MBA4644_unit 3_lect 1_final - RM

8/6/2019 MBA4644_unit 3_lect 1_final - RM

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Relationship

MarketinMBA 4644, Unit 3
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Marketin hat is Relationship Marketing?

Understanding marketingconceptsDefining relationship

marketing (RM) Transactional VS.relationship marketingUnderstanding the

advantages of RM


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JEFF BEZOS

PIERRE OMIDYAR

MICHAEL DELL

Are these companies

successful?


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Are these companies

successful?


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Are these companies

successful?


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Marketing ManagementPhilosophies

Marketingconcept

Sellingconcept

Productconcept

Productionconcept


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Companies believe that customers chooselow-price productsCustomers will favour products that are

highly affordableCompanies focus on production of a fewspecific products, perhaps because few of these products are available in the market

Firms emphasise production techniques andunit-cost reduction rather than the needsand wants of the target market. If we canmake it, it will sell

The majority of customers have other

Production concept


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Customers choose products with the bestquality, performance, design or featuresCompanies emphasise the quality of the

product rather than the needs and wants of the target market The customers voice to be missing whenimportant marketing decisions are made

Management makes assumptions aboutwhat customers want The outcome is that products are over-specified for the requirements of the market,and therefore too costly for the majority of

Product concept


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Companies aim is to sell what they makerather than make what the market wantsIf companies invest enough in advertising,

selling, public relations and sales promotion,customers will be persuaded to buyCustomers who are coaxed into buying theproduct will like it. Or, if they don't like it,

they may forget their disappointment andbuy it again laterIt focuses on short-term results - creatingsales transactions - rather than on buildinglong-term, profitable relationships with

Selling concept


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1950s 1960s 1970s 1980s 1990s 2000

1950-1970

Spending x2

Brand Mgtmodel

Toolboxmodel

NorthAmerica

Media

Saturated Mkts Sm.Brand Growth Consumers more demanding & sophisticated Advertising

effectivenessdown

the homogeneitymarketers continueto seek what was amyth advanced bythose still using the

American modelcirca 1950/60McKENNA 1991

From bad toworse

evelopments in Marketing

2010

1970-1990 1990-2010


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Transactional Marketing focuses on the sale,the single event of a transaction and theobjective of the marketing activities(Webster, 1992)

The objective of marketing activities is tomaximise sales volume (sales volume holdsthe key to profitability!)

The more the sales, the more the profits(Shajahan 2004) The process between two or moretransactions is neither analysed nor

influenced

Transactional marketing


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Customers were more sophisticated andless responsive to the traditional marketingpressures, particularly advertising

Greater customer choice and convenienceexisted as a result of the globalization of marketsNew sources of competition and the

emergence of new media and channelsInnovative business thinking and actionwas required to meet the challenges of thisnew competitive environmentIt assumes short-term and often one-off

Problems with Traditionalmarketing approach


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Services Marketing

B2B the poor relationResearch from IMP group

Industrial Marketing &Purchasing Group

Not just managing

exchanges.butmanagingrelationships

Services themisunderstoodChild; yet 2005 75%service economyService Characteristics

Intangibility Inseparability Perishability Variability Inability to own

Didnt fit the modelsuggested by consumergoods marketing


Industrial (B2B)Marketing


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Identify and establish, maintain and enhance and, when necessary, terminaterelationships with customers and other

stakeholders, at a profit so that theobjectives of all parties involved are met;and this is done by mutual exchange and fulfilment of promises

Gronroos 1994b

Harker (1999), in a review of relationshipmarketing definitions noted no fewer than26 substantial definitions of RM. Grnroos(1994) definition seemed both moreelegant and succinct.

efining Relationship Marketing


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Seeks to create new value for customers andshare it

Recognises the key role that customers haveboth as purchasers and in defining the valuethey wish to achieve

Businesses are seen to design and alignprocesses, communication, technology and

people customer value Represents continuous co-operative effortbetween buyers and sellers

Recognises the value of customers

purchasing lifetimes (i.e. lifetime value )

efining Relationship Marketing
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hat is Relationship Marketing? Seeks to build a chain of relationships within

the organisation (to create customer value) &between the organisation and its mainstakeholders including suppliers, distributionchannels, intermediaries and shareholders

Differs from other forms of marketing in thatit recognizes the long term value of customer

relationships and extends communicationbeyond intrusive advertising and salespromotional messages

(Gordon 1998:9)


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Influences on RelationshipMarketing

Consumer GdsRelationship

Marketing

S e r v i c e s M a r k e t i

n g

NordicSchool

NetworkApproach

Anglo-AustralianApproach

Strategic Alliances& Partnership

Research

What influences?

I n d u

s t r i a

l B 2 B

M a r k e

t i n g


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Orientation to singlesales

Discontinuous CustomerContact Focus on Product

Features Short time scale Little emphasis on

Customer Service Limited Commitment to

meeting customer

expectations ualit as the concern of

Orientation to Customerretention

Continuous CustomerContact Focus on Customer Value Long Time Scale High emphasis on

Customer service High Commitment to

meeting customerexpectations

Quality as the concern of Adapted from Payne et al 199

ransactional vs Relationshiparketing

Transactional Relational


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Direct Marketing

Database MarketingCRM

1-To-1 Marketing

Loyalty Marketing

RelationshipMarketing

TransactionalMarketing

Traditional Marketing

4Ps MarketingMarketing Mix

Mass Marketing

Relevant concepts
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Short-term orientation

Acquiring newcustomersProfitable transactions

Low customer service

Limited customercontact

Price sensitivecustomers

Transactional vs Relationship Marketing

RelationshipMarketing

TransactionalMarketing

Long-term orientation

Retaining customers

Profitable relationships

High customer contact

Less price sensitivecustomers
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Customerdependent

Transactional / Relational continuum TM RM

Transactional / RelationalMarketing Continuum

Transactional drivers

Relational drivers

Requirement

Strategies

Company ALargely

transactionalapproach

Develop &maintaindiscrete

exchanges

Company BBalanced

portfolio of strategies

Company CLargely

relationalapproach

Develop &maintainongoing

relationships


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RELA TION SHIP MAR

KETINGT

RADITIONALMA

RKETING

Importance of Core Product

DangerArea

Importance of Customer Service

Transactional / RelationalMarketing Continuum

Transactional / Relational continuum TM RM


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Drivers promoting RMHigh Acquisition costsHigh Exit BarriersSustainable Comp. AdvantageBuoyant/Expanding MarketHigh Risk/SalienceHigh Emotion

Require Trust & CommitmentPerceived Need for ClosenessSatisfaction benefits Retention

Drivers promoting TMAcq/Retention diff smallLow Exit BarriersUnsustainable Comp.AdvSaturated MarketsLow Risk/SalienceLow Emotion

Trust only requiredNo Reason for ClosenessRepeat Behaviour

Transactional Relational

Drivers to Strategic DecisionMaking


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The ultimate goal of firms is to fulfilcustomer needs ?!, or

The ultimate goal of firms is to satisfycustomers ?!

The ultimate goal of firms is to build longterm relationships with customers?!

The ultimate goal of firms is to maximise

profits?! Retaining customers?

Economics of RelationshipMarketing


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It is more expensive to win a new customerthan it is to retain an existing customerMost profitable customers - 80 per cent of

profits come from 20 per cent of customersShould all customers be treated equally?Long term - the longer the associationbetween company and customer the more

profitable the relationship for the firm .RM is a means to a profitable end

Economics of RelationshipMarketing


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Customer retention is the number of customers doing business with a firm at theend of a financial year expressed aspercentage of those who were activecustomers at the beginning of the year(Buttle 2004)It is evident that recruiting new customers isa costly businessIt is between five and ten times asexpensive to win a new customer than it isto retain an existing one

Direct costs of the successful conversion of

Retaining customers


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Acquiring new customers involves costs thatcan be significant and take years to turn anew customer into a profitable customer

As customers become more satisfied andconfident in their relationship with a supplier,they are more likely to give the supplier alarger proportion of their business

As the relationship with a customer develops,there is greater mutual understanding andcollaboration, which produces efficienciesthat lower operating cost

Why retention improvementimpacts profitability


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Satisfied customers are more likely to referothers, which promotes profit generation asthe cost of acquisition of these newcustomers is dramatically reducedLoyal customers can be less price-sensitiveand may be less likely to defect due to priceincreases

Company A has a churn rate (customerdefection rate) of 5 per cent per annum;company Bs churn rate is 10 per centCompany As customer base is 19 per cent

larger than company Bs after 4 years: Source: Peppers &Rogers 2004

Retaining customers


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A profitable customer is a customer whoserevenues over time exceed the company'scosts of attracting, selling and servicing that

customer

Between 20 and 40 per cent of customersare unprofitable

Is it always worthwhile to keep a customer?

Customer profitability


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Relationship economics

Relationship economics is a form of Ronald Coase'stransaction cost economics which hypothesizes thatthe costs of forming and maintaining personalrelationships, and the benefits of those relationships,

dominate decision-making in many contexts. FamedCEO Jack Welch (Welch and Byrne 2001: 348) offeredthis as his "cardinal rule of business

Never allow anyone to get between you and yourcustomers or your suppliers. Those relationshipstake too long to develop and are too valuable to lose.


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Relationship EconomicsCustomers areless expensiveto retain thanto recruit Securing customers

loyalty over timeproduces superior

profits

The 2 pillars underpinning relationship economics

The language of management is money, a good question ishow the relationship portfolio pays off GUMMESSON



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Commitment

Expansion

Exploration

Awareness

Partners

Clients

Customers

Prospects

Members

Advocates

Partners

Clients

Repeat Cust

Prospects

Members

Advocates

1st Time Cust

SuspectsTraditional

Marketing

Relationship

Marketing (Dissolution)

Dwer et all 1987 Payne et al 1995



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Commercial Loyalty

BEHAVIOURAL ATTITUDINAL

The biased (i.e. non-random) behavioural response (i.e. re-visit), expressed over time,by some decision-making unit with respect

to one (supplier) out of a set of (suppliers),which is a function of psychological [decision making and evaluative] processesresulting in brand commitment. (Bloemers& de Ruyter 1998:500)

Relationship Loyalty


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To build lasting relationships withcustomers by rewarding them for theirpatronage.

To gain higher profits through extendedproduct usage and cross-selling

To gather customer information To de-commodify brands (i.e. differentiatefrom the crowd)

To defend market position (against a

competitors loyalty schemes)

Hart at al (1999:546) offer a widerrange of motives for setting up loyaltyschemes;

Relationship Loyalty


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SocialCosts

FinancialCosts

LegalBarriers

Inertial

CostsRisk

SearchCosts LearningCosts EmotionalCosts

Switching Costs/Barriers


C t l lt A


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Image

Quality

Price

Barriers toSwitching

Value relativeto competition

Individual/OrgCharacteristics

Marketenvironment

Attraction &Loyalty

Experiences

Marketshareand

profit

Customer loyalty Anintegrated model

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MBA4644_unit 3_lect 1_final - RM

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