Relationship Marketing Essay, Research Paper
“Relationship marketing is an approach to the market which emphasis a ‘relationship’ rather than a ‘transaction approach’ to business” (Tap, 1998)
Critically analyse this statement.
Recently there has been a shift from the more short-term traditional transaction approach to marketing, to long-term relationship between suppliers and customers especially within the service sector. (Buttle, 1996)
The significance of relationship marketing is that it is more about customer value and satisfaction than making a fast buck. (Kotler, 2000)(Refer to appendix, 1 for models for relationship marketing)
“The fundamental principle upon which relationship marketing is founded is that the greater the level of customer satisfaction with the relationship – not just the product or service – then the greater the likelihood that the customer will stay with us”.
(Payne, et, al 1998, p vii)
Relationship marketing concentrates on structuring relationships with customers and then having the advantage to target them with relevant parts of the marketing mix i.e. promotion. (http://www.eccs.uk.com, 1999) (Refer to appendix 2, for articles on relationship marketing, Financial Times article on relationship marketing by Barbara Kahn, Defining customer relationship marketing and management & ECCS- The European Centre for Customer Strategies)
The transaction approach is more likely to be a one off or short term approach where it finishes with point of sale. The relationship approach is much more likely to be long term where the company establishes potential and efficient relationships with a customer so that they can cater to the customers demands and needs. (Kotler,2000)
Marketing transaction approach Marketing relationship approach
Directed at individual sales Directed at customer retention
No customer contact Constant customer contact
More attention to product/service More attention to customer benefits
Not much regard for customer service High level of customer service.
No responsibility for meeting customers Very responsive to meeting
demands customers demands
Production staff are only concerned All staff are concerned with quality of
about quality of product/service product/service
(Payne, et al, 1998)
Transactional approach is to make profits by just selling and having little customer contact. Relationship marketing is much more customer orientated. Marketers focus and continuously give their attention to key accounts, which are highly profitable. (Kotler,2000) The Pareto effect points out that 20% of customers account for 80% of business. Companies should therefor identify their most important customers, provide them with a high quality service, and utilise marketing strategies and plans to implement this. (Brassington & Pettitt,1997)
There are different ways to build up relationship marketing with the customer.
Reactive marketing, this is where a customer buys a product and the salesperson persuades the customer to telephone back with their questions or complaints.
Accountable marketing is where the salesperson telephones the customer after they have purchased a product/service to see whether they are satisfied with their purchase/service. The customer is asked whether there are any improvements, which could be made to the product/service. This helps the product/service provider to improve their performance in the future. (Kotler,2000). BMW always phone you up shortly after they have serviced your car and ask you questions about the service to improve the quality of future services. Sometimes the customer can contact the suppliers i.e.
Kellogg’s provide a customer service telephone number that customers can phone up. This is common practice in America there is a toll free number on the package of many products. (Kotler, 2000) (Refer to appendix 3, (BAA, Achieving world class performance), article about customer satisfaction and long term relationships & for relationship marketing through banking, (First direct, Creating intelligent relationships with customers)
Relationship marketing can reap long term monetary benefits from customer retention. It costs five times more to attract a new customer than to retain an existing customer. (Buttle, 1996) Attracting new customers can be a costly expense for some small businesses. Organisations that use relationship marketing to build long-term relationships will have satisfied clients who will come back and repurchase goods or services. However it can take time i.e. a credit card company needs to retain a new customer for over two years before reaching the break-even point. If a customer is no longer happy with a company and defects to the competition and tells other customers of their dissatisfaction, the company could loose a lot of revenue. (Buttle, 1996) Reasons for defecting are lower priced substitutes; better service offered elsewhere and competitor products/services are superior. Companies should observe the rate of customer defection, why they have defected and then take measures to reduce it. (Kotler, 1996)
The transactional marketing mix approach is, in gaining revenue from any customer without having to form a relationship with them. (Buttle, 1996) This can be defined in the definition of marketing from the American Association of Marketing and the Chartered Institute of Marketing, UK
“Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organisational goals.” . (http://ama.org, 2000)
“Marketing is the management process responsible for identifying, anticipating and satisfying customers requirements profitably” (http://www.cim.co.uk, 2000)
There has not been much evidence that customers wish to commit themselves to long-term relationships with suppliers. (Barnes, 1995, Blois, 1995, author Buttle, 1996)
However Gronoos disagrees and suggest that marketing should not end in a transaction it should develop into a longer-term relationship.
” Marketing is to establish, develop and commercialize long term customer relationships so that the objectives of the parties are met. This is done by a mutual exchange and keeping of promises.”)
(Gronoos, author, Morgan, 1996, p 16)
Retaining customers and targeting new customers for retention can be done through loyalty card schemes/ clubs. Sainsburys have a drinks club; they produce a monthly magazine with offers and competitions for customers who have joined the drinks club. The used money off vouchers will give Sainsburys an indication of customer preference. (Refer to appendix 4 for Sainsburys drinks club magazine.) The loyalty card is a useful marketing tool that gathers spending information about the cardholders. (Jardeine, 2000) There are incentives and special offers for cardholders. Many companies have loyalty card schemes (Sainburys Reward card, Boots Advantage card and Tesco club card). Ownership of a supermarket loyalty card can determine where a customer shops. (Gofton, 2000) The aspect of a loyalty card is that it forms a relationship between a store and a customer. (Hunt, 2000) However, some supermarkets now believe that people would rather buy discounted goods than have a supermarket loyalty card. One of the big supermarket retailers who scrapped their store loyalty card was Safeway. This could be seen as reverting back to being more transactional, that people will shop where ever the goods are cheapest. (Jardine, 2000) Refer to appendix, 5 for articles about loyalty cards and application forms for loyalty cards.)
Hotels such as the Hilton group and the Bass hotel group have loyalty cards. Incentives include choice of room, (twin, double) free daily paper, and complimentary pass to the health club. (http://basshotels.com & http://hilton.com, 2000) (Refer to appendix, 6 for further information)
However, some loyalty schemes implemented by hotels have not been successful. These loyalty schemes were expensive to set up. Some corporate travelers shop around for the best deal and are not loyal to one hotel chain. It is reckoned that the customer usually pays a higher tariff for obtaining ‘certain privileges’ i.e. if they require a specific room. Two of the big hotel chains discontinued their customer loyalty schemes, Radisson Hotels in 1989 and the Inter-Continental chain in 1993. (Buttle, 1996) British Airways executive club will only give Air-Miles on full fare economy, business class or first class tickets. They do not give Air-Miles on discounted tickets. (http://www.britishairways.com, 2000) It is predicted that in the future people will find multi-partner scheme cards more useful. They will earn reward points and feel the benefits more quickly. (O’Conner & Galvin, 1997)
Building introductory long-term relationships are achieved through direct marketing. Direct marketing is therefore linked to relationship marketing.
According to Brassington and Pettitt, direct marketing is
” An interactive system of marketing which uses one or more advertising media to effect a measurable response in any location, forming a basis for creating and further developing an ongoing direct relationship between an organisation and its customers.”
(Brassington & Pettitt, 1997, p 740)
Relationship marketing has improved with electronic databases. O’Conner and Galvin suggests that the
“Database is the greatest single application of information technology within marketing”
(O’Conner & Galvin, 1997,p81)
Marketers use the information from their customer databases to target customers for promotion of their preferred products, communicate with their customers and understand customer preferences. When business travelers phone up the travel agencies, they have accounts where their personal information is already recorded in the computer database. The agents in the business travel section already know their preferences when booking travel tickets. (O’Conner & Galvin, 1997)
Faxes and e-mails are a good communication tool for relationship marketing suppliers and customers can commute information instantly world-wide. (O’Conner & Galvin, 1997)
The Internet has had a great impact on relationship marketing. The majority of companies now have web-sites where they can build long term relationships with their customers. Companies know how many people have viewed their web-site by how many “hits” they have had. Customers can acquire extensive product and services information on company web-sites. They can use book-marked web-sites to order products. (Kotler,2000) When ordering a book from amazon.com. They get personal information about you, your name, email address and what your literary preference is. Then whenever you go into their web-site, there is a welcome with your name. They e-mail you with special offers specified to your requirements. (http://www.amazon.co.uk, 2000). Bselect is a company that specialises in personalisation technology packages that builds relationship marketing with customers preferences and interests taken into account. The system can then build models based on these factors.(http:// www.befree.com ,2000, for more information refer to appendix,7 BSELECT onsite). Companies in the service industry can transfer information files to their customers world-wide to help them select products/services. ( O’Conner & Galvin, 1997) There are some companies such as Prime Response, which have come up with a software package that will help companies expand their relationship marketing over the Internet. This will enable companies to target the right segments with the right marketing program. (http://www.primeresponse.com ,2000, for more information refer to appendix,8 email@example.com , Expanding your relationship marketing on the web)
Generally marketing historically has had a short term transactional focus. However it is now much more customer focused in developing long term relationships with them and taking note of their expectations, wants and needs. Marketers are implementing strategies to retain existing customers because it is a lot more costly to attract new ones. If customers are satisfied with products or services they have purchased they will repeat purchase. In some services industries there is more demand for after sales services. There is also a demand for higher levels of quality in products and services because of competition. When buying a new car or having a car serviced at a dealership for the car the customer owns, the car dealer invites customers from their databases to new car launches and customer evening events. Businesses need to have a good understanding of relationship marketing and its suitability. Marketers need to be aware of the benefits that relationship marketing can bring.
Brassington, F and Pettitt, S (1997) Principles of Marketing Financial Times Management, London.
Buttle, F (1996) Relationship marketing, Theory and Practice Sage, London
Kotler, P (1996) Principles of Marketing, The European Edition Prentice
Kotler, P (2000) Marketing Management, The Millennium Edition Prentice
Hall, New Jersey
Payne, A et al,(1998) Relationship Marketing for a Competitive edge Butterworth Heinemann, Oxford
Morgan, M (1996) Marketing for leisure and tourism Prentice Hall, London
O’Conner, J & Galvin, E (1997) Marketing & Information Technology Pitman Publishing, London
Webliography Service provider British Telecom
BSELECT, (2000) Its all you & your customers, http://www.befree.com , accessed on the 6th Dec, 2000
http://www.basshotels.com , accessed on the 27th Nov, 2000
(2000) Defining customer relationship marketing & management.
ECCs- The European Centre for Customer Strategies,
http://www.eccs.uk.com , accessed on the 7th Dec, 2000
Gofton, K (2000),Pinpointing Loyalty,
Hunt, T (2000), Loyalty’s limits,
http://www.marketing.haynet.com, accessed on the 8th Dec 2000
http://www.hilton.com accessed on the 27th Nov, 2000
Kahn, B,( 2000) Turn your customers into advocates. Get to know your customers well and you not only develop loyalty, but they will extol the virtues of your products. The Financial Times, http://web1.infotrac accessed on the 9th Dec, 2000
Primeresponse, (2000) http://primeresponse.com ,accessed on the 7th Dec, 2000
The Marketing Council
BAA, Achieving world-class performance,
First Direct, Creating intelligent relationships with customers.
http://www.marketingportal.cim.co.uk , accessed on the 7th Dec, 2000