SCHOOL OF MARKETING AND INTERNATIONAL BUSINESS

MARK 401 (Advanced Marketing Management)

Lecturer: Aaron Gazley, Prof. Peter Thirkell, Jayne Krisjanous, Associate Prof. Kim Fam

Essay 1 Relationship Marketing: Why is it important?

Submitted by: Ananda Lailana Qadrina Sutjijoso 300148151

Word Count: 2044

MARK 401 Essay 1 Introduction

Ananda Sutjijoso-300148151

The initial focus of marketing function is placed on the selling of a firms products or services (Ndubisi, 2007; Zineldin, 2000). However, firms are currently facing intense and aggressive competition both in the domestic and global markets. The intense competition coupled with the ever-changing dynamic markets, forced firms to restructure themselves in order to survive and enhance market growth. This restructuring could be achieved by applying a new paradigm shift, known as Relationship Marketing (RM). RM moved away from the traditional transaction marketing (that focuses on one time sales) towards building and maintaining long-term relationships with the customers and other stakeholders. The concept of RM is considerably new to the marketing fields (Ndubisi, 2007). However, since its inception in the Europe (Veloutsu, Saren, & Tzokas, 2002) during the 1980s (Grnroos, 1991b), RM concept has gained recognition among both the academics and practitioners. It has also been practiced in a wide range of business contexts (e.g. business to business and business to consumers) and cited as the future of marketing (Ndubisi, 2007). This essay intends to support the notion that RM is essential for the viability of marketing as a vibrant management discipline; by investigating the problems preceding the emergence of RM, the importance and scope of RM, some limitations to the approach, and how RM contributes to the viability of marketing.

The Emergence of Relationship Marketing RM emerged due to the loss of direct interaction and emotional bonding between firms and their customers. This lack of interaction is attributable to the mass production and the distinct separation of production and consumption activities in the pre-industrial era (Veloutsu, et al., 2002). In this era, marketing focuses on the isolated transactional approach that disregards the importance for firms to build a long-term relationship with the customers (Grnroos, 1991b). As a consequence to this lack of interaction, marketers fail to obtain any useful indication regarding customers needs, preferences and decision making evaluation (Veloutsu et al., 2002). Thus, they could not develop their offering to satisfy customers needs better. Figure 1 in the following page illustrates the marketing strategy continuum that distinguishes transactional marketing from the RM approach.

MARK 401 Essay 1

Ananda Sutjijoso-300148151 Figure 1 The Marketing Strategy Continuum

Source: (Grnroos, 1991, p. 9) Although there are various definitions of RM, the general notion of RM posits that a good marketing management needs to take into account the creation of long -term relationships (Grnroos, 1991b). At a micro level, RM focuses only on the relationship between firms and the customers (Malhorta & Agarwal, 2002; Veloutsu, et al., 2002). Whereas at a macro level, RM focuses on the firms relationships with other stakeholders who are involved in the organisations activities (both in and outside an organisation) (Grnroos, 1991b; Malhorta & Agarwal, 2002). The mostly adopted definition of RM is constructed by Grnroos (1991a) that refers to RM as a function that identifies, establishes, maintains, and enhances relationships with customers and other stakeholders, at a profit, to achieve the desired objectives by mutual exchange. According to Kandampully and Duddy (1999), there are various factors that contributed to the growth of importance in the RM concept. These include:
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Intensification of global market competition. Increase sophistication of customers needs and demand. Inadequacy of quality to create sustainable competitive advantages. Traditional marketing (focuses on 4ps and the transactional approach) became unreliable and insufficient.

Due to the emergence of these problems, RM approach is seen as important to solve the above problems. This will be further discussed throughout this essay. Currently, firms realised that their success is highly dependent on the network of relationships that they maintain. Thus, RM is essential to assist firms in creating relationships with customer and other parties that are involved in a business process. Kandampully and 2

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MARK 401 Essay 1

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Figure 2 in the previous page illustrates the entities that are involved in a firms relationship exchange activities. The figure illustrates that customer markets are placed in the centre of the diagram. This indicates that customer is the core of the market (Marlhorta & Agarwal, 2002; Veloutsu et al., 2002). Veloustu et al. (2002) suggest that RM has shifted the focus of marketing to revolve around maximising customer value. Maintaining close relationships with the customers enables a firm to understand customers ever-changing and sophisticated needs. Understanding these helps a firm to deliver values that are maximised to meet customers needs and preferences. By maximising customer values, the ultimate outcome is to retain the customers and encourage customer loyalty (Veloutsu et al., 2002). It is acknowledged that, unless a value is created and delivered to customers, a firm could not accomplish corporate objectives effectively; thus it has no legitimate reason to exist (Peppers & Rogers, 2004; Veloutsu, et al., 2002). Creating positive value that leads to satisfaction is also beneficial as customers are likely to become price insensitive to the firms products/services (see Figure 1) and are willing to create positive-word-of mouth to their friends or family.

Malhorta and Agarwal (2002) also see the importance of building relationships with the firms competitors. This could be in the form of cooperative or competitive relationship. The cooperative relationship could be achieved by creating networks, strategic partnerships and alliances (Day, 1992). In a cooperative relationship, firms could take advantage of the combined power, resources, and skills. Thus, enhancing a firms quality of offering by focusing on the specialisation of core activities and make use of the partners core competency where the firm is not well qualified. Through this cooperative relationship, the firm has a better chance to create a sustainable competitive advantage. Contrary, competitive relationship is necessary to encourage a firm to engage in constant improvement of the product/service. This ecourage them to think creatively and up to date with the market condition (e.g. demand trends). This is especially important for companies that are regarded as the leader in the market such as Apple that is known for their sophisticated and technologically advanced products. Apple needs to constantly think outside the box before their competitions to secure the market leader position.

The intense global market competition also affects the firm-supplier relationship (Deresky, 2008). The advancement of Information and Communication Technology shifted the supplier relationship to a global outsourcing process where firms actively seek for the best and 4

MARK 401 Essay 1

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cheapest factors of productions (Scott-Kennel, 2009). Thus, establishing and maintaining relationship with suppliers are essential to increase cost-efficiency by reducing uncertainty and enhancing organisations overall quality and effectiveness (Malhorta & Agarwal, 2002).

Moreover, employee-retention is essential for the survival of an organisation (Kandampully & Duddy, 1999; Zietahml & Bitner, 199 ). The intense global market competition poses threat to the customers and employees retention (Chiamsiri, Bulusu, & Agarwal, 2005). The recruitment, management, and retainment of the best human capital is an important asset for the viability of all organisations (Deresky, 2008). Thus, it is necessary for firms to build positive relationship with the employees to retain the best human-capital. This is important to maintain a firms product/service quality to ensure the business viability.

There are external parties that a firm needs to consider in RM. These include the government, media, environmental groups, shareholders and so on. For example, the media is an important intermediary of information between the firm and the market. Thus, creating mutual relationship with the media will help the firm to effectively deliver their message to the targeted market (Malhorta & Agarwal, 2002).

The Limitations of Relationship Marketing Approach However, there is an ongoing controversy which posits that although RM is a powerful theory, it is problematic in practice. This effectively means that the ideal outcome is difficult to be achieved (Veloutsu, et al., 2002). In reality, not all customers are profitable to be retained (Palmer, Lindgreen, & Vanhamme, 2005). This however, could be overcome by applying the Customer Lifetime Value approach to identify, attract and create relationship with the most ideal and profitable customers only (Roberts, 2008). Moreover, each customers require different types of relationship (Rao & Perry, 2002). Thus, to tightened relationship with individual customers, electronic data interchange (EDI) is required to create continuous flow of information about customers requirements and usage patterns. Furthermore, EDI also enhances two way communications that allows to control specific attention to individuals problems or needs (Day, 1992).

Relationship Marketing-Marketing-Management Discipline The two dimensions of management discipline are marketing and innovation (Grnroos, 1991a; Veloutsu, et al., 2002). Management as a discipline is responsible for the planning and 5

MARK 401 Essay 1

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organising of a firms activities to effectively achieve the overall corporate objectives. Veloutsu et al. (2002) also state that management processes are the systems that can implement the content of theories into action. In other words, if theories indicate the perceived realities, then management processes aim to achieve the desired realities. As discussed previously, RM is regarded as a powerful marketing theory that could assist firms to be successful (e.g. through customer and employee retention, cost minimisation and to create sustainable competitive advantage). Thus, RM as a branch of marketing thought is important to help managers to implement the theories of RM into action to effectively achieve the mutually beneficial goals (for the firms, customers and other stakeholders). Hence, due to its effectiveness to achieve mutual goals, RM is considered as important for the continuation of marketing as a vibrant management discipline.

Kotler (1972) states that marketing, is a management discipline that directs a firm to increase sales. However, according to RM, the focus of marketing has shifted from the transactional towards the relationship exchange approach as previously discussed. The main objectives of the majority of firms are no longer solely in the profit maximisation, rather to create mutual relationships with all the parties involved. Thus, RM is important to provide firms with advanced theory that shifts the marketing focus based on current market situation (Veloutsu, et al., 2002). This indicate why RM is important for the continuation of marketing as it helps firms to enhance growth and remain competitive in the market.

Conclusion Since its inception in the 1980s, Relationship Marketing has received continuous recognition as an essential marketing approach. Marketers acknowledged the importance of creating long-term mutual benefits with the customers and other stakeholders as discussed above. However, there is an ongoing controversy regarding the problematic practice of this approach, as not all customers are ideal to be in a relationship with. This however could be overcome by using the Customer Lifetime Value technique. Nevertheless, RM approach is still applicable to todays competitive market and effectively helps firms and their stakeholders to achieve mutual objectives. Thus, this proves that RM is essential to the viability of marketing as a vibrant management discipline.

MARK 401 Essay 1 References:

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Chiamsiri, S., Bulusu, S. D., & Agarwal, M. (2005). Information technology offshore outsourcing in India: A human resources management perspective Research and practice in human resource management, 13(2), 105-111. Day, G. S. (1992). Marketing's contribution to the strategy dialogue. Journal of the Academy of Marketing Science, 20(4), 323-329. Deresky, H. (2008). International management: Managing across borders and cultures, text and cases 6th ed. New Jersey: Pearson Education. Grnroos, C. (1991a). From marketing mix to relationship marketing: Towards a paradigm shift in marketing. Management Decision, 32(2). Grnroos, C. (1991b). The marketing strategy continuum: Towards a marketing concept for the 1990s. Management Decision, 29(1), 7-12. Kandampully, J., & Duddy, R. (1999). Relationship marketing: A concept beyond the primary relationship. Marketing Intelligence & Planning, 17(7). Malhorta, N. K., & Agarwal, J. (2002). A stakeholder perspective on relationship marketing: Framework and propositions. Journal of Relationship Marketing, 1(2), 3-37. Ndubisi, N. O. (2007). Relationship marketing and customer loyalty. Marketing Intelligence & Planning, 25(1), 98-10 . Palmer, R., Lindgreen, A., & Vanhamme, J. (2005). Relationship marketing: School of thought and future research direction. Marketing Intelligence & Planning, 23(3), 313330. Peppers, D., & Rogers, M. (2004). Managing customer relationships: A strategic framework. Hoboken, New Jersey: John Wiley & Sons. Rao, S., & Perry, C. (2002). Thinking about relationship marketing: Where are we now? Journal of Business & Industrial Marketing, 17(7), 598- 14. Roberts, M. L. (2008). Internet marketing: Integrating online and offline strategies. Mason, OH: Cengage Learning. Scott-Kennel, J. (2009). Topic 1: Globalisation. Paper presented at the Lecture presented for the IBUS 201 (Principles of International Business) Class at Victoria University of Wellington. Veloutsu, S., Saren, M., & Tzokas, N. (2002). Relationship marketing: What if? European Journal of Marketing, 36(4), 433-449. Zietahml, V. A., & Bitner, M. J. (199 ). Services Marketing: McGraw-Hill. Zineldin, M. (2000). Beyond r elationship marketing: Technologicalship. Marketing Intelligence & Planning, 18(1), 9-23.