RM first became evident in B2B marketing, but this approach is now evident in the services sector and in consumer marketing. Conventional transactional marketing, based on the notion of mutual exchange, is where the seller offers immediate and hopefully attractive combinations of product, price and technical support to generate a sale. The emphasis, albeit implicitly, is on completing this individual transaction. In turn, this completion of the transaction is the measure of success of the exchange.
The marketer then moves to consider the next order the customer might place and attempts to generate another individual transaction. The buyer is interested in the best possible value, and the marketer with revenue from the exchange. There is little emphasis on customer service or long-term relationships by either party – typically found in a relationship where a buyer of a raw material such as steel plate purchases purely on price, specification and delivery. With RM the emphasis switches to developing a longer-term and more interactive set of relationships between the marketer and customer based on partnership and sharing.
In particular, the marketer’s concern is to move the customer up the ladder of loyalty to the point where the customer becomes a partner with the supplier. Although transactions and immediate satisfaction are still important to both parties, in RM the success of the exchange is the extent to which both parties benefit thorough co-operation and agreement. In the most successful examples of RM, the two parties grow more trusting, more knowledgeable about each others’ interests and needs, and more interested in helping each other. Transactions cease to be negotiated each time and become part of a longer-term routine.
The outcome of successful relationship marketing is the development of solid, dependable supplier–customer relationships which form the basis of a marketing network and represent a valuable marketing asset. By so doing, the bureaucratic process of sending out enquiries, receiving quotations, placing the order and following up the order can be short circuited.
RM, as opposed to traditional transactional marketing, can be seen as opposite ends of a continuum. The distinctions between transaction marketing and RM already highlighted, together with additional key areas of difference are summarized by Kotler et al.11. We can see from this table that relationship and transactional marketing are different in several respects. But why has RM emerged and what has given rise to this paradigm shift in the concept of marketing?
Reasons for the growth of relationship marketing
The well established notions of ‘exchange’ and ‘interaction’ in marketing provide the theoretical antecedents for the emergence of RM. However, as Lancaster and Massingham12 point out, the growth of RM has more pragmatic causes. Put simply, they assert, both marketer and customer have increasingly recognized that relationship marketing, and in particular the requirements needed to develop effective relationship marketing such as the building of strong trust and confidence between the two parties, the exchange of information and effective communication, and mutual support, simply makes good sense. In particular, this commonsense approach concerns the building of strong trust and confidence between the two parties, the exchange of information, effective communication and mutual support, and this can only be good for business relationships.
To these antecedents, Gummesson13 adds the notion of ‘networks’. By ‘networks’ he is referring to the fact that in many exchanges there are more than two parties involved, especially in B2B markets. For example there is a whole network of parties involved in the chain of supply, manufacture and marketing including raw material suppliers, suppliers of finance, distributors and intermediaries and a whole array of service agencies like advertising and market research agencies.
The suggestion is that we plan marketing strategies around the whole network of supply and marketing. Perhaps this explains why RM first began to emerge in B2B markets, where it was readily seen to make good commercial sense in terms of improving customer retention rates. Estimates vary, but on average it can be up to six to eight times more expensive to create a new customer than to keep an existing one. For the marketer, building long-term relationships with customers can lead to substantially lower marketing and other costs, e.g. lower costs are incurred in advertising and promotion to attract and keep customers.
Selling costs can be lower, particularly in B2B markets where salespeople spend less time having to prospect for new customers. Both implicitly and explicitly, RM focuses on customer retention. As we have seen with customer service, companies have realized the financial value of keeping customers and the life-time value of loyal customers is huge. This recognition of the financial pay-off of building long-term, lasting relationships with customers is now increasingly recognized in consumer goods markets.
Transactional marketing vs. relationship marketing
An RM approach is felt to bestow benefits on the customer in consumer goods markets, especially if customers feel they can purchase the same brand every time because they trust the brand or supplier. This can substantially help reduce the time, effort and risk in making a purchase. In addition, many RM campaigns used in consumer markets involve some sort of financial inducement for the customer to become involved in a long-term relationship with the marketer – loyalty cards, air miles and bonus points are examples of inducements designed to encourage the customer up the ladder of loyalty.
RM would not have increased if there were no benefits for the customer. Again, in the case of B2B customers these benefits are readily identified and easier to communicate as they are principally financial in nature, e.g. for the manufacturing customer, developing effective relationships with suppliers enables more cost-effective systems of purchasing to be put in place if production operates a just-in-time (JIT) lean manufacturing system. Through RM, companies are able to develop collaborative ventures with customers or suppliers with regard to developing new products. Clearly, JIT and collaborative new product development require long-term relationships between customers and marketers.
Overall, as one would expect from any successful relationship, both parties need to feel they can benefit if RM is to be appropriate and successful. In this respect, Bund-Jackson14 suggested that the development of a RM approach is not always appropriate for all customers. She suggests that some customers are better managed through the traditional transaction marketing approach. These customers she refers to as ‘always-a-share’ customers. Such customers include those who have low switching costs in terms of changing suppliers and brands and find making such change relatively easy.
Because of this, they do not value long-term relationships with suppliers and for more expensive durable goods items prefer to negotiate individual transactions each time a purchase is made. Other types of customer in this category include customers who are make one-off purchases and are not interested in supplier relationships. Such customers are ‘brand promiscuous’ and want to try out as many different brands as possible in seeking variety. For this category of customers, any would-be supplier is always in a position to gain a share of this type of customer’s business so RM is less appropriate.
In contrast, she terms customers who are best suited to a RM approach as ‘lost-for-good’ customers. The characteristics of such customers are that they have high switching costs in terms of changing suppliers, tend to have longer time horizons, make a series of purchases over time and view commitments to particular suppliers or brands as important and preferably relatively permanent.
Once a supplier has won this type of account, the customer is likely to remain loyal to the supplier for a long time. If lost, however, the customer often never returns, so is ‘lostfor’ good’ to the supplier. If anything, the incidence of ‘lost-for-good’ customers, particularly in business-to-business markets, has grown in recent years, again related to developments such as JIT manufacturing and collaborative ventures between companies. Such collaboration requires close co-operation between supplying and purchasing companies that can only be achieved by supplier and buyer taking a long-term RM approach. One of the first steps in developing RM, and in determining whether a RM approach should be used, is to identify which customers merit a relationship approach.
There are those who feel that RM is more relevant in B2B marketing and is not suited to marketing consumer goods where it is suggested that customers do not seek relationships with marketers.
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