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Relationship
MarketinMBA 4644, Unit 3
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Marketin hat is Relationship Marketing?
Understanding marketingconceptsDefining relationship
marketing (RM) Transactional VS.relationship marketingUnderstanding the
advantages of RM
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JEFF BEZOS
PIERRE OMIDYAR
MICHAEL DELL
Are these companies
successful?
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Are these companies
successful?
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Are these companies
successful?
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Marketing ManagementPhilosophies
Marketingconcept
Sellingconcept
Productconcept
Productionconcept
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Companies believe that customers chooselow-price productsCustomers will favour products that are
highly affordableCompanies focus on production of a fewspecific products, perhaps because few of these products are available in the market
Firms emphasise production techniques andunit-cost reduction rather than the needsand wants of the target market. If we canmake it, it will sell
The majority of customers have other
Production concept
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Customers choose products with the bestquality, performance, design or featuresCompanies emphasise the quality of the
product rather than the needs and wants of the target market The customers voice to be missing whenimportant marketing decisions are made
Management makes assumptions aboutwhat customers want The outcome is that products are over-specified for the requirements of the market,and therefore too costly for the majority of
Product concept
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Companies aim is to sell what they makerather than make what the market wantsIf companies invest enough in advertising,
selling, public relations and sales promotion,customers will be persuaded to buyCustomers who are coaxed into buying theproduct will like it. Or, if they don't like it,
they may forget their disappointment andbuy it again laterIt focuses on short-term results - creatingsales transactions - rather than on buildinglong-term, profitable relationships with
Selling concept
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1950s 1960s 1970s 1980s 1990s 2000
1950-1970
Spending x2
Brand Mgtmodel
Toolboxmodel
NorthAmerica
Media
Saturated Mkts Sm.Brand Growth Consumers more demanding & sophisticated Advertising
effectivenessdown
the homogeneitymarketers continueto seek what was amyth advanced bythose still using the
American modelcirca 1950/60McKENNA 1991
From bad toworse
evelopments in Marketing
2010
1970-1990 1990-2010
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Transactional Marketing focuses on the sale,the single event of a transaction and theobjective of the marketing activities(Webster, 1992)
The objective of marketing activities is tomaximise sales volume (sales volume holdsthe key to profitability!)
The more the sales, the more the profits(Shajahan 2004) The process between two or moretransactions is neither analysed nor
influenced
Transactional marketing
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Customers were more sophisticated andless responsive to the traditional marketingpressures, particularly advertising
Greater customer choice and convenienceexisted as a result of the globalization of marketsNew sources of competition and the
emergence of new media and channelsInnovative business thinking and actionwas required to meet the challenges of thisnew competitive environmentIt assumes short-term and often one-off
Problems with Traditionalmarketing approach
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Services Marketing
B2B the poor relationResearch from IMP group
Industrial Marketing &Purchasing Group
Not just managing
exchanges.butmanagingrelationships
Services themisunderstoodChild; yet 2005 75%service economyService Characteristics
Intangibility Inseparability Perishability Variability Inability to own
Didnt fit the modelsuggested by consumergoods marketing
evelopments in Marketing
Industrial (B2B)Marketing
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evelopments in Marketing
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evelopments in Marketing
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Identify and establish, maintain and enhance and, when necessary, terminaterelationships with customers and other
stakeholders, at a profit so that theobjectives of all parties involved are met;and this is done by mutual exchange and fulfilment of promises
Gronroos 1994b
Harker (1999), in a review of relationshipmarketing definitions noted no fewer than26 substantial definitions of RM. Grnroos(1994) definition seemed both moreelegant and succinct.
efining Relationship Marketing
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Seeks to create new value for customers andshare it
Recognises the key role that customers haveboth as purchasers and in defining the valuethey wish to achieve
Businesses are seen to design and alignprocesses, communication, technology and
people customer value Represents continuous co-operative effortbetween buyers and sellers
Recognises the value of customers
purchasing lifetimes (i.e. lifetime value )
efining Relationship Marketing
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hat is Relationship Marketing? Seeks to build a chain of relationships within
the organisation (to create customer value) &between the organisation and its mainstakeholders including suppliers, distributionchannels, intermediaries and shareholders
Differs from other forms of marketing in thatit recognizes the long term value of customer
relationships and extends communicationbeyond intrusive advertising and salespromotional messages
(Gordon 1998:9)
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Influences on RelationshipMarketing
Consumer GdsRelationship
Marketing
S e r v i c e s M a r k e t i
n g
NordicSchool
NetworkApproach
Anglo-AustralianApproach
Strategic Alliances& Partnership
Research
What influences?
I n d u
s t r i a
l B 2 B
M a r k e
t i n g
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Orientation to singlesales
Discontinuous CustomerContact Focus on Product
Features Short time scale Little emphasis on
Customer Service Limited Commitment to
meeting customer
expectations ualit as the concern of
Orientation to Customerretention
Continuous CustomerContact Focus on Customer Value Long Time Scale High emphasis on
Customer service High Commitment to
meeting customerexpectations
Quality as the concern of Adapted from Payne et al 199
ransactional vs Relationshiparketing
Transactional Relational
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Direct Marketing
Database MarketingCRM
1-To-1 Marketing
Loyalty Marketing
RelationshipMarketing
TransactionalMarketing
Traditional Marketing
4Ps MarketingMarketing Mix
Mass Marketing
Relevant concepts
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Short-term orientation
Acquiring newcustomersProfitable transactions
Low customer service
Limited customercontact
Price sensitivecustomers
Transactional vs Relationship Marketing
RelationshipMarketing
TransactionalMarketing
Long-term orientation
Retaining customers
Profitable relationships
High customer contact
Less price sensitivecustomers
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Customerdependent
Transactional / Relational continuum TM RM
Transactional / RelationalMarketing Continuum
Transactional drivers
Relational drivers
Requirement
Strategies
Company ALargely
transactionalapproach
Develop &maintaindiscrete
exchanges
Company BBalanced
portfolio of strategies
Company CLargely
relationalapproach
Develop &maintainongoing
relationships
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RELA TION SHIP MAR
KETINGT
RADITIONALMA
RKETING
Importance of Core Product
DangerArea
Importance of Customer Service
Transactional / RelationalMarketing Continuum
Transactional / Relational continuum TM RM
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Drivers promoting RMHigh Acquisition costsHigh Exit BarriersSustainable Comp. AdvantageBuoyant/Expanding MarketHigh Risk/SalienceHigh Emotion
Require Trust & CommitmentPerceived Need for ClosenessSatisfaction benefits Retention
Drivers promoting TMAcq/Retention diff smallLow Exit BarriersUnsustainable Comp.AdvSaturated MarketsLow Risk/SalienceLow Emotion
Trust only requiredNo Reason for ClosenessRepeat Behaviour
Transactional Relational
Drivers to Strategic DecisionMaking
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The ultimate goal of firms is to fulfilcustomer needs ?!, or
The ultimate goal of firms is to satisfycustomers ?!
The ultimate goal of firms is to build longterm relationships with customers?!
The ultimate goal of firms is to maximise
profits?! Retaining customers?
Economics of RelationshipMarketing
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It is more expensive to win a new customerthan it is to retain an existing customerMost profitable customers - 80 per cent of
profits come from 20 per cent of customersShould all customers be treated equally?Long term - the longer the associationbetween company and customer the more
profitable the relationship for the firm .RM is a means to a profitable end
Economics of RelationshipMarketing
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Customer retention is the number of customers doing business with a firm at theend of a financial year expressed aspercentage of those who were activecustomers at the beginning of the year(Buttle 2004)It is evident that recruiting new customers isa costly businessIt is between five and ten times asexpensive to win a new customer than it isto retain an existing one
Direct costs of the successful conversion of
Retaining customers
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Acquiring new customers involves costs thatcan be significant and take years to turn anew customer into a profitable customer
As customers become more satisfied andconfident in their relationship with a supplier,they are more likely to give the supplier alarger proportion of their business
As the relationship with a customer develops,there is greater mutual understanding andcollaboration, which produces efficienciesthat lower operating cost
Why retention improvementimpacts profitability
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Satisfied customers are more likely to referothers, which promotes profit generation asthe cost of acquisition of these newcustomers is dramatically reducedLoyal customers can be less price-sensitiveand may be less likely to defect due to priceincreases
Company A has a churn rate (customerdefection rate) of 5 per cent per annum;company Bs churn rate is 10 per centCompany As customer base is 19 per cent
larger than company Bs after 4 years: Source: Peppers &Rogers 2004
Retaining customers
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A profitable customer is a customer whoserevenues over time exceed the company'scosts of attracting, selling and servicing that
customer
Between 20 and 40 per cent of customersare unprofitable
Is it always worthwhile to keep a customer?
Customer profitability
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Relationship economics
Relationship economics is a form of Ronald Coase'stransaction cost economics which hypothesizes thatthe costs of forming and maintaining personalrelationships, and the benefits of those relationships,
dominate decision-making in many contexts. FamedCEO Jack Welch (Welch and Byrne 2001: 348) offeredthis as his "cardinal rule of business
Never allow anyone to get between you and yourcustomers or your suppliers. Those relationshipstake too long to develop and are too valuable to lose.
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Relationship EconomicsCustomers areless expensiveto retain thanto recruit Securing customers
loyalty over timeproduces superior
profits
The 2 pillars underpinning relationship economics
The language of management is money, a good question ishow the relationship portfolio pays off GUMMESSON
Relationship economics
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Commitment
Expansion
Exploration
Awareness
Partners
Clients
Customers
Prospects
Members
Advocates
Partners
Clients
Repeat Cust
Prospects
Members
Advocates
1st Time Cust
SuspectsTraditional
Marketing
Relationship
Marketing (Dissolution)
Dwer et all 1987 Payne et al 1995
Relationship economics
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Commercial Loyalty
BEHAVIOURAL ATTITUDINAL
The biased (i.e. non-random) behavioural response (i.e. re-visit), expressed over time,by some decision-making unit with respect
to one (supplier) out of a set of (suppliers),which is a function of psychological [decision making and evaluative] processesresulting in brand commitment. (Bloemers& de Ruyter 1998:500)
Relationship Loyalty
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To build lasting relationships withcustomers by rewarding them for theirpatronage.
To gain higher profits through extendedproduct usage and cross-selling
To gather customer information To de-commodify brands (i.e. differentiatefrom the crowd)
To defend market position (against a
competitors loyalty schemes)
Hart at al (1999:546) offer a widerrange of motives for setting up loyaltyschemes;
Relationship Loyalty
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SocialCosts
FinancialCosts
LegalBarriers
Inertial
CostsRisk
SearchCosts LearningCosts EmotionalCosts
Switching Costs/Barriers
Relationship economics
C t l lt A
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Image
Quality
Price
Barriers toSwitching
Value relativeto competition
Individual/OrgCharacteristics
Marketenvironment
Attraction &Loyalty
Experiences
Marketshareand
profit
Customer loyalty Anintegrated model
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