Relationship Marketing

Factors Causing the Decline of the Traditional

Marketing Paradigm

The powerful forces of industry

globalization
The value movement
Rapid advances in technology
Shift in the balance of power toward
customers - change the rules for business
success

The Transition from the

Traditional Marketing Concept

The traditional marketing paradigm (the

4 Ps) is losing some of its influence among
marketers.
It focuses on the transaction and the core
product, taking a short-term perspective;
customer attraction (conquest marketing) is the
overriding goal.
The 5th P is people more important!

Forms of
Buyer-Seller
Interactions on
a Continuum
from Conflict to
Cooperation

06/11/15

Relationship Marketing
To establish, maintain, and enhance (usually but
not necessarily long-term) 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
fulfillment of promises.
___Grnroos (Service Management and Marketing, 1990)

What is Relationship Marketing?

The cornerstone of marketing is getting close to customers in order

to better identify and satisfy their needs

Realize that marketing is responsible for more than just the sale

The focus is shifting from the transaction to the relationship

It is difficult to separate service operations and delivery from

relationship building

Managing customer relationships continues to be paramount, so is

the growing importance of managing relationships with suppliers
and resellers

Transactional Marketing Vs
Relationship Marketing

Relationship Marketing Goals and Outcomes

10

Whereas the goal of traditional marketing is customer

acquisition, under relationship marketing the focus shifts
to creating value
The objective is to create more value through
interdependent, collaborative relationships with
customers, the outcome is customer retention
Relationship marketing is ongoing, constantly looking for
opportunities to generate new value
Retaining customers requires marketers to exhibit care
and concern after they have made a purchase
The sale often represents only the beginning of the
relationship between the buyer and seller

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12

Supplier Rankings
of Relationship
Enablers *
TRUST
TRUST

COOPERATION
COOPERATION

INFORMATION
INFORMATION
EXCHANGE
EXCHANGE
13

COMMITMENT
COMMITMENT

DEPENDENCE
DEPENDENCE

Relationship Forming

14

In business-to-business markets in particular,

relationships between the personnel of
companies are recognized by both the buyer
and seller organizations and individuals within
those organizations.
Failure if it is one-sided and emotionless nature
in commercial exchanges.

Categorizing relationships

1.Organizational relationships:

Between customer-supplier.

Gummesson calls this embedded knowledge.

15

06/11/15

Organizational Relationship

Customer supplier. Also called Embedded knowledge.

Part of the structural capital that does not disappear with
the employee and is, in effect, owned by the company.

Structural capital consists of relationships that have been

made with the company, as an entity, in addition to the
relationship with the employees.

Examples : Football clubs or charities

16

Learning Relationships

17

Peppers and Rogers have suggested that relationships are

built on knowledge.
When a customer tells a company something about
himself, then it is the responsibility of the company to
customize its offering to that customer. From that point the
relationship has started.
The more the customer tells the company, the more
valuable they become provided the company continues to
adapt its product or service to meet the more and more
specific customer needs.
Smarter and smarter with every interaction.

Motivational Investments

1.
2.
3.
4.

18

The type of relationship that develops between a supplier

and a customer is determined by the different amounts of
motivational investment that buyers and sellers are
prepared to commit to the relationship
Sub- types of relationships
Bilateral relationships
Seller-maintained relationships
Buyer Maintained relationships
Discrete exchanges

Sellers Motivational
investment in relationship
HIGH
Seller
maintained
relationship

Buyers motivational
investment in
relationship
LOW

Bilateral
relationship
maintenance

HIGH
Discrete
exchanges

No
exchanges

19

LOW

ILLUSTRATION OF THE DIAGRAM

20

Bilateral relationships are those where both parties are

motivated highly enough to invest in a relationship.
Particularly relevant to business-to-business markets,
although some relationships of this type may be seen to
exist in some consumer markets (e.g. financial services).
At the other end of the scale, discrete exchanges are lowinvolvement, purely transactional relationships.

Continued

Examples of buyer-supported relationships may be seen in

the automobile market where Toyota, Ford and other
manufacturers regularly share their production information
with their suppliers.

Buyer-maintained relationships are more likely to exist when

the buyer is the more dominant partner.

21

Higher level Relationships

22

Possible for the consumer organizations to develop

relationships that appear to be higher up relationship
ladder.
Attachment or affinity to local football teams or voluntary
organizations (e.g. favourite charity or political party) can
result in behaviour that suggests a deep and frequently
emotional relationship.

Relationship Loyalty

Loyalty in behavioural terms, usually based on the number of

purchases and measured by monitoring the frequency of
such purchases and any brand switching.

Loyalty in attitudinal terms, incorporating consumer

preferences and disposition towards brands to determine
levels of loyalty

Loyalty translates into an unspecified number of repeat

purchases from the same supplier over a specified period.

23

Comprehensive definition of
loyalty

The biased (i.e. non-random) behavioural response (i.e. revisit) 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)
processes resulting in brand commitment.

Loyalty must be seen as biased repeat purchase behaviour

or repeat patronage accompanied by a favourable attitude.

24

Antecedents to loyalty

Hard dimensions - value for money, convenience,

reliability, safety and functionality, and that these are the
prime drives for product or service choice

Soft emotion, satisfaction, feelings

25

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Customer loyalty: an integrated

model
Image

Quality

Price

26

Barriers to switching

Market
environment

Value relative to
competition

Attraction
And loyalty

Individual/organizational
characteristics

Experiences

Market
Share
And
Profitability

Framework for customer loyalty

Cognitive antecedents
Accessibility
Confidence
Centrality
Clarity
Affective antecedents
Emotion
Feeling states/moods
Primary effect
Satisfaction
Cognitive effects
Switching costs
Sunk costs
Expectation

27

Social Norms

Relative
attitude

Repeat
patronage

Situational influences

Consequences
Search motivation
Resistance to counter
persuasion
Word of mouth

Loyalty-type behaviour

1.

2.

28

Three ways of considering customer repatronising

behaviour are:
Switching behaviour: where purchasing is seen as an
either/or decision either the customer stays with you
(loyalty) or turns against you (switching).
Promiscuous behaviour: where customers are seen as
making a stream of purchase but still within the context of
an either/or decision either the customer is always with
you (loyalty) or flits among an array of alternatives
(promiscuous).

06/11/15

Continued
3.

29

Polygamous behaviour: again, the customer makes a

stream of purchases but their loyalty is divided among
a number of products. They may be more or less loyal
to your brand than any other.

Loyalty Schemes
A wider range of motives for setting up loyalty schemes:
Building lasting relationships with customers by rewarding
them for their patronage
Gaining higher profits through extended product usage and
cross-selling
Gathering customer information.
De-commodifing brands (i.e. differentiate from the crowd).
Defending market position (against a competitors loyalty
schemes).
Pre-empting competitive activity.
30

CUSTOMER LIFE-CYCLE (1)

Offensive
marketing

Customer
acquisition

Customer
base

Defensive
marketing

31

Customer base as a
leaky bucket

Customer
retention

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Leaky Bucket Theory

32

Traditional Marketing - creating new customers.

Offensive Marketing strategy is meant for acquiring
wholly new customers, attempting to attract dissatisfied
customers away from competitors, particularly in periods
of heavy competition.
RM - getting and keeping customers.
RM highlights that in addition to Offensive Strategies,
companies need Defensive strategies which minimize
customer turnover.

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RELATIONSHIP DRIVERS
FINANCIAL DRIVERS
Customer retention vs
acquisition costs

Customer lifetime value

Customer switching
costs

Relationship marketing

Risk, Salience and

Emotion

Trust and
Commitment

Perceived need for

closeness

Customer satisfaction

PSYCHOLOGICAL DRIVERS

33

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Continued
Acquisition and Retention Cost

34

It is widely suggested that an important component in

calculating the benefits of customer retention is that the
front-end costs of customer acquisition exceed the cost
of retention.
Statements such as it costs five to ten times as much
to get a new customers as it costs to keep an existing
customer are regularly made in a wide range of
relationship marketing text.

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Types of costs
1)
2)
3)
4)
5)

35

Front-end Costs
The high costs of personal selling
Commission payments
Direct and indirect costs of detailed information
gathering
Supply of equipment
Advertising and other communications expenditure.

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CUSTOMER LIFE-CYCLE (2)

(Dissolution)
Partners

Relationship marketing

Commitment

Members

Advocates
Expansion
Clients

Transactional marketing

Repeat customers

36

Exploration

First-time customers

Prospects
Awareness

Suspects

(Based on Dwyer et al,

1987)

(Based on Kotler,
1997)

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Relationship Stages
Dwyer et. al. suggests a five-stage model where each
phase represents a major transition in how parties in a
relationship regard each other. These are
Awareness
Exploration
Expansion
Commitment
Dissolution

37

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Customer Switching Costs

1.
2.

3.

4.

38

Switching costs are effectively barriers to exit from the company

from the perspective of the consumer.
These actual or psychological costs, may be as follows:
Search Costs: Time and energy spent in searching for alternative
sources of supply
Learning Costs: These are based on the time and energy
expended learning how to deal effectively and efficiently with a
new supplier (e.g. learning the layout of a supermarket you have
never used before).
Emotional Costs: Relationship over an extended period can
create emotional ties with an organization or the personnel of
that organization
Inertia Costs: The effort involved in breaking habitual behaviour
is frequently underestimated. This tendency is probably best
summed up by the phrase I cant be bothered to go elsewhere.
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SWITCHING COSTS
5.

6.

7.

8.

39

Risk: The move to a new supplier will always involve a degree of risk.
Even where the risk is not immediately apparent there is still a general
preference to stay with an existing supplier rather than risk a move to
another of whom you have no experience. This is best summed up by
the inclination of the people to remain with the devil you know rather
than move to the devil you dont.
Social Costs: The existing supplier may, in some way, contribute to the
social life of the customer. A commonplace example may be the
opportunity to socialize with other customers and staff at a company
organized events (e.g. meetings, gatherings)
Financial Costs: The break-up of a relationship may mean financial
penalties (e.g. the costs frequently involved in switching mortgage
providers) or the loss of rewards or status gained through relationship
longevity (e.g. some loyalty schemes, no-claims insurance etc)
Legal Barriers: In some situations, a contractual arrangement ensures
that the consumer stays, for a period of time, in the relationship

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Relationship Longevity

Customer retention leads to enhanced revenue,

reduced costs and improved financial performance.
There is a list of accumulating benefits that contribute
to an entire life cycle of profits from the customer.
Revenue growth
Cost savings
Referral income
Price premiums

Profit

Base Profit
Loss

40

Year 1

Year 2

Year 3

Year 4

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Building Relationships

Psychological Drivers
1.

41

Risk, salience and emotion:

Risk, salience and emotion are all psychological aspects
involved in some way in every exchange /purchase.
Risk may be defined as the perceived probability of loss
interpreted by the decision maker and presumes an
element of consumer vulnerability in the exchange.
Salience may be regarded as the level of importance or
prominence associated with the exchange.
Emotion is the complex series of human responses
(sometimes negatively described as agitation of the mind
or cognitive dissonance) generated as a result of
exchange.

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Trust & Commitment

42

Trust is a psychological state comprising of an intention

to accept this vulnerability based upon the positive
expectations of the intentions or behaviour of others.
Trust is not itself a behaviour nor a choice but an
underlying condition that can result from such activities
Trust is seen as an important driver to both
relationships and relationship enhancement

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Continued
Commitment
It implies that both parties will be loyal, reliable and
show stability in the relationship with one another.

43

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Perceived Closeness

44

Closeness can be physical, mental or emotional and

can strengthen the feeling of security in a relationship.
When the distance between the parties is shorter,
deeper relations are likely to develop.

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