Evolution Of Relationship Marketing

Relationship marketing, although it is a relatively new notional concept, has been exercised in various business situations for many decades, despite its true potential has been under explored. From a historical standpoint, before the influence of the industrial revolution and the consequent mass production of goods and services, business was pigeon-holed by personal service and direct interaction with the store’s owner. The store proprietor was a real relationship marketer who cultivated customers as individuals and assisted to achieve their needs (Peppers and Rogers, 1995). The supplier’s concern in founding a relationship with his/her customers has been in exercised for many eras (Kandampully and Duddy, 1999). Gronroos (1994, p. 18) cited a Middle Eastern proverb from ancient trade to support this idea: “as a merchant, you’d better have a friend in every town”. In our contemporary trade, a firm’s “friends” refers to its customers, employees, suppliers, retailers and shareholders (Kandampully and Duddy, 1999).

Evolution of Relationship marketing

Emergence of Marketing

When the corporate manufacturers and brand marketing were dominant, the 1950’s was considered as the era of consumer marketing. The 1960’s was designated as the industrial marketing research while the 1970’s highlighted the non-profit sector and 1980’s was the epoch of service sector (Christopher et al, 1991, pp.8-9; Egan, 2001, p4). These developments sway the ‘relational research’ undoubtedly. Its vivid growth was related to the marketing crisis alleged in the 20th Century (Egan, 2001, p8).

Emergence of the Marketing Mix

Borden (1964) brought forward the 12 components of marketing programme. Afterwards, it was simplified to the 4 Ps also known as the marketing mix (McCarthy, 1978). This framework was perceived as a strategic and managerial process. The latter search to ensure that the 4 Ps and the internal policies of the firm were suitable to the market forces (opportunities and threats) operating within the firm’s competitive surroundings.

Backgrounds of RM

Relationship marketing is not a completely independent philosophy but is based on the traditional marketing ideologies (Gordon, 2008). This perspective brings forward that the elementary focus upon customer needs is still in the pipeline, but the way marketing is implemented is not the same. This highly focus on customer value, building and maintain a long term relationship (Christopher et al, 2006). However, some scholars as Carlos Brito (2011), Gronroos (1994) and Gummesson (1997) see RM as a paradigm shift in marketing. If RM is truly the descendant of TM, before shedding lights on the definition of RM, an insight of the perception of TM will be supportive.

Development of RM

The marketing mix was still helpful but with the complementary of other factors such as delivering, installing, the after sales services elements (Gronroos, 1996, p8). Empirically speaking, the 4 Ps marketing model was inappropriate for the business to business and service marketing. Therefore, Booms and Bitner (1981) extended the Ps by People, Physical evidence, Process. Likewise Christopher et al (1991, p13; cited by Egan, 2001, p15) incorporated the customer service in the center of the marketing mix as illustrated below:

Collapse of Traditional Marketing (TM)

The TM model was reflected too limited (Gronroos, 1990, 2000) and it appeared to be obsolete in the contemporary marketing world. TM was perceived as a short term transaction, over scientific and dependent on quantitative research (Egan, 2001, p17). Hence regarded as a “Hit and Run” tactic by Buttle (1996, p. vii). Gummesson (1994, p9) further added that TM was manipulative and exploiting the customer’s lack of knowledge. In the TM model also brought forward the functional and theoretical ‘mid-life crises’ in marketing which required consideration. The validity of the whole concept was challenged and the subject was debatable whether a ‘shift in paradigm’ was for survival (Gronroos, 1994, p4).

The roots of Relationship Marketing

The concept of Relationship Marketing (Berry, 1983; Smith, 1950; Taylor, 1947) has emerged from the services marketing and industrial marketing (Berry, 1983; Blomqvist, 1993; Jackson, 1985; Gummesson, 1987, 1990, 1993; Gronroos, 1989, 1990, 1991; Chritopher et al, 1991). It is being intensely supported by the trend in modern business (Webster, 1992).

Is Relationship marketing driving the Transactional marketing out?

RM is a supplementary option and not a substitute for the product marketing. It will be wise to identify when to use it. It is harmoniously expressed as we oriented towards finding products for customers rather than customers for products (Varey, 2002, p.xv).

Kotler (1992, p1) suggested companies to move from short term transaction objectives to the long lasting relationship establishing ones. He believes that the prevailing situation is a shift of focus on exchange from a narrow transaction to the focus on value laden relationship building and marketing linkages (Gronroos, 1994, p9; Kotler 1992, p1). The emphasis is being laid on activities that will hold existing customers. Therefore the focus is being drifted from a marketing mix focus to relationship focus (Kotler, 1991, pp1-4; Webster, 1992, p14).

According to Varey (2002, p12) TM is bias as it does not take into consideration the aspect of collaborative partners in the competitive market. He adds that TM is manipulating the customer attitudes and behavior such that they are submissively exploited through the “targeted communication.” In contrast, RM is more of the optic that customers are active and productive agent guided by their personal motivation rather than manipulation.

Gronroos (1994, p11) brought forward that from managerial point of view, the 4 Ps have been useful at least for the consumer packed products. Nevertheless, they were deficient in some markets and market circumstances. In spite of this fact, many textbooks highlighted the marketing mix because of its simplistic nature as a toolbox. Even if the marketing mix dominance is lessening, other concepts and approach like market segmentation and alike will be less valuable than before (Keith, 1960; McKitterick, 1957; Romilla et al, 1916). Relationship is dependent and is the foundation of exchanges and not necessarily a substitute (McInnes et al, 1964, p56).

Establishing a highly customer loyalty base is dependent and should be integrated with the firm’s strategies (Reichheld, 1993, p64). Hence the marketing strategy continuum (at one end there is the RM and at the other, there is the TM) is helpful (Gronroos, 1994, p7). The continuum presented below focus on the establishment of relationship taking customers as a focal point of discussion.

The strategy continuum

Transaction

Marketing

Relationship

Marketing

Time Perspective

Short term focus

Long term focus

Dominating marketing function

Marketing mix

Interactive marketing (supported by the marketing mix)

Price elasticity

Customers tends to be more sensitive to price

Customers tends to be less sensitive to price

Dominating quality dimension

Quality of output (technical quality dimension) is dominating

Quality of interactions (functional quality dimension) grows in importance and may become dominating

Measurement of customers satisfaction

Monitoring market share (indirect approach)

Managing the customer base (Direct approach)

Customer information system

Ad Hoc customer satisfaction surveys

Real time customer feedback system

Interdependency between marketing, operations and personnel

Interface of no or limited strategic importance

Interface of substantial strategic importance

The role of internal market

Internal marketing of no or limited importance to success

Internal marketing to substantial strategic importance to success

The product continuum

Consumer packed Consumer Industrial Services

Goods Durables Goods

Figurexxxx : The Marketing Strategy continuum

Source: Christian Gronroos, 1994, Marketing Mix to Relationship Marketing:

Towards a paradigm shift in marketing, p8

Definition of Relationship

The interaction between 2 parties who have unequal proportion of expertise, knowledge, resources and power is figuratively designated as relationship (Palmer, 2001). Harwood and Garry (2005) supported the notion by advancing the same as building of competitive advantage, although the possibility of higher leverage practices by the more powerful party. Indeed, lasting marketing relationship emerge from the resistance of this power disparity in power.

Definitions of Relationship marketing

The term relationship Marketing has reflected a variety of themes and perspectives. Some offer a narrow functional Marketing viewpoint while others offer an outlook that is broad and rather paradigmatic in approach and direction. (Nevin, 1995)

One narrow view of relationship Marketing is database Marketing highlighting the promotional aspects of Marketing interconnected to database applications (Bickert, 1992). Another similar viewpoint is to consider RM only as customer retention in which a multiplicity of after marketing strategies is practiced for customer bonding or keeping in touch after the sales (Vavra, 1991). A widespread method with current application of information technology is to emphasis on singular or one-to-one bond with customers that incorporates database knowledge with a lasting customer retention and growth approach. This is known as Customer Relationship Management (CRM) (Peppers, Rogers, 1993, 2004).

Shani and Chalasani have put forward that RM is an integrated effort to identify, maintain, and build up a web with individual consumers and to constantly reinforce the network for the common benefit of both parties, through cooperative, individualized and value-added associates over a long term (Shani, Chalasani, 1992,p 44). Jackson, using the individual account concept in industrial markets, has define RM as “Marketing oriented toward strong, lasting relationships with individual accounts” (Jackson, 1985: 2). In other business bases, Doyle and Roth (1992), O’Neal (1989), and Paul (1988) have offered comparable explanations of RM.

McKenna (1991) recognizes that in RM, moving the role of marketing from influencing the customer through telling and selling to open customer participation by communicating and sharing the knowledge is more strategic approach. Berry’s strategic viewpoint of RM in broader terms would pressure that bringing in new customers should be regarded only as a transitional stage in the Marketing Process. Mounting a closer relationship with these customers and incorporating loyalty in them are very important aspect of RM as well. Therefore, he used the terms such as “attracting, maintaining, and – in multi-service organizations – enhancing customer relationships” in his RM definition (Berry, 1983, p25). Berry’s definition was developed at the beginning of the RM saga. Customers acquisition always been in the marketers agenda and will figured in even in the future always. However, the relationship marketing perspective highlight on the customer retention which is referred as either equal or greater value to the firm in the long run. Distinguishing the customers is important as all are not the same and shall not handle similarly (Egan, 2001, p20).

Berry’s perception of RM is similar to other scholars such as Gummesson (1987), Gronroos (1983), and Levitt (1981), studying services marketing. Although both of them has acknowledge the importance of interactions in Marketing and its resultant influence on customer relations, Gronroos (1990) and Gummesson (1987) take a wider viewpoint and advocate that customer relationships should be the focal aspect and overriding paradigm of Marketing. For instance, Gronroos shapes marketing in the following words:

“Marketing is to establish, maintain, and enhance 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” (Gronroos, 1990, p138).

Gronroos’ definition implies that customer relationships are the raison d’être of the business and marketing is the enthusiastic medium to build and enhance such relationships.

Dwyer, Schurr, and Oh (1987) have described cooperative relationships as being inter-reliant and long-term orientated rather than short-term discrete transactions. The long-run orientation is often emphasized because it is understood that marketing actors will not employ in opportunistic comportment if they are committed and that such relationships will be moored on shared gains and cooperation (Ganesan, 1994).

Morgan and Hunt (1994) highlighted the dissimilarity between transactional exchanges and relational exchanges that was advanced by Dwyer, Schurr, and Oh (1987), to offer a more comprehensive definition of RM. A broader definition proposed by Morgan and Hunt (1994) is:

“Relationship Marketing refers to all Marketing activities directed toward establishing, developing, and maintaining successful relationships.”

The above meaning of RM was soon counter attacked by Peterson. He advanced that if the Morgan and Hunt (1994) definition is true then ” then relationship Marketing and Marketing are redundant terms and one is unnecessary and should be stricken from the literature because having both only leads to confusion” (Peterson, 1995: 279). Other researchers who consider that RM is clearly different from the dominant transactional orientation of Marketing may challenge such an extreme standpoint.

The Underpinnings of RM

The marketing literature has conceived key merits that strengthen relationship marketing, such as commitment (Grossman, 1998; Ndubisi and Chan, 2004), trust (Morgan and Hunt, 1994; Veloutsou et al., 2002), communication or sharing of secrets (Ndubisi and Chan, 2005; Morgan and Hunt, 1994; Crosby et al., 1990) and conflict handling (Dwyer et al., 1987; Ndubisi and Chan, 2005). In this study, these are studied in line to customer loyalty. Ndubisi (2004) has recommended that companies should make sacrifices and meaningful investments in creating relationships with loyal or at least probable devoted, customers. The four identified underpinnings of RM are debatable as being directly linked to customer loyalty and thus capable of predicting it.

Trust

Moorman et al. (1993) defined trust as “. . . a willingness to rely on an exchange partner in whom one has confidence” A treachery of this trust by the supplier or service provider could direct to failure. Trust has also been defined as the belief that a supplier’s/service provider’s statement or promise is unfailing and a party will accomplish his/her commitment in the relationship (Schurr and Ozanne, 1985). Other definition of trust by other scholars are in terms of mutual goals (Wilson, 1995), shared values (Morgan and Hunt, 1994), opportunistic behaviour (Dwyer et al., 1987), uncertainty (Crosby et al., 1990), making and keeping promises (Bitner, 1995) and actions with positive outcomes (Anderson and Narus, 1984). The promise concept is an integral element of RM approach (Calonius, 1988). Consistent with Reichheld and Sasser (1990), fulfilling promises is an important medium to achieve customer satisfaction, holding the customer base, and safeguarding long-term profitability in addition to increasing the trust.

Commitment

Commitment is one more significant element of the power of RM, and a valuable hypothesis for assessing the probability of customer loyalty and forecasting future purchase frequency (Gundlach et al., 1995; Morgan and Hunt, 1994; Dwyer et al., 1987; Ndubisi, 2007). The commitment was the most popular dependent variable employed in buyer-seller relationship readings (Wilson, 1995). The concept of commitment in sociology, is used to examine both individual and organizational behaviour (Becker, 1960) and delimit forms of action characteristic of certain categories of people or groups (Wong and Sohal, 2002), Kiesler (1971) in keeping with psychologists description of commitment as decisions or perceptions that fix or bind an individual to a behavioral disposition.

Communication

In RM, communication speaks of to the capability to provide well-timed and reliable information. Today, there is a new insight of communications as an interactive exchange of ideas between the firm and its customers, which occurs during the pre-selling, selling, consuming and post-consuming phases (Anderson and Narus, 1990; Ndubisi, 2007). Communication means maintaining contact with esteemed customers, supplying timely and trustworthy information on service and service alterations, and interacts proactively if a delivery problem befalls. Interactions also express dissatisfied customers what the business’s reaction to rectify the source of dissatisfaction. Ndubisi and Chan (2007) advanced that an effective flow of information between a business and its customers will result in a better relationship and incline customers to be more loyal.

Conflict-handling

Conflict handling is a supplier’s capacity to avoid probable conflicts, resolve manifested conflicts before they become the root of problems, and discourse solutions openly when conflict occurs (Dwyer et al., 1987) How effectively this is implemented will conclude whether the aftermath is loyalty, “exit” or “voice” (Ndubisi and Chan, 2007). Rusbult et al. (1988) determined that the possibility of these actions in individual cases is dependent on the degree of preceding satisfaction with the relationship, the degree of the customer’s venture in the relationship, and an appraisal of the substitutions available. Ndubisi and Chan (2005) found a noteworthy relationship between conflict handling and customer loyalty, ultimately through trust and acknowledged relationship quality. The ability of the seller or service provider to handle clash appropriately will also directly sway customer loyalty.