfully hiring, training, and motivating able employees who want to serve the customer well.” A study by Guenzi and Pelloni (2004) on the impact of interpersonal relationships on customer satisfaction and loyalty to the service provider showed that strong employee-customer relationships “can drive to the firm’s success by fostering customer satisfaction, behavioral loyalty, and loyalty intention, and also by reducing customer intention to follow “friend” customers switching to other service providers.” The retention of such key employees is critical, as the study suggested that customers may be willing to “follow” the employee to a new service provider. Given the importance of such frontline personnel in delivering the relationship marketing strategy, Guenzi and Pelloni point out managerial implications in terms of personnel selection, training, rewards systems, facilities, processes, and peripheral services. Other research similarly connect employee contribution to marketing effectiveness (Gummesson, 1987; Gronroos, 1990). While the realities of an integrated implementation of relationship marketing necessitate high levels of employee-employee and employee-customer collaboration, other authors have also articulated the need to manage external relationships. External Relationships and Relationship Marketing Majority of literature on relationship marketing discuss internal marketing and marketing to customers. Few authors discuss the management of external (non-customer) relationships. These select authors include Gummesson (1994) and Christopher, Payne, and Ballantyne (1991). Gummesson (1994) identifies 30Rs or 30 relationships that operationalizes the philosophy or relationship marketing. Among the 30Rs, Relationship 3 (Megamarketing), Relationship 11 (Non-commercial relationship), Relationship 14 (Megaalliances), Relationship 23 (Criminal network), Relationship 27 (Green relationship), and Relationship 29 (Mass Media Relationship) provide examples of non-customer relationships that must also be managed in the relationship marketing approach. Christopher et al. (1991) labels such non-customer, external relationships as “influence markets”. Influencer applies to a “range of third parties who exercise influence over the organization and its potential customers.” Christopher identifies the possible participants of the influencer group as follows: governments and their agencies, press and other media, professional bodies, investors, and pressure groups. The value of managing this external group is captured by Christopher et al. (1999): “While relationships with these parties may not directly add value to a product or service, they can directly influence the likelihood of purchase or prevent an offer from even reaching the market.” Aside from managing such external relationships, organizations must also contend with managing virtual or electronic relationships. Technology and Relationship Marketing Advances in information technology have made feasible and possible, interactive and real-time information for both the customer and servicing organizations. Gordon (1998) identifies four major technology changes: Internet, computer telephony integration, data warehouses, and mass customization. In addition, Stone, Woodcock, and Machtynger (2000) also discuss the following technologies which affect the customer-organization interaction, such as e-purses, CD-ROMs, electronic data interchanges (EDI), email, Internet, Extranet, Intranet, kiosks, direct response, interactive television, mobile services, and loyalty cards. Despite the high availability of relationship marketing technology tools, program implementation tends to be problematic. Chen & Chen’s (2004) exploration of e-CRM success factors cites a Forrester Research report that while corporate spending on e-CRM surged at an annual rate of 54% between 1996 to 2000, budgets plummeted 25% in 2002. While more than half of these companies planned to increase their budgets by 2003, Chen et al. (2004) cite a Gartner Report (2001) that “indicates a 44-60 percent of e-CRM projects failed.” Chen et al. (2004) identify six major dimensions for e-CRM success. These factors include: (1) Champion leadership; (2) Internal marketing; (3) Knowledge management; (4) Business-IT alignment; (5) System integration; and (6) Culture/Structure change. Several items were attributed to the Culture/Structure change dimension, namely: (1) Customer service consciousness; (2) Customer-centric organization culture; (3) Consumer-focused marketing strategies; (4) Affiliation; and (5) Merger and acquisition. Chen & Chen’s observations on the importance of culture is consistent with Gummesson’s (2002b) proposal for a “total offering” approach to relationship marketing: “We must eventually learn to see the offering – previously referred to as goods and services but where I now find it necessary to include information technology as well – and its value-producing potential and not get stuck in its constituent parts. To avoid CRM becoming a myopic eCRM we need the counterbalance of hCRM where “h” stands for human. We need to head for an optimal trade-off between eCRM and hCRM. We need to properly absorb the values of relationship marketing or CRM will forever be no more than an expensive computer system.” Despite the relatively high failure rate in implementing an integrated relationship marketing strategy, the financial pay-off for successful companies can be quite lucrative. Relationship Marketing and Profitability Perhaps the high degree of interest in relationship marketing is owed to growing empirical evidence which links relationship marketing with profitability. Relationship marketing’s promise of lifetime value and increased profitability per customer provide substantial reason for organizations to keep taking note and continue their organizational learning, despite setbacks. Customer retention has been high correlated with profitability in service situations (Reichheld & Sasser, 1990). Reichheld’s findings were dramatic: a five percent increase in customer retention resulted in increased profitability in the range of 20 percent to 125 percent. In a similar vein, Gupta and Lehmann (2003) estimated an “increase of 22% to 37% in a customer lifetime value for a 5 % increase in customer retention for Capital One and E*trade”. As it seems, longer-term, mutually beneficial relationships between the organization, customers, and other parties may be the key to overcoming the dairy industry’s current challenges. Relationship Marketing in the UK Dairy Industry The dairy industry faces formidable challenges related to the use of bovine somatotrophin and automatic milking systems (Millar, Tomkins, White, and Mepham, 2002), falling organic milk prices (Franks, 2003), variable farm assurance standards, limited product range and processing base, lack of entrepreneurial spirit, peripherality, fragmented and weak economic development support infrastructure, weak marketing of locally made products (Pattison & Lindgreen, 2004), particularly difficulties in their communication of product differentiation (Christy & Norris, 1999). Pattison and Lindgreen (2004) identify opportunities such as funding, market opportunities, new product development, supply chain development, and tourism linkages. These opportunities may offer further exploration areas for ARLA Foods’ relationship marketing practices. Conceptual Framework The conceptual framework to be used in analyzing ARLA Foods’ relationship marketing activities is Gummesson’s (1994) 30R model. The need for marketers to define a list of defined parameters can be seen in their initiatives to make marketing easier to overview and comprehend. The 30R’s model of Gummesson, which was precisely designed for this purpose, is briefly presented below. This represents an effort to convert theories into relationships, networks and interaction into something concrete which can be implemented to a company’s marketing plan. In reading the following list, it is critical that the vantage points of the approach are kept in mind with the following question: “If we view marketing as relationships, networks, and interaction, what do we see?” R1. The classic dyad: the relationship between the customer and the supplier. This is the parent relationship of marketing, the ultimate exchange of value which composes the basis of the business. R2. The many-headed customer and the many-headed supplier. Marketing to other organizations – industrial marketing or business marketing –frequently suggests contacts between many individuals from the supplier’s and the customer’s firms. R3. Megamarketing: the real customer is not always found in the marketplace. In some contexts, the customer is sought in non-market networks above the market proper – governments, law markers and influential persons – to make marketing feasible at the operational level. R4. The classic triad: the supplier-customer-competitor relationship. Competition is a crucial component of the market economy. In a competition, there are relationships between three parties: between the customer and the existing supplier, between the customer and the supplier’s competitors, and among competitors. R5. Alliances change the market mechanisms. Alliances suggest closer relationships and collaboration between companies. Thus, competition is partly curbed, but collaboration is imperative to make the market economy work. R6. Market mechanisms are brought inside the company. By featuring profit centers in the organization, a market inside the company is created, and internal as well as external relationships of a new kind are brought forth. R7. The service encounter: interaction between the customer and the frontline personnel. Production and delivery of services engage the customer in an interactive relationship with the service provider’s personnel. R8. Interfunctional and interheirarchical dependency: the relationship between internal and external customers. The dependency between the different tiers and departments in an organization is seen as a process composed of relationships between internal customers and internal providers. R9. Relationships via full-time marketers (FTMs) and part-time marketers (PTMs). Those who work in marketing and sales departments – the FTMs – are professional relationship makers. All others, who accomplish other main functions but yet influence customer relationships directly or indirectly, are PTMs. There are also PTMs and FTMs outside the organization. R10. Internal marketing: relationships with the “employee” market. Internal marketing can be seen as a part of RM as it gives indirect and necessary support to the relationships with external customers. R11. The non-commercial relationship. This is a relationship between the public sector and citizens/customers, but it also includes voluntary organizations and other activities outside the profit-based or monetarized economy, such as those performed in families. R12. Physical distribution: the classic marketing network. Physical distribution consists of a network of relationships which is sometimes totally decisive for marketing success. R13. The electronic relationship. An important volume of marketing today is carried out through IT networks. This volume is predicted to grow in importance. R14. Megaalliances. The European Union (EU) and the North America Free Trade Agreement (NAFTA) are examples of alliances beyond the single company and industry. They exist on government and supranational levels. R15. Quality providing a relationship between production and marketing. The modern quality concept has built a bridge between technology and marketing. It considers the company’s internal relationships as well as its relationships to the customers. R16. Personal and social network. Personal and social networks frequently determine business networks. In fact, in some cultures, business is exclusively conducted between friends and friends-of-friends. R17. The two-dimensional matrix relationship. Organizational matrices are frequent in large corporations, above all in the relationships between product management and sales. R18. The relationship to external providers of marketing services. External providers reinforce the marketing function by supplying a series of services, such as those offered by advertising agencies and market research institutes, but also in the area of sales and distribution. R19. The relationship to the customer’s customer. A condition for success is often the understanding of the customer’s customer, and what suppliers can do to help their customers become successful. R20. The owner and financier relationship. Owners and other financiers can sometimes determine the conditions under which marketing works. The relationship to them may influence the marketing strategy. R21. Parasocial relationships between symbols and objects. Relationships do not only exist to people and physical phenomena, but also to mental images and symbols such as brand names and corporate identities. R22. The law-based relationship. A relationship to a customer is sometimes solely founded on legal contracts and the threat of litigation. R23. The criminal network. Organized crime is founded on tight and frequently impermeable networks guided by an illegal business mission. They exist around the world and are apparently growing but are not observed in marketing theory. These networks can disturb the functioning of a whole market or industry. R24. The mental or physical proximity to customers vs. the relationship via market research. In mass marketing, the closeness to the customer is often lost and the customer relationship is based on surveys, statistics, and written reports. R25. The customer as member. In order to create a long-term sustaining relationship, it has become increasingly frequent to enlist customers as members of various marketing programs. R26. The relationship the dissatisfied customer. The dissatisfied customer perceives a special type of relationship more intense than the normal situation, and often badly managed by the provider. The way of handling a complaint – the recovery – can determine the quality of the future relationship. R27. The green relationship. Environmental and health issues have gradually grown in relevance and are creating a new type of customer relationship through legislation, the voice of opinion leading customers, changing behavior of consumers, and an extension of the customer-supplier relationship to encompass a recycling process. R28. The knowledge relationship. Knowledge can be the most strategic and crucial resource and “knowledge acquisition” is often the reason behind alliances. R29. The mass media relationship. The media can be supportive or damaging to marketing, which is critical to success or failure. R30. The monopoly relationship: the customer or supplier as prisoners. When competition is inhibited, the customer may be at the mercy of the provider, or the other way around. These relationships may be viewed as concentric circles, beginning from nanorelationships, to individual relationships, outwards to mass marketing relationships, inter-organizational relationships and mega-relationships (Gummesson, 1994). Statement of the Problem 1. What is the strategic approach to relationship marketing employed by Arlafoods in the macro – microenvironment? 2. What does internal relationship marketing mean? Why is this important in service products? 3. How does Arlafoods build and retain relationships. 4. What are further opportunities to enhance ARLA’s strategic relationship-marketing plan? 5. Are there ethical issues with regard to the relationship marketing strategy? 6. What conclusions may be drawn regarding the effectiveness of relationship marketing in ARLA? 7. What are the future opportunities for relationship marketing in ARLA? Significance of the Study To the company, the results of the study will provide critical information on how to enhance their relationship marketing strategies. The present macroenvironmental changes make it necessary for them to customize these strategies, that should be consistent and supportive of overall organizational goals. ARLA foods ought to scrutinize its business norms to be responsive to external changes, and still maintain competitive advantage over competitors. The current study wishes to concentrate on its customer relationship marketing efforts. Scope and Delimitations of the Study The study is delimited to ARLA Foods Corporation, assessing the following relationship marketing categories assessed in the self-constructed instrument. It does not aim to compare these relationship marketing strategies with those of competitors. In particular it intends to address the following subproblems: 1) examine the strategic approach to relationship marketing of ARLA Foods in both macro and micro environments; 2) explain what internal relationship marketing means and why it is important in service product; 3) discuss how Arlafoods builds relationships, retains relationships; 4) identify any further opportunities to enhance the strategic relationship-marketing plan; 5) review the ethical issues if any of the relationship marketing strategy has led to; and 6) deduce conclusions on the effectiveness and future opportunities of relationship marketing. A methodological limitation is the lack of quantitative measures utilized; the study is limited to the qualitative responses of the respondent interviewed for the research. Thus, the results may not be generalizable to all players in the dairy industry. Methodology Research Design The current study utilizes a case study design. Qualitative data was gathered to answer all issues related to relationship marketing strategies of ARLA Foods Corp. All primary data shall be gathered from qualitative interview responses from the structured interview guide, and thematically analyzed. Procedure Secondary research will be reviewed by academic, journalistic and relevant literature and why they will be relevant to the investigation. Including theoretical literature on relationship marketing. A review of the marketing literature was conducted, gathering past literature on relationship marketing in the macro-micro environment in order to develop research hypotheses. Primary research data will be gathered from an interview with Mrs. Rachel Thomas (Marketing Manager). Informal approval has been gained Rachel has been predominately featured in the basic business strategy for reviewing and promoting the new approach to relationship marketing. The interview will be in the form of a number of specified questions to understand the new approach adopted and the theoretical applications to be reviewed. The interview will be supported by information from the Human resource department at Arla Foods Plc in terms of vision, goals, and objectives. Information on statistics will be gathered through Arlafoods, government information, Datamonitor, and Mintel. The primary data gathered shall be analyzed by extracting themes from the interviewer’s responses. Instrument The instrument that will be used for primary data gathering shall be through a structured questionnaire. The instrument was self-constructed and content and face validated by an instrumentation expert. This will be pilot tested with at least 3 interviewers to ensure clarity of phrasing and consistency of content / flow. References Blattberg, R. & Deighton, J. (1996). Manage Marketing by the Customer Equity Test. Harvard Business Review, July/August, 136-144. 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(Ed), “Understanding Business Markets: Interaction, Relationships, and Networks, Academic Press, London, pp. 347-58. Read More