Relationship Marketing In Service Sector

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2nd May 2017 Marketing Reference this

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The purpose of this study was to reveal the importance of Relationship marketing in the service sector. Relationship Marketing is defined as the identification, establishment, maintenance, enhancement, modification and termination of relationships with customers to create value for customers and profit for organization by a series of relational exchanges that have both a history and a future. The paper discusses the nature and the need of relationship marketing, ladder of relationship marketing, application and benefits of Relationship Marketing in service sector. The study also points out some steps for the success of relationship marketing. As the concept of relationship marketing has become important the focus has been shifted from transaction marketing to relationship marketing Paper concluded that the service sector should understand the need and application of relationship marketing to overcome competition and keep their customers for longer periods winning the hearts of everyone.

Key words: Relationship marketing, trust, profitability, relational exchanges, customer relationship management

Introduction

In today’s world, business has become a lot more complex, and so has the marketing involved with it. But it is no longer sufficient to just market your product. It is equally important to keep your existing customers satisfied. In fact, your existing customers could end up buying more of your product or service provided they are satisfied with your service. At a time of intense competition and increasingly demanding consumers, relationship marketing has attracted the attention of both researchers and managers. Academics have focused their attention on its scope, and developed a conceptual framework aimed at understanding the nature and value of the relationships not only with customers but also with a number of other stakeholders. Relationship Marketing is the kind of marketing which does exactly this. It emphasizes on consumer retention and continual satisfaction rather than just the per-case individual transaction. Companies increasingly recognize the importance of interaction with customers; relationship marketing is assuming a central place in both marketing theory and practice.

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What are the origins of this approach? It is generally accepted that the roots of the expression “relationship marketing” can be found in the early 1980s. It appears for the first time in academic literature in 1983 when Leonard Berry, in a book on marketing to services, writes a chapter entitled “Relationship Marketing.” Two years later, in the context of a project related to industrial marketing, Barbara Jackson uses the same expression of “relationship marketing” in her book Winning and Keeping Industrial Customers as well as in an article published in Harvard Business Review in 1985. This fact bears mentioning: the two researchers who introduced the expression – one in the area of services and the other in the industrial field – indicate, to some extent, its conceptual pillars. Finally, we must also mention the great Theodore Levitt, who in 1983, without using the term “relationship marketing” in those exact words, states that the objective of a business should not be limited to sales in itself but should also provide the greatest customer satisfaction, which depends on “how well the relationship is managed by the seller” (Levitt, 1983, p. 111).

Literature review

Relationship marketing came into being because of a strange thought that businesses were spending far more time and money to get new customers and almost nothing to retain older ones. This thought led scholars like Leonard Berry (Texas A&M) and Jagdish Sheth (Emory University) to build up on the concept of relationship marketing. In fact, these two individuals were the first to use the term “Relationship Marketing”. Further broadening of the scope of marketing beyond individual transactions was done by the guru of marketing, Theodore Levitt (Harvard). However, although these scholars were ones who recognized its presence, relationship marketing was in use (although to a lesser extent) much prior to its terminology.

Leonard Berry suggested that “relationship marketing can be applied when there are alternatives to choose from, when the consumer makes the selection decision and when there is an ongoing and periodic desire for the product or service”. This sentence has been the foundation of where relationship marketing can be applied. Breaking apart the sentence gives a clearer view that if a customer has alternatives to choose from, and if the customer has to make a selection based on a product or service, which they are going to use for a long term, then consumer satisfaction would be a great priority in the decision making to purchase the product or service.

In 25 years, relationship marketing has undergone a significant evolution, with its current status undeniable. A recent Google search showed close to 8,000,000 hits for the search term “relationship marketing”. On the other hand, the American Marketing Association changed its definition of marketing in 2004, putting in evidence its relational nature: “marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.” It is interesting to compare this definition with the one adopted before: “marketing is the process of planning and executing the conception, pricing, promotion, and distribution of goods, ideas, and services to create exchanges that satisfy individual and organizational goals.” It should be noted that the Journal of Public Policy & Marketing published a special issue at the end of 2007 dedicated to the theme of “The American Marketing Association’s New Definition of Marketing: Perspectives on Its Implications for Scholarship and the Role and Responsibility of Marketing in Society”, which reveals how the definition of marketing has changed its focus.

In the business world, there are also various factors that have increased the importance of relationship marketing. Several authors (cf. Brito, 1998; Dibb, 2001; Grönroos, 2007; Lara and Casado, 2002; Little and Marandi, 2003; Sheth and Parvatiyar, 1995, 2000) have shown which changes, both on the supply and demand side, have increased the strategic importance of more relationship-oriented approaches. Among the factors most generally mentioned are: (i) the tendency for lesser effectiveness of mass-market approaches, (ii) the advances in the field of new technologies, not only in terms of communication and information but also in production and logistics, (iii) the high level of competition seen in the increasing number of available brands, ones often viewed as having little that distinguishes one from another, (iv) the growing importance of services, (v) the emergence of new business models based on partnerships and networks, fostered by the process of globalization

Based on Eiriz and Wilson (1999, 2006) and Möller and Halinen (2000), as well as on the contributions of other important researchers (Brodie et al., 1997; Coviello et al., 1997; Gummesson, 1996; Mattsson, 1997; Morgan and Hunt, 1994), the conceptual origins of relationship marketing can be found in essentially four areas: supply chain and marketing channels, organizational marketing, services marketing, and database and direct marketing (Figure 1).

Supply Chain and Marketing Channels

Some of the most important issues on distribution channels – whose origins go back to the 1970s (cf. El-Ansary and Stern, 1972; Rosenberg and Stern, 1971; Stern, 1969) – deal with the conflict of power in the context of the buyer-seller interaction process. In general, the understanding and explanation of structures of governance and the nature of the two-way behavior of the parties is sought. In this vein, most studies have focused on inter-organizational relationships, namely within a perspective of efficiency of economic transactions (Heide and John, 1990), although there is also research centered on social aspects and economic policy (Reve and Stern, 1985).

Organizational Marketing

The literature on distribution channels has contributed in part to the emergence of an important stream of research on interaction and inter-organizational networks, the most prominent research group of which is the IMP – Industrial Marketing and Purchasing.

Services Marketing

The third theoretical area on which relationship marketing is founded is services marketing. Since the late 1970s, researchers in this area have shown that the development of a conceptual framework for services based exclusively on the traditional approach of product marketing mix was manifestly insufficient (Parasuraman, Zeithaml and Berry, 1985). Customer participation, not only in consumption but also in the production of the service, in conjunction with the simultaneity seen between both processes – something that came to be called ‘servuction’ by Eiglier and Langeard (1987) – made clear the relational nature of services.

Database Marketing and Direct Marketing

Finally, the fast development of information and communication technologies over the past two decades has acted as a catalyst for more interactive market approaches. The capacity for 7storing and extracting data offered by new technologies – allowing for what is commonly known as data warehouse and data mining – has increased the ability of organizations to deal with a vast quantity of information from customers that it would otherwise be unthinkable.

Conceptual Roots of Relationship Marketing

Figure :Sources: Eiriz and Wilson, 2006, p. 282; Möller and Halinen, 2000, p. 32 (adapted)

Purpose of Relationship Management

The purpose of relationship marketing is, to enhance marketing productivity by achieving efficiency and effectiveness (Sheth and Sisodia 1995). Several relationship marketing practices can help achieve efficiency, such as customer retention, efficient consumer response (ECR), and the sharing of resources between marketing partners. Each of these activities have the potential to reduce operating costs of the marketer. Similarly, greater marketing effectiveness can be achieved because it attempts to involve customers in the early stages of marketing program development, facilitating the future marketing efforts of the company. Also, through individualized marketing and adoption of mass customization processes, relationship marketers can better address the needs of each selected customer, making marketing more effective. As is widely known, the discipline of marketing grew out of economics, and the growth was motivated by lack of interest among the economists in the details of market behavior, especially those related to the functions of the middlemen (Bartels 1976; Houston, Gassenheimer and Maskulka 1992; Hunt and Goolsby 1988). It coincided with the growth in the number of middlemen and the importance of distribution during theindustrial era.

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The impact of technological revolution is changing the nature and activities of the marketing institutions. The current development and introduction of sophisticated electronic and computerized communication systems into our society is making it easier for consumers to interact directly with the producers. Producers are also becoming more knowledgeable about their consumers by maintaining and accessing sophisticated databases that capture information related to each interaction with individual consumers, at a very low cost. It gives them the means by which they can practice individual marketing. As a result, the functions formerly performed by the middlemen are now being undertaken by either the consumer or the producers. Producers are building such systems that allow them to undertake quick responses with regard to manufacturing, delivery and customer service, eliminating the need for inventory management, financing and order processing through middlemen. Also, consumers have less time and thus a reduced inclination to go to the store for every purchase. They are willing to undertake some of the responsibilities of direct ordering, personal merchandising, and product use related services with little help from the producers. As the concept of relationship marketing has emerged the focus has been shifted from transaction marketing to relationship marketing as under:

EARLIER NOW

Transaction marketing Relationship Marketing

Focus on single sale Focus on customer retention

Orientation on product features Orientation on product benefits

Little emphasis on customer High customer service emphasis

Services

Limited customer commitment High customer commitment

Moderate customer contact High customer contact

Quality is primarily a concern Quality is concern for all

Conclusion

Relationship marketing is a topic that extensively deals with customer loyalty. By satisfying customers, it is the aim of relationship marketing to make customers loyal to buy further products from the company and recommend others to do the same. It is an essential marketing strategy that has to be used in tandem with almost all products and services today for the parent company to remain successful. Relationship marketing is today one of the areas with the most expression in the field of marketing, recognized not only by academics but also by practitioners. Its application in the business world is ever more visible. It is not only the multiple direct marketing configurations that are being increasingly utilized and which enter the field (not being restricted to physical mail) as mobile marketing. It is the individualization of products, it is the increasing use of services, it is loyalty programs – in fact, it is the multiple channels of interaction with the customer.

However, beyond the practical side, relationship marketing is a field with a high potential for scholarship, given the multi-disciplinary nature of the issues that it encompasses, grouping together studies that span areas such as services and distribution channels and extend to brand management, quality and customer loyalty. The relational approach is a broader view of marketing which encompasses all stakeholders and while it is important to market firm to its customers, suppliers, and partners, it is equally – if not more important – to market it to employees; thus the relevance of internal marketing.

Recommendations

As far as establishing and maintaining long-term relationships with customers is concerned, gaining the trust of customers is the precursor to getting them committed to the professional relationship that they share with the supplier. The emphasis on relationship has become a key to successful company and also the traditional concept of making sales has been replaced by looking into making very long time win – win relationship with customers. It’s emerging as the core advertising activity for company operating in fiercely competitive environments. On average, industry spends six times much more to get customers than they are doing to keep them. Therefore the majority of the firms at the moment are paying more attention to their relationships with existing clients to retain them and grow their share of consumers’ purchases. Researchers recommends to maintain service excellence, good customer care, and regular contact with customers (both firms and individual customers) and respecting privacy and confidentiality of customers will help companies to get a greater customer base and also acquire customer loyalty. This relates to the idea of higher customer satisfaction and customer loyalty prevailing in small firms as described by Carson (1985).

The purpose of this study was to reveal the importance of Relationship marketing in the service sector. Relationship Marketing is defined as the identification, establishment, maintenance, enhancement, modification and termination of relationships with customers to create value for customers and profit for organization by a series of relational exchanges that have both a history and a future. The paper discusses the nature and the need of relationship marketing, ladder of relationship marketing, application and benefits of Relationship Marketing in service sector. The study also points out some steps for the success of relationship marketing. As the concept of relationship marketing has become important the focus has been shifted from transaction marketing to relationship marketing Paper concluded that the service sector should understand the need and application of relationship marketing to overcome competition and keep their customers for longer periods winning the hearts of everyone.

Key words: Relationship marketing, trust, profitability, relational exchanges, customer relationship management

Introduction

In today’s world, business has become a lot more complex, and so has the marketing involved with it. But it is no longer sufficient to just market your product. It is equally important to keep your existing customers satisfied. In fact, your existing customers could end up buying more of your product or service provided they are satisfied with your service. At a time of intense competition and increasingly demanding consumers, relationship marketing has attracted the attention of both researchers and managers. Academics have focused their attention on its scope, and developed a conceptual framework aimed at understanding the nature and value of the relationships not only with customers but also with a number of other stakeholders. Relationship Marketing is the kind of marketing which does exactly this. It emphasizes on consumer retention and continual satisfaction rather than just the per-case individual transaction. Companies increasingly recognize the importance of interaction with customers; relationship marketing is assuming a central place in both marketing theory and practice.

What are the origins of this approach? It is generally accepted that the roots of the expression “relationship marketing” can be found in the early 1980s. It appears for the first time in academic literature in 1983 when Leonard Berry, in a book on marketing to services, writes a chapter entitled “Relationship Marketing.” Two years later, in the context of a project related to industrial marketing, Barbara Jackson uses the same expression of “relationship marketing” in her book Winning and Keeping Industrial Customers as well as in an article published in Harvard Business Review in 1985. This fact bears mentioning: the two researchers who introduced the expression – one in the area of services and the other in the industrial field – indicate, to some extent, its conceptual pillars. Finally, we must also mention the great Theodore Levitt, who in 1983, without using the term “relationship marketing” in those exact words, states that the objective of a business should not be limited to sales in itself but should also provide the greatest customer satisfaction, which depends on “how well the relationship is managed by the seller” (Levitt, 1983, p. 111).

Literature review

Relationship marketing came into being because of a strange thought that businesses were spending far more time and money to get new customers and almost nothing to retain older ones. This thought led scholars like Leonard Berry (Texas A&M) and Jagdish Sheth (Emory University) to build up on the concept of relationship marketing. In fact, these two individuals were the first to use the term “Relationship Marketing”. Further broadening of the scope of marketing beyond individual transactions was done by the guru of marketing, Theodore Levitt (Harvard). However, although these scholars were ones who recognized its presence, relationship marketing was in use (although to a lesser extent) much prior to its terminology.

Leonard Berry suggested that “relationship marketing can be applied when there are alternatives to choose from, when the consumer makes the selection decision and when there is an ongoing and periodic desire for the product or service”. This sentence has been the foundation of where relationship marketing can be applied. Breaking apart the sentence gives a clearer view that if a customer has alternatives to choose from, and if the customer has to make a selection based on a product or service, which they are going to use for a long term, then consumer satisfaction would be a great priority in the decision making to purchase the product or service.

In 25 years, relationship marketing has undergone a significant evolution, with its current status undeniable. A recent Google search showed close to 8,000,000 hits for the search term “relationship marketing”. On the other hand, the American Marketing Association changed its definition of marketing in 2004, putting in evidence its relational nature: “marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.” It is interesting to compare this definition with the one adopted before: “marketing is the process of planning and executing the conception, pricing, promotion, and distribution of goods, ideas, and services to create exchanges that satisfy individual and organizational goals.” It should be noted that the Journal of Public Policy & Marketing published a special issue at the end of 2007 dedicated to the theme of “The American Marketing Association’s New Definition of Marketing: Perspectives on Its Implications for Scholarship and the Role and Responsibility of Marketing in Society”, which reveals how the definition of marketing has changed its focus.

In the business world, there are also various factors that have increased the importance of relationship marketing. Several authors (cf. Brito, 1998; Dibb, 2001; Grönroos, 2007; Lara and Casado, 2002; Little and Marandi, 2003; Sheth and Parvatiyar, 1995, 2000) have shown which changes, both on the supply and demand side, have increased the strategic importance of more relationship-oriented approaches. Among the factors most generally mentioned are: (i) the tendency for lesser effectiveness of mass-market approaches, (ii) the advances in the field of new technologies, not only in terms of communication and information but also in production and logistics, (iii) the high level of competition seen in the increasing number of available brands, ones often viewed as having little that distinguishes one from another, (iv) the growing importance of services, (v) the emergence of new business models based on partnerships and networks, fostered by the process of globalization

Based on Eiriz and Wilson (1999, 2006) and Möller and Halinen (2000), as well as on the contributions of other important researchers (Brodie et al., 1997; Coviello et al., 1997; Gummesson, 1996; Mattsson, 1997; Morgan and Hunt, 1994), the conceptual origins of relationship marketing can be found in essentially four areas: supply chain and marketing channels, organizational marketing, services marketing, and database and direct marketing (Figure 1).

Supply Chain and Marketing Channels

Some of the most important issues on distribution channels – whose origins go back to the 1970s (cf. El-Ansary and Stern, 1972; Rosenberg and Stern, 1971; Stern, 1969) – deal with the conflict of power in the context of the buyer-seller interaction process. In general, the understanding and explanation of structures of governance and the nature of the two-way behavior of the parties is sought. In this vein, most studies have focused on inter-organizational relationships, namely within a perspective of efficiency of economic transactions (Heide and John, 1990), although there is also research centered on social aspects and economic policy (Reve and Stern, 1985).

Organizational Marketing

The literature on distribution channels has contributed in part to the emergence of an important stream of research on interaction and inter-organizational networks, the most prominent research group of which is the IMP – Industrial Marketing and Purchasing.

Services Marketing

The third theoretical area on which relationship marketing is founded is services marketing. Since the late 1970s, researchers in this area have shown that the development of a conceptual framework for services based exclusively on the traditional approach of product marketing mix was manifestly insufficient (Parasuraman, Zeithaml and Berry, 1985). Customer participation, not only in consumption but also in the production of the service, in conjunction with the simultaneity seen between both processes – something that came to be called ‘servuction’ by Eiglier and Langeard (1987) – made clear the relational nature of services.

Database Marketing and Direct Marketing

Finally, the fast development of information and communication technologies over the past two decades has acted as a catalyst for more interactive market approaches. The capacity for 7storing and extracting data offered by new technologies – allowing for what is commonly known as data warehouse and data mining – has increased the ability of organizations to deal with a vast quantity of information from customers that it would otherwise be unthinkable.

Conceptual Roots of Relationship Marketing

Figure :Sources: Eiriz and Wilson, 2006, p. 282; Möller and Halinen, 2000, p. 32 (adapted)

Purpose of Relationship Management

The purpose of relationship marketing is, to enhance marketing productivity by achieving efficiency and effectiveness (Sheth and Sisodia 1995). Several relationship marketing practices can help achieve efficiency, such as customer retention, efficient consumer response (ECR), and the sharing of resources between marketing partners. Each of these activities have the potential to reduce operating costs of the marketer. Similarly, greater marketing effectiveness can be achieved because it attempts to involve customers in the early stages of marketing program development, facilitating the future marketing efforts of the company. Also, through individualized marketing and adoption of mass customization processes, relationship marketers can better address the needs of each selected customer, making marketing more effective. As is widely known, the discipline of marketing grew out of economics, and the growth was motivated by lack of interest among the economists in the details of market behavior, especially those related to the functions of the middlemen (Bartels 1976; Houston, Gassenheimer and Maskulka 1992; Hunt and Goolsby 1988). It coincided with the growth in the number of middlemen and the importance of distribution during theindustrial era.

The impact of technological revolution is changing the nature and activities of the marketing institutions. The current development and introduction of sophisticated electronic and computerized communication systems into our society is making it easier for consumers to interact directly with the producers. Producers are also becoming more knowledgeable about their consumers by maintaining and accessing sophisticated databases that capture information related to each interaction with individual consumers, at a very low cost. It gives them the means by which they can practice individual marketing. As a result, the functions formerly performed by the middlemen are now being undertaken by either the consumer or the producers. Producers are building such systems that allow them to undertake quick responses with regard to manufacturing, delivery and customer service, eliminating the need for inventory management, financing and order processing through middlemen. Also, consumers have less time and thus a reduced inclination to go to the store for every purchase. They are willing to undertake some of the responsibilities of direct ordering, personal merchandising, and product use related services with little help from the producers. As the concept of relationship marketing has emerged the focus has been shifted from transaction marketing to relationship marketing as under:

EARLIER NOW

Transaction marketing Relationship Marketing

Focus on single sale Focus on customer retention

Orientation on product features Orientation on product benefits

Little emphasis on customer High customer service emphasis

Services

Limited customer commitment High customer commitment

Moderate customer contact High customer contact

Quality is primarily a concern Quality is concern for all

Conclusion

Relationship marketing is a topic that extensively deals with customer loyalty. By satisfying customers, it is the aim of relationship marketing to make customers loyal to buy further products from the company and recommend others to do the same. It is an essential marketing strategy that has to be used in tandem with almost all products and services today for the parent company to remain successful. Relationship marketing is today one of the areas with the most expression in the field of marketing, recognized not only by academics but also by practitioners. Its application in the business world is ever more visible. It is not only the multiple direct marketing configurations that are being increasingly utilized and which enter the field (not being restricted to physical mail) as mobile marketing. It is the individualization of products, it is the increasing use of services, it is loyalty programs – in fact, it is the multiple channels of interaction with the customer.

However, beyond the practical side, relationship marketing is a field with a high potential for scholarship, given the multi-disciplinary nature of the issues that it encompasses, grouping together studies that span areas such as services and distribution channels and extend to brand management, quality and customer loyalty. The relational approach is a broader view of marketing which encompasses all stakeholders and while it is important to market firm to its customers, suppliers, and partners, it is equally – if not more important – to market it to employees; thus the relevance of internal marketing.

Recommendations

As far as establishing and maintaining long-term relationships with customers is concerned, gaining the trust of customers is the precursor to getting them committed to the professional relationship that they share with the supplier. The emphasis on relationship has become a key to successful company and also the traditional concept of making sales has been replaced by looking into making very long time win – win relationship with customers. It’s emerging as the core advertising activity for company operating in fiercely competitive environments. On average, industry spends six times much more to get customers than they are doing to keep them. Therefore the majority of the firms at the moment are paying more attention to their relationships with existing clients to retain them and grow their share of consumers’ purchases. Researchers recommends to maintain service excellence, good customer care, and regular contact with customers (both firms and individual customers) and respecting privacy and confidentiality of customers will help companies to get a greater customer base and also acquire customer loyalty. This relates to the idea of higher customer satisfaction and customer loyalty prevailing in small firms as described by Carson (1985).

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