The concept of relationship marketing

Relationship Marketing is a concept that is developed based on identifying customer needs. The Organization will identify the needs of the customers and develop every activity based on such needs.

The entire value system of the organization will be carried out based on the ability to satisfy customer needs. In this concept it is seen that the customer is taking the center of attention, much priority is given to the customers and even the decisions will be based on the customer preferences.

In the current context, the driving force behind the success of every business is the customer satisfaction and the customer loyalty. On the other hand the driving force behind customer satisfaction is the relationship the businesses have with their customers and how their needs are being addressed in the market context overall.

Much emphasis should be given to the area that is being researched on as it is the ultimate requirement of every business that sells its product or service to the end consumer or vise versa.

1.2 Study Area

In this Literature review, Literature relating to the telecommunication industry in Sri Lanka has been looked at. Specifically considering Dialog Telecom, a well established mobile service provider in Sri Lanka.

1.3 Research Structure

This Literature review will emphasize on the rational for the Relationship Marketing and its Impact on Market Performance considering the Telecommunication Industry .Thus consider variables that will drive such marketing philosophy on the real time markets and demonstrates its impact on market performance overall.

1.4 Aims and Objectives

1. To explore the details of the literature related to Relationship marketing, Customer Satisfaction in the Tele-communication Industry.

2. To identify the issues relating to Customer Relations and possible solutions in the Tele Communication Industry.

3. Relationship Marketing-How much emphasis required in the Industry in retaining the Customer Base

4. To Identify the Main factors which affect the customer satisfaction through Relationship marketing in Telecommunication Industry

5. To give Recommendations and Conclusions

2.0 Literature Review

2.1 Relationship Marketing

“A literature review uses as its database reports of primary or original scholarship, and does not report new primary scholarship itself. The primary reports used in the literature may be verbal, but in the vast majority of cases reports are written documents. The types of scholarship may be empirical, theoretical, critical/analytic, or methodological in nature. Second a literature review seeks to describe, summarize, evaluate, clarify and/or integrate the content of primary reports.”(Cooper, H. M., 1988:pp. 104-126)

Relationship marketing is an old idea but a new focus now at the forefront of services marketing practice and academic research.

The impetus for its development has come from the maturing of services marketing with the emphasis on quality, increased recognition of potential benefits for the firm and the customer, and technological advances.

Accelerating interest and active research are extending the concept to incorporate newer, more sophisticated view-points.(Berry,L.L 1995)

2.1.1. The 6 Markets Framework

The Six Markets Model/Framework, shown in Figure 1 illustrates an expanded on where Marketing can be applied. It identifies Six Key market domains where organizations should direct marketing activity and where the development of detailed marketing strategies may be needed. Apart from existing and potential customers, those markets are: Referral markets; Supplier Markets; employer recruitment Markets; influence Markets; and internal Markets. (Payne, A.:1993)

2.1.1.1 Customer Markets

Customer markets are characterized by long-term relations between buyers and sellers. Long-term relations evolve if buyers trust sellers to provide high quality and if sellers are trustworthy. However, changes in the terms of this implicit contract may antagonize customers and disrupt the relation. We experimentally show that mutually beneficial long-term relations frequently prevail in markets for experience goods, and that price rigidity after a temporary cost shock is much more pronounced if price increases cannot be justified by cost increases. Hence, long-term relations on customer markets mitigate market failure of the “lemons” type, but are prone to price stickiness. (Jean-Robert Tyran & Elke Renner, 2003:16)

Customer markets are the centre of attention amongst the 6 markets model. Customer should always remain the main focus in all marketing activities. The marketing activities needs to primarily directed at maintaining a relationship with customers, an importance on obtaining and building a long term relationships.

2.1.1.2 Referral Markets

The ‘referral’ market domain consists of two main categories- customer and non-customer referral sources. Frequently, the best marketing is that done by an organization’s existing customers; which is why the creation of positive word-of-mouth referral, through delivery of outstanding service quality, is critical. Non-customer referral sources, which recommend an organization to prospective customers, are described by a number of terms. These include networks, multipliers, connectors, third party introducers, agencies and so on. It should be noted that these referral sources are also sometimes referred to as intermediaries. However, this can be a confusing term when applied to referral markets as it is more appropriately used in describing the role of channel members in the delivery of a product or service to the final consumer. ( Helen Peck et al. 1999:221)

Referral marketing is to use word of mouth to spread information and recommendations about your business. It is one of the most effective ways to increase market share for small retailers / small businesses. This kind of strategy is best for those that have products in the mid or mid-high price ranges. You won’t have to spend much money for referral marketing and the results can be very good with the right approaches (How to Market Your Business Through Referral Marketing By Fengming Jin Li, eHow User)

2.1.1.3. Influence Markets

The nature of the ‘influence’ market domain is such that it usually has the most diverse range of constituent groups. Illustrative of the wide range of constituent groups which comprise the influence market domain are: shareholders, financial analysts, stock brokers, the business press and other media, user and consumer groups, environmentalists and unions. Each of these constituent groups has the potential to exert significant influence over the organization and the relationships an organization has with them can be managed through the application of a strategic marketing approach. (Helen Peck et al. 1999:221)

2.1.1.4. Supplier Markets

Organizations’ relationships with their suppliers are undergoing some fundamental changes. The old adversarial relationship-where a company tried to squeeze its suppliers to its advantage-is giving way to one based much more on partnership and collaboration .There’s good commercial sense in this. Manufacturers in USA typically spend over 60 percent of total revenue on goods and service from outside suppliers. (Payne, A.1991)

Market analysis is the understanding of the dynamics and major trends of a specific supplier

Market (a given segment and geographic zone). It is part of the “core business “of a strategic

Purchasing function. (EIPM 2004 – Toolbox – Market Analysis)

2.1.1.5. Recruitment Markets

Recruitment and selection policies of firms is a largely neglected, though important, research area which provides insights into the functioning of labour markets and the social reproduction of organizations. (Paul Windolf 1986:235-254)

In fact the scarcest resource for most organizations is no longer capital or raw material, but it’s the skilled labor which is the most significant area to be considered. Prominence needs to be given in the selection and retaining of experience and skill labor.

2.1.1.6. Internal Markets

Hierarchies do innovate. As long as the innovation is “sustaining” rather than “disruptive” (Christensen, 1997, Anderson and Tushman, 1991 cited in Paper presented at the Strategic Management Society, 21st Annual International Conference, San Francisco, 2001)

Internal Marketing is recognized as an important activity in developing a customer focused organization. In practice, internal marketing is concerned with communication, with developing responsiveness, responsibility and purpose. Fundamental aims of internal marketing are to develop internal and external customer awareness and remove functional barriers to organizational effectiveness.

2.1.2 Customer Profitability analysis

“Customer profitability analysis” describes the process of allocating revenues and costs to customer segments or individual customer accounts, such that the profitability of those segments and/or accounts can be calculated.

The calculation of customer profitability amounts to an extensive activity-based costing (ABC) exercise (Cooper and Kaplan, 1991; Foster and Gupta, 1994, cited by Erik M. van Raaij: 2005)

Many customer databases contain details of customers who no longer have a relationship with the firm (Mulhern, 1999).

The first step in the CPA process therefore deals with the identification of the “active” customers in the customer database, in order to assure that costs are allocated to active customers only.

Schmittlein et al. (1987) and Schmittlein and Peterson (1994) have developed quite sophisticated methods to calculate the probability of a customer being an active customer, based on recency and frequency of purchases. (Cited in Erik M. van Raaij : 2005)

First, CPA uncovers opportunities for targeted cost management and profit improvement programs. Published figures show examples where 20% of customers generate225% of profits (Cooper & Kaplan, 1991), where more than half of the customers is unprofitable (Storbacka, 1997)or where the loss on a customer can be as high as 2.5 times sales revenue (Niraj, Gupta, & Narasimhan, 2001)

2.1.2.1. Customer Account Profitability

The ability of a firm to create and maintain relationships with their most valuable customers is a durable basis for a competitive advantage. To keep this edge over rivals, who continually try to attract these customers away, a firm has to master the three elements of a market-relating capability. First, a relationship orientation must pervade the mind-set, values, and norms of the organization.

Second, the firm must keep deepening its knowledge of these customers and putting it to work throughout the organization. Third, the key processes must be internally integrated and externally aligned with the corresponding processes of the firm’s customers.

There is less agreement on the factors that determine customer loyalty, particularly in service contexts.

Research on the determinants of service loyalty has taken three distinct paths: quality/value/satisfaction, relationship quality, and relational benefits.

The authors coalesce these paths to derive a model that links dimensions of customer loyalty (cognitive, affective, intention, and behavioral) with a system of determinants.

The model is tested with data from varied services (airlines, banks, beauty salons, hospitals, hotels, mobile telephone) and 3,500 customers in China. Results are consistent across contexts and support a multidimensional view of customer loyalty. Key loyalty determinants are customer satisfaction, commitment, service fairness, service quality, trust, and a construct new to service loyalty models-commercial friendship.

The research contributes to the literature by providing a more complete, integrated view of customer loyalty and its determinants in services contexts. (George S. Day: Jan 2000)

2.1.2.2. Customer Lifecycle Value Analysis

Relationships are an important aspect of doing business, and few businesses can survive without establishing solid relationships with their customers. Although the marketing literature suggests that personal relationships can be important to service firms, little specificity has been provided as to which relational aspects should receive attention.

In this study, the authors examine one specific aspect of customer-employee relationships, rapport, that they believe may be particularly salient in service businesses characterized by a high amount of interpersonal interactions. Rapport has received relatively little attention in the marketing literature; the goal of this study is to fill this gap in the literature.

In two different service contexts, the authors find support for two empirically distinct dimensions of rapport. They also find a positive relationship between these dimensions and satisfaction, loyalty intent, and word-of-mouth communication. They conclude by suggesting future research directions for further academic inquiry of rapport in service contexts.(D. Gremler and Kevin P. Gwinner: AUG 2000)

Prior research suggests that consumers may vary in the degree to which they wish to engage in a relationship with their service providers.

The authors identify previously found and new factors that influence whether consumers expect a service provider to form a relationship with them.

The authors then use these factors to segment consumers based on the relationship expectations they have with three universal categories of service providers: phone companies, banks, and doctors.

Depending on the service type, either two or three segments emerge, ranging from consumers who are keen to have a relationship to those who are indifferent about relationships, down to those who are averse to forming relationships with service providers.

Although there are always consumers who are keen to form a relationship with their service provider, there is no “hard core” group of consumers keen on relationships with all service providers. (Peter J. Danaher, Denise M. Conroy and Janet R. McColl-Kennedy: AUG 2008)