Relationship Marketing In Relation To Customer Satisfaction
This essay is a critical literature review of Relationship Marketing in relation to customer satisfaction, customer loyalty and technology. In this review, I will provide a brief orientation of relationship marketing; identify the benefits of relationship marketing for companies and customers and critically analyse the concept of RM with regards to customer satisfaction, customer loyalty and analyse the role of technology in relationship marketing.
Leahy (2011:651) defined relationship marketing as “attracting and keeping customers for a long period of time”. RM is used by firms to change consumer attitudes and increase the frequency of purchase in a business using marketing techniques such as promotions and advertising. According to Ndubisi and Chan (2005), relationship marketing provides an organisation the opportunity to get access to the right information about their customers, meet the customers’ needs effectively, efficiently and gain competitive advantage. In addition, Gronroos (1994:9) suggests that relationship marketing is a new model in marketing and it’s about organisation “establishing, maintain and enhance relationships with customers at a profit so that objectives of the parties involved are met. This is achieved by mutual exchange and the fulfilment of promises.” Promises may be made by the company to their customers; yet, what remains to be seen are if the promises are fulfilled or ultimately broken. Szmigin et al. (2005) argues that due to the vast presence of relationship marketing in several industries, it can be difficult defining relationship marketing that accommodates all the relationships. Ravald and Gronroos (1996) argue that relationship marketing is not restricted to the firm maintaining a close relationship with customers; it’s also about the firm establishing and maintaining a partnership with stakeholders such as suppliers, retailers, and the community.
As a result globalisation, Geddie et al. (2005) viewed relationship marketing through the prism of technology, businesses have the opportunity to store vital information in their database concerning customers’ shopping habits, thus using the data to render a better customer service and establish a long-term sustainable relationship with customers; perhaps resultant in increased customer satisfaction and loyalty. Peppers et al. (1999:151) referred to relationship marketing as “one-to-one marketing” and suggested that businesses must be dynamic and fast in their approach and response to individual customers’ needs that are ever-changing and unpredictable. Therefore, organisations must be prepared to provide bespoke products or services that meet individual consumers’ needs at the time the products are requested (Peppers et al., 1999; McIlory and Barrett, 2000).
The benefits of relationship marketing for an organisation include creating an advocate for the firm as described by Harwood et al. (2008). The consumer(s) satisfied with the firm’s goods and services will publicly support the business. Using relationship marketing, companies gain higher customer satisfaction, reduction in customer promiscuity which leads to a higher customer loyalty by providing consumers’ products that have superior value thus giving the firm an edge over its competitors (Harwood et. al, 2008). Additionally, the firm benefits financially; relationship marketing causes a reduction in business transaction costs prompting increased efficiency in the general business operations, which consequently adds value (Peppers et al. 1999; Ndubisi and Chan 2005). In all, lower business transaction costs translate to higher revenue for the organisation.
Harwood et al. (2008) suggests that buying an intangible product or service that is variable in quality might create uneasiness for the customer. However, if a lasting affiliation already exists between customers and the organisations, when purchasing anything from the company, the consumer may experience reduced anxiety because the company has access to the customers buying habits, are knowledgeable about the consumer and the relationship established is predictable all due to the familiarity on both sides. Therefore, consumers are willing to ignore competitors who offer the same or sometimes better service at a lower price and instead, they go for their predictable relationship with the business.
Relationship marketing highlights the linkages between customer loyalty and customer satisfaction, profitability and customer retention (McIlory and Barrett, 2000). Customer loyalty may be attributed to an organisation, having cultivated a close relationship with their customers’ leads to customer satisfaction with both goods and services they received. As a result, customers become increasingly loyal and are aware that if any issues arise, it will be dealt with swiftly and in a satisfactory manner. (Harwood et al., 2008). Although described in their words as “speculative”, Buttle and Burton (2002) suggest that customer loyalty is influenced by a number of phenomenons such as value, trust and commitment and customer satisfaction is one of the antecedents.
Businesses are aware that the greater number of customers they retain will ultimately result in a higher profitability for the organisation and reduce transaction costs. This style of marketing according to McIlory and Barrett (2000) has proved to be advantageous to company’s providing the businesses with an edge over its competitors, particularly during the recession; where competitors are experiencing a decrease in their bottom line profits, companies that have invested in RM have thus been unaffected.
McIlory and Barrett (2000:348) cite Lovelock and Wright (1999) asserts that “on average, it costs a business five to six times (more) to attract new customers than implementing strategies to retain the customers”. This may be attributed to the costs of advertising and promotions to attract new customers are greater and often very expensive than the costs of retaining loyal customers. There may be recognition within an organisation that loyal customers will spend more in a shopping trip and aid in promoting the business to family members and friends by positive word of mouth (McIlory and Barrett, 2000). Due to the low transaction costs attached to loyal customers, businesses can experience higher profits.
Williams and Naumann (2011) argue there’s a connection between customer satisfaction and customer retention, company revenue, earnings per share, stock price. Ravald and Gronroos (1996) argue that customer satisfaction can be a great can be a suitable criteria for customer loyalty because if a customer is satisfied, then the customer will most likely stay with the firm for a long period of time, buying products from the firm without being concerned about the price.
High customer satisfaction will lead to a high customer repurchase and high customer retention revealing a positive correlation between the factors. Firms can use customer’s repurchase to identify their customer’s behaviour thus using it to their advantage in establishing a close relationship with the customers by marketing products favoured by each individual customer. In addition, increase in customer loyalty, revenue and profitability is due to an increase customer satisfaction. If customers are satisfied and happy with services and products provided by a businesses, then the retention of customers by that business is raised, the repurchase intent of the customers to that business increase and customer advocacy increase i.e. companies pay more attention to what is best for their customers. Thus customer satisfaction provides a company with competitive advantage through increases in loyalty, revenue, profitability and cash flow.
Ravald and Gronroos (1996) note that value plays a vital role in relationship marketing because by an organisation providing “superior value” products to their customers better than the competitors, this gives them an advantage with the customer and helps the company to differentiate itself from its competitors. Raising the value of a product offered to consumers enables businesses to increase customer satisfaction which then leads to better customer loyalty (Ravald and Gronroos, 1996). It is suggested by Ravald and Gronroos (1996) that in order to achieve customer loyalty, businesses primary focus should not be on just achieving customer satisfaction but directed to a willingness to expand their horizon by taking both value and quality into consideration.
Leahy (2011) cites Palmer (1999) who suggests technology has raised the prospect to reach out to many customers whilst providing customised services to them. The use of technology is attributed Customer Relationship Management (CRM). Yet, Leahy (2011) argued that CRM’s use of technology might not create a personal relationship with customers. Peppers et al. (1999) argued that technology can be used to provide one to one marketing to customers thus enhancing and strengthening the relationship between an organisation and its customers. On the other hand, Szmigin et al. (2005) argue that in some cases of relationship marketing, technology may have completely replaced the physical human contact between customers and the firms resulting in some customers having a negative perception of technology. Yet one could suggest that if used properly and efficiently, technology can assist in enhancing the interaction between the firm, their customers and communities online.
Leahy (2011) cited Earp et al (1999) is unsure about the impact of using technology to create exclusive relationships with customers because technology can unknowingly assist and promote customer disloyalty, by encouraging customers to compare competing offers and selecting the most valuable item at the cheapest price. Therefore, Leahy (2011) argues that despite a firm use of databases which permit them access to all customers; it does not guarantee the company is maintaining the relationship with their customers successfully. Yet a customer’s perception of relationship is not rated highly neither is it valued because customers are said to view the relationship as “impersonal”, with increasing suspicion of the firm’s motives (Leahy, 2011:453). Even though technology may have enhanced relationship marketing and made it sophisticated with regards to it being a better avenue of communication with customers, in some cases an active relationship does not exist between both parties. Instead, consumers are focused on future promotions that may be of great quality, value and interest to them. This begs the question, to what extent does technology fosters a close relationship between an organisation and its customers?
In conclusion, relationship marketing is very important for the success of an organisation as reflected in the multiple definitions above. It is beneficial to both the company and their customers and when utilised responsibly, a great symbiosis relationship is established. The analysis of customer satisfaction resulting in increased customer loyalty has been carried out and the contribution of increased customer loyalty resulting in high profitability for the organisation has been highlighted. The role of technology in relationship marketing has been scrutinised leading to the research question stated above i.e. to what extent does technology foster a close relationship between an organisation and its customers. For further research, it would be advisable to explore this area in more depth so organisations can acquire the maximise output when using technology as a means of relationship marketing.
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