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ONBP 222

CHAPTER 1
CRITICISMS OF TRADITIONAL MARKETING

MARKETING MIX MANAGEMENT
Borden proposed the marketing mix consists of 12 elements
McCarthy later simplified the mix into one that contained only 4
ingredients: Product, Price, Place and Promotion

CRITICISMS OF THE MARKETING MIX FRAMEWORK:
Theoretical limitations
The 4Ps is neither a theory nor a model, but rather a tool
This tool has tended to emphasise the ingredients and the structure at the
expense of the processes
Marketing should be a multifaceted social process requiring a more rational
approach.

Practical limitations
Gronroos argues the marketing mix approach is production orientated
In the 1950s 60s America focussed on:
Consumer goods
Mass marketing
Distribution channels
Media choices
(did not focus on complaints handling, invoice etc.)

Limitations on the scope of marketing within the organisation
It is doubtful if the marketing manager can always exercise full control over
the 4 Ps. Other variables should also be considered which are very hard to
control: sales, market share, profitability, labour and materials cost)

Limitations on long-term focus
It is argued that growth driven by mass marketing encourages businesses to
chase short term profits based on transaction volume, missing long-term
prosperity. Stats indicate that it is 5 to 10 times as expensive to gain new
customers than it is to retain old ones.


Ch 2 - 4
Ch 3 - 10
Ch 4 - 15
Ch 5 - 25
Ch 6 -
Ch 7 - 32
Ch 8 - 40
Ch 9 - 44
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THE IMPORTANCE OF CUSTOMER RETENTION
Studies have shown it is more beneficial to retain existing customers than to
recruit new ones. Benefits include: reduced costs and lower marketing
expenditures. There is also a better opportunity for cross-selling if one
retains customers. They are more likely to promote the companys products
by word-of-mouth.

CHANGES IN THE MARKETING ENVIROMENT
1) GLOBALISATION

Convergence of demand across the world and attempts by companies to
offer the same, or very similar, products across national boundaries.

2) TECHNOLOGICAL CHANGES

Making it possible to build individual relationships with clients in even the
largest of organisations. A product can be customised for micro segments or
individuals.

3) INCREASING BRAND PROMISCUITY

(Customers are becoming more sophisticated and demanding)
-increase in competition
-increasing affluence (welvaard)
-price comparison
-experience change and variety

4) REALISE THAT SATISFACTION DOES NOT LEAD TO LOYALITY

Satisfaction does not equal loyalty. E.g. People visiting a hotel may never
come back to that area.

5) FRAGMENTATION OF MEDIA

-Wide range of media available: satellite TV, deregulation of radio services,
internet radio. Newspapers, magazines, free papers, specialist publications
numbers increased greatly.
-Thus mass marketings effectiveness decreased.

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6) CONTINUEING THE SEARCH FOR ADDED VALUE AND
COMPETITIVE ADVANTAGE (SELF-STUDY)

Companies are searching for new ways of gaining competitive advantage
due to increased competition, similar core products and lack of customer
loyalty.

Levels of product:
a) Core product: the basic benefit for which the product is purchased. E.g. a
car is used for personal transport.
b) Actual product: Style, packaging, brand image, quality and price benefits.
c) Augmented product: provision of benefits that support the purchase or
consumption experience. E.g. Sales support, guarantees and after sales care.

Customers often commit themselves to a particular supplier in order to
reduce, through familiarity, the degree of risk and anxiety in purchasing, and
to obtain customised products for their particular needs. They often distrust
advertising of large firms.






















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CHAPTER 2
CHARACTERISTICS OF RM

Def. RM: To establish, maintain & enhance relationships with
customers & other partners, at a profit so that the objective of the parties are
met. This is achieved by mutual exchange & fulfilment of promises.

Def. Relationship: To voluntary repeat business between a supplier and a
customer where the behaviour is planned, cooperative, intended to continue
for mutual benefit and is perceived by both parties as a relationship.

RELATIONSHIPS WITH STAKEHOLDERS


Deciding who to have a relationship with:
Not all customers are looking for a relational product or service; some only
want a transactional relationship.

Reasons for inappropriateness of relationship marketing in some cases:
Parties involved may not wish to forgo opportunistic behaviour
One or both parties may view relational exchange as a short term
means of means of acquiring those competencies that will allow them to
bargain from a position of strength in the future
Buyer-seller relationships could develop up to a point where they
become anti-competitive.
Customer
markets
Referral
markets
Supplier
markets
Employee
(recruitment)
markets
Influence
markets
Internal
markets
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Conditions for the applicability of RM:
The customer should show a continuing and periodic desire for the
service.
The service customer must be able to select the service provider.
There must be a choice of suppliers available to the customer.
Overall characteristics should be relationship building e.g. Banking,
insurance and hairstyling.

RM IN CONTRAST WITH TM
Transaction marketing Relationship Marketing
Single sale Customer retention
Focus on product features Focus on product benefits
Short timescale Long timescale
Low customer service High customer service
Limited customer commitment High customer commitment
Moderate customer contact High customer contact
Quality is primarily concern of
production
Quality is a concern for all

Methods of customer retention:
Relationship marketing
Loyalty schemes
Exit barriers

CHARACTERISTICS OF RM (NB)

Long-term orientation
RM involves estimating customer lifetime value and engaging in
relationships based on the value of those relationships over a number of
years.

Commitment and fulfilment of promises
RM implies a long-term relationship and forsaking other suppliers by the
customer, and mutual exchange of info. Each party believes in the integrity
of the other to keep their promise and deliver on their promises.

Customer share, not market share
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RM concentrates on keeping customers and attempting to gain a bigger share
of their wallet by cross-selling or more of the same product.

Customer lifetime value (NB)
The supplier needs to identify those customers who are willing to enter a
long-term relationship, forecast their lifetime with the company, and then
calculate those customers lifetime values to identify the ones with whom it
will be profitable to have a relationship.
Estimated purchases cost of purchases cost of keeping relationship

Two-way dialogue
Identify needs and find solutions. RM is ultimately about partnering and
partnerships which are built on, maintained through dialogue and
communication.

Customisation

1. Collaborative customisation
Help customers to articulate their needs by engaging in dialogue. The
company then identifies the product offering that would precisely satisfy
those needs.

2. Adaptive customisation
An offering that is standard, but so designed that the customer can alter or
customise it. E.g. interchangeable mobile phone covers.

3. Cosmetic customisation
Customisation of the packaging of a standard offering, e.g. printing a
customers name/logo on a standard product like a T-shirt, personalised
number plates.

4. Transparent customisation
Unique goods or services are offered to customers without informing them
explicitly that the offering has been customised. E.g. build up a database of
previous purchases and recommend a profile for online purchases.





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RM TM CONTINUUM




LEVELS OF RM

TACTICAL
Where RM is used as a tool for sales promotion e.g. no long contracts

STRATEGIC
Customers are tied by a mix of legal, economic, technological, geographical
and time bonds. The customer with either the lack of power or knowledge
stays with the supplier.

PHILOSOPHICAL
Turning away from products and product life cycles, focus on customer
relationship life cycles. using all employees of an organisation to meet
profitably the lifetime needs of target customers better than competitors.



High customer
anxiety
High degree of
contact
Importance of
confidence, social &
special benefits
Customers in favour
of relationships
RM TM
Low customer anxiety
High contact
unnecessary
Standard product
Customers not
seeking relationships
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BENEFITS OF RM (NB toets!)

SUPPLIERS

added value
increased loyalty
cross-selling
premium pricing
lower promotional costs

CUSTOMERS

high quality service
customised products
reduced anxiety
feeling valued

DISADVANTAGES OF RM

LOSS OF CONTROL
Developing a relationship ultimately leads to some loss in control over
resources, activities and intentions

INTERMEDIANATENESS
A relationship is subject to continuous change, with an uncertain future,
determined by its history and current events and the parties future
considerations

RESOURCE DEMAND
Investment and maintenance cost, due to the effort to build and maintain a
relationship

PRECLUSION OF OTHER ACTIVITIES
Prioritise the use of limited resources, it may be impossible to pursue all the
individually attractive opportunities. Some relationships may be irrevocable
with existing ones.



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UNEXPECTED DEMANDS
2 parties are involved; a relationship means they are linked. Such a linkage
may bring with it obligations or expectations by others in specific situations.

FURTHER CONSIDRATIONS

IS IT JUST A FAD?
IS IT REALISTIC?
ARE CUSTOMERS JUST COPING?
CUSTOMER SATISFACION LEVELS LOW AS EVER
TAKING LOYAL CUSTOMERS FOR GRANTED
INTRUSION & PRIVACY



























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CHAPTER 3
DRIVERS OF RM

Satisfaction Loyalty

DEF: SATISFACTION
A summary psychological state resulting from the emotion surrounding
expectations [which] is coupled with the consumers prior feeling about the
consumption experience.

Balance
(expected & real emotions experienced)
expectations of consumption experience
emotions during consumption experience

(result of emotions are being influenced by customers expectations)

QUALITY

Quality is one of the factors that create satisfaction.

Mechanistic vs. humanistic quality

Mechanistic: an objective aspect of a thing or event
Humanistic: the subjective response to objectives.

Subjective criteria NB: Brand reputation, corporate image
Quality products
Quality service

Dimensions of quality
Reliability perform promised service
Assurance professionalism & knowledge of employees
Tangibles facilities, equipment & appearance of personnel
Empathy caring, individualized attention
Responsiveness willingness to help customers




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CUSTOMER VALUE

SATISFACTION AND VALUE
Value: BALANCE
quality &cost

THE SUBJECTIVITY OF VALUE
Value (& Satisfaction): BALANCE
What is received &what is given / sacrificed

CUSTOMER SACRIFICE

FINANCIAL COST:
Limited to money

PSYCOLOGICAL COSTS
Mental effort (adequate benefits?)
Time spent (rectifying product errors)
Extra costs (peace of mind)

SATISFACTION AND LOYALITY
















Satisfaction
Trust Loyalty
Commitment
+ + =
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TRUST AND COMMITMENT

TRUST

B2B markets &
B2C markets

Def: Trust
A willingness to rely on an exchange partner in whom one has confidence

Trust: integrity; honesty; credibility; sincerity; consistency; information
sharing; equality of power.

The role of trust encouraging marketers to:
Cooperating with exchange partners to preserve relationship
investments.
To resist short-term alternatives in favour of the expected long-term
benefits of staying with existing partners.
To view potentially high-risk actions as prudent because of the belief
that their partners will not act opportunistically.



COMMITMENT

Def: Commitment
An exchange partner believing that a ongoing relationship with another is so
important as to warrant maximum efforts at maintaining it.

Follows trust
will only commit to business if trusting it

Depends on:
satisfaction with business
quality of alternative businesses
investments in the relationship



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HOW CAN TRUST AND COMMITMENT BE ENCOURAGED?


A GENUINE CUSTOMER ORIENTATION
Marketing and customer orientation can be used interchangeably. Customer
orientation implies achieving organizational goals through a genuine
concern and motivation to satisfy customers. This requires a clear
understanding through marketing research.

AN EFFICIENT CUSTOMER CARE AND SERVICE MECHANISM,
INSPIRED AND RUN BY WELL-TRAINED STAFF
To create a mutual relationship between supplier and customer, mechanisms
must exist for the efficient contact between the two parties.

CLEAR SAFEGAURD AND REDRESS MECHANISMS
Companies must accept that transactions will occasionally fail. Proper
mechanisms for recovery, including fairness and promptness, should be in
place.

SHARING OF CONFIDENTIALITY OF INFORMATION
RM implies customization of products, depends on a good understanding of
customers. Sharing of knowledge and information should be treated as
confidential. Customers fear e.g. receiving junk e-mail.

Trust &
commitment
Keep
promises
Customer care
& recovery
Additional
Shared
power
Customer
orientation
Shared
values
Avoid
opportunistic
behaviour
Confidential
information
sharing
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SHARING OF POWER
By committing resources for the acquisition and retention of customers, the
supplier surrenders some of its freedom or power to discontinue the
relationship if the customer becomes difficult to satisfy.

AVOIDANCE OF OPPORTUNISTIC BEHAVIOUR
There may be opportunity for either party of short-term gain by harming the
other at various stages of the relationship. E.g. A supplier is tempted to
change prices as short-term changes in the market.

KEEPING OF PROMISES (NB)
Trust and commitment help reduce anxiety because of the belief that a
trusted and committed partner will not jeopardize the relationship by
breaking promises. The supplier should only promise what he can deliver.

SHARED VALUES
The extent to which partners have beliefs in common about what behaviours,
goals and policies are important or unimportant, appropriate or in-
appropriate and right or wrong. Disappointment and disagreement are
bound to arise sooner or later.

ADDITIONAL CONSIDERATIONS
Building successful relationships with employees, intermediaries and other
stakeholders should not be forgotten.
Internal marketing and the belief in the value of long-term relationship with
customers and stakeholders must be incorporated into the business culture.
Trust and commitment must be genuine and borne out of choice in order to
be at their most effective.

The systems approach
Customer loyalty cannot be won from a single transaction, but rather from a
series of satisfactory transactions over a period of time.








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Chapter 4
Planning RM Programs

The Relationship marketing plan
Defn Strategic plan: A Statement outlining an organizations future
direction, near-term and long-term performance targets, strategy, and
monitoring and control mechanisms.

Strategic plans: Deal with objectives, initiatives and events for several
years.
Tactical plans: Cover time periods up to a year, and impacts only on
specific parts of the organization.

Marketing strategy
Defn Strategy: The means by which objectives are achieved.
(A set of constantly evolving operating principles or guidelines that
coordinate the activities and resources of an organization, so that a
predetermined outcome is achieved)

Defn planning: Deliberate analysis and adoption to unforeseen events. It
iscrafted rather than planned: A business begins with an intended strategy,
but while implementing it will identify its good and bad elements.

Success comes through recognizing which aspects of the plan work and
updating the plan according to a new emergent strategy.

(The practical application of the process is more complex. Planners must
constantly receive and intemperate information about the performance of the
business and the behavior of its environment, shifting the plan to
accommodate changing circumstances.)

Components of the marketing plan
*Classical marketing planning consists of 4 questions that describe a
journey.
Strategic evaluation: Assume there is a range of possible strategies by
which the organization may meet its objectives.

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The situation analysis
The role and context of the situation analysis
(Its purpose is to ask: where are we now? Also known as the strategic audit)


It involves the following elements:

1. The macro-environmental audit
Political, economical, socio-cultural and technological trends are analyzed.
2. The micro-environmental audit
Examines external factors, directly affecting the organization (porters
model) e.g. issues relating to intermediaries.
3. The customer audit
It is an analysis of current and future customers. Establish the state of the
organizations current customer base and identify opportunities for customer
acquisition.
4. The company audit
How will we make sure we arrive?

Monitoring & control
How might we get there?

Strategy & tactics
Where do we want to be?

Objectives
Where are we now?

Situation analysis
Strengths
Weaknesses
Opportunities
Threats
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Assessment of the organizations strengths and weaknesses. Tangible and
intangible resources are reviewed and core competences are assessed in
relation to competitors.

The RM audit


The importance of the RM-specific questions will depend on where the
organization lies on the RM-transaction continuum.

The relationship portfolio

A key component of the situation analysis
Given the emphasis on customer retention, analysis of current customers
plays a central role in the relationship planning process.

The relationship ladder
Customers could be moved from one level of loyalty to the next. The task of
relationship marketing is to bring customers as high up the ladder as
possible, since there are greater benefits at each level of loyalty. Research
has shown that relationships conform to cycle, consideration of how and
when to end a relationship is as important as developing relationships.
Where are we now (in RM)?
Is RM
appropriate?
Which customers
to invest in?
Are we suited
to service
relationships?
How do we
compare to
competitors?
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The relationship cycle (NB)


1. PROSPECTIVE PHASE
Indefinitely if customers dont commit.

Customers represent potential relationships.

Little investment (from both sides).

Little / no trust.

Identify customers that offer greatest potential for Long Term relationships.



Partner
Advocate
Supporter
Client
Customer
Prospect

TM
(New)
RM
(R
E
T
A
I
N)

Relationship Ladder
Relationship Life Cycle
Prospective
Developing
Established
Declining
Time
Turnover
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2. DEVELOPING PHASE
Conscious effort of supplier.

Invest time & resources to understand needs.

Phase = biggest risk unstable relationships.

Contracts / agreements = stronger relations.

3. ESTABLISHED PHASE
Demands less of both parties.

Offers much higher rewards.

Lower costs.

Open communication channels.

Mutual problem solving.

Customers = willing to pay premium prices.

Turnover & profit levels peak.

Supplier = MAINTAIN relationship.

4. DECLINING PHASE
Gradual deterioration / sudden exit.

Failure on part of supplier.

Competitor activity.

Circumstances beyond control of either party.

Causes: less satisfaction trust commitment

Thus, reduction in business.

Decline of relationship negative.
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Managing the relationship portfolio
Overview:
The organization will simultaneously engage in a number of relationships
with various partners, at different stages, these are viewed as a portfolio.
By maintaining a number of its mature relationships, the organization should
be able to fund its development activities. A preponderance of mature
relationships will make a healthy profit and loss account, but without new
relationships to replace these when they decline, the long-term future of the
organization is in doubt.

Relationship strength can be defined by:

Belief components (attitudes towards party):
Trust, commitment and loyalty.

Action components (tangible measures):
Frequency & volume of transactions as well as investment in resources.

Types of relationships:
Bilateral relationships:
high levels of both components

Hierarchical relationships:
high economical content
low belief component

Recurrent relationships:
high belief component (trust + commitment)
low action component (economic content)

Discrete / Opportunistic relationships:
low levels of both components

Assessing relationship strength
Defn relationship strength The ties between rational partners and
reflects their ability to weather both internal and external challenges to the
relationship.
Relationship strength reflects the extent to which both parties will make
an effort to maintain the relationship.
[Has confidence in the others reliability and integrity (trust)]
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Measuring relationship strength
Relationship commitment arises indirectly from the relationship duration.
The long-term survival of the relationship is a consequence of relationship
strength.

Factors that is associated with strong relationships:
Economic content
Mutuality is important. Economic content of a particular relationship should
be assessed relative to that of the other partys overall portfolio of
relationships.
Interaction
Another measure of relationship strength is the amount of contact between
customer and supplier. There are qualitative elements: openness of
communication and the nature of institutional interfaces.
Loyalty, trust and commitment
Loyalty is synonym to relationship strength. Loyalty, trust and commitment
are key requirements of any long-term relationship. Inferences can be made
by observing buying patterns, complaints information and other feedback.
Alignment
Characteristics relating to the ease with which the parties interact. They
should have similar expectations, it is important to consider customers and
service workers interpersonal orientations.
Relationship history
Previous dealings between the two parties should be reviewed to provide
information necessary to make judgments. Conflict arises often with mutual
interdependence.

Customer v/s business-to-business markets
Share of customer and behavioral loyalty apply to individual and business
buyers. Scope exists for different forms of interaction, at various levels of
the organization, and with different levels of formality. It is important to
identify the number of service workers with whom a customer interacts.
Strong relationships with the organization are characterized by frequent
interaction with a range of service personnel.





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Assessing customer potential

Commitment:
Satisfaction and investment.

Power: (sources)
Access to markets, access to information and resource investment

Organizational culture / personality:
Past behaviour patterns of behaviour

Nature of bonds:
Social vs. business bonds

Goal congruence:
B2B relations
Both businesses objectives should be compatible

Company audit

Organizational processes and the value chain:

Inbound logistics
This stage is handled by the suppliers, who are responsible for delivering the
raw materials and components needed. Just-in-time delivery can for
example add value, by reducing the need to have an expensive stock buffer.

Manufacturing and operations
Value can be added by attention to production quality, research and
development of offering services that reduce costs for the next stage member
of the marketing channel.

Outbound logistics
Usually the responsibility of the wholesaler, its purpose is to get the finished
products to the point where the customer can most easily buy them.

Marketing and sales
This function is handled by the retailer, which conducts the resource-
intensive business of persuading the customer to buy the products.

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Uses of the value chain
1. Form the basis for analyzing a single organization, identify the
systems that support the creation of the product, evaluating their importance
for creating value and looking for ways to improve efficiency or enhance
customer value.
2. It can be used to analyze the operation of the marketing channel,
evaluating the contribution of each member to the value delivered to the
final customer.
3. The real power of the model lies in forcing analyst to view the
organization as a set of processes.

Ethics and RM

An organization that creates a negative ethical impact may find the
withdrawal of public approval and of the market and its products.

The social audit

Defn Social audit: A review to ensure that an organization gives due
consideration to its wider and social responsibilities to those directly and
indirectly affected by its decisions, and that a balance is achieved in its
corporate planning between these aspects and the more traditional business-
related issues.


The model reports the following aspects of business:
Organization, management style, resources use, investment;
Employee relations, pay and conditions, job security;
Customer relations and product benefits;
Community relations;
Environmental impact.

To measure the organizations impact:
Inventory approach:
A simple list of programs the organization has implemented to deal
specifically with social problems.

Process audit approach:
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A systematic assessment of costs, benefits, and achievements of the firms
activities from stakeholder perspectives.
Cost-benefit approach:
An attempt to quantify costs and benefits of the companys activities in
money terms.
Social indicator approach:
Evaluate the impact of corporate activities by using social criteria. E.g. The
provision of employment and contribution to the economy.

RM planning objectives

The importance of RM objectives
Motivation: provide the organization a goal at which to aim.
Monitoring: the process towards a given objective is the criterion by which
the success of the organizations strategy can be judged.
Coordination: objectives insure that all parts of the marketing organization
are working together towards the same goal.
Communication: objectives are a clear statement of what the organization
seeks to achieve.
Control: providing a basis for measurement, objectives enable managers to
control the activities of the organization.

Formulating measurable RM objectives

Planning objectives must be specific and measurable. Objectives should not
relate solely to outputs, but to inputs and process elements too. Key
indicators of success are relationship strength as well as satisfaction and
commitment which are difficult to measure.

Outcomes-based objectives suggest the following:
Revenues and costs by customer;
Customer relation rates;
Share of customer for products and services now made;
Share of customer for products and services that the organization
could supply;
Progression up the relationship ladder.




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Chapter 5
Implementing RM programmes: strategy, structures and systems

The McKinsey Seven S framework: (Organisational change dimensions)

1. Strategy (NB)
Senior managements plan of action with which staff are coordinated.

2. Structure (NB)
The way in which resources and responsibilities are allocated.

3. Systems (NB)
Mechanisms, procedures and processes by which tasks are completed.

4. Styles
The organisational culture or personality, with emphasis on management style.

5. Skills
Corporate strengths and core competencies.

6. Staff
Human resources commanded by the organisation.

7. Shared values
Overarching goals, beliefs and values of the organisation.


STRATEGY

The nature of RM strategy
The way in which the organisation develops its resources, product range and skills will
emerge from dialogue with the customer, not from a unilateral plan. (RM strategies must
manage the portfolio of customers to ensure an even flow of profits in the long term)

1. Initiating relationships

Target marketing techniques
Identifying, evaluating and targeting new customers comes from arms length research.
Smaller companies will use: advertising, sales promotion and personal selling. More
established organisations with a good base of occasional customers will want to initiate
relationships with existing uncommitted customers.





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Avoiding common mistakes:
1. A relationship is more than a repeat custom
The presence of trust and commitment bring financial rewards in the form of premium
prices and positive word of mouth.

2. It should not be assumed that the customer would welcome a relationship
The programme must be able to communicate relative outset from the value.

3. Sales promotions based on financial incentives are a good way of recruiting new
customers
Customers attracted purely by economic benefits will defect as soon as a better offer
comes along. Do not confuse loyalty with self-interest.

4. The marketer should not expect all relationships to be successful
The majority of relationships fail in the early stages just like 90% of new product launces.

Reducing the risk:
1. Simplifying the product offer
Lack of clarity about the benefits received, conditions of use or terms of payment will
increase the risk perceived by the customer.

2. Guaranteeing core benefit
Product guarantees must home in on the most valued aspect of the product. Sometimes
an organisation must promise compensation above the price of the service in order to
pre-empt these types of risks. E.g. no win no fee guarantee

3. Encouraging trail
No-commitment trails are virtually undeliverable, since the time, effort and stress of
trying the product itself is a commitment on the part of the customer.
E.g. it is common for health clubs to offer trail membership before asking a customer to
pay the joining fee and commit to a years membership.

2. Developing relationships
The business should identify opportunities for increased business and develop systems
that support the relationship to ensure the customer makes a commitment.











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Ways to encourage commitment:
Increase the scale or scope of the business relationship:
A relationship grows stronger as economic content increases. More frequent contact
between the customer and the supplier, the more positive the view of the former towards
the latter. To increase the volume and/or variety of products sold to the customer is an
obvious way to increase the relationship.

Legal/financial agreements:
In order to be viewed positively by the customer, the request for a commitment on their
part must be accompanied by a benefit, and preferably one that the customer can
appreciate for the length of the relationship. The use of special offers to trap customers
in an exploitive relationship will not be successful in the long term.

Resources and information:
A customer that has invested resources, whether tangible or intangible, will have a
greater stake in the continuation of the relationship. Still greater commitment will exist if
resources or valuable information are shared between the two parties.

Time, effort and involvement:
Time, physical exertion or mental effort, all represent an investment on the customers
part in the relationship with the supplier. The greater the investment in these, the greater
the commitment will be.

3. Maintaining relationships
1. Importance of maintenance:
Neglecting existing relationships is a common mistake. Maintaining relationships often
requires fewer resources than initiating new ones. This stage represents the pay-off
from effects to build the relationship and these existing relationships are critical to the
success of RM.

2. Communicate:
Communication is a crucial requirement for building successful long-term relationships.
Frequent effective communication to keep customers informed about current and planned
progress with other things like: sales contracts, newsletters, site visits etc. effective
communications serve a number of functions: shaping customers expiations about the
product and influencing their perspectives.

3. Reward loyalty:
Customers will remain loyal to a supplier as long as the perceived benefits outweigh the
perceived sacrifice. The major cost being the lack of freedom to take advantage of short-
term gains arising from competing offers.

4. Develop supporting systems:
The task of the marketer should be from a process management perspective. The
organisation must implement systems for managing communications, product quality and
service recovery.
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4. Ending relationships
A planned approach to ending relationships
Ending a relationship should be a conscious decision. The business must focus their
efforts on the most valuable relationships, if unable to do this take a reactive stance and
give attention as demanded by each customer.

Ending complex relationships
The process of dissolution must be carefully considered. This situation exists in high
value, complex customer products e.g. financial or legal services. Too abrupt a
dissolution may lead the ex-partner to engage in negative word-of-mouth, and be viewed
unfavourably by the disengaging organisations other partners and customers. Too gentle
an approach may create additional costs and extend the relationship.

Direct exit strategies
The disengaging organisation clearly signals dissatisfaction with the relationship. If the
disengaging organisation has already taken the decision to withdraw, but is concerned
about the effects of the action on other customers and partners, it may engage in blame
attribution to establish that the decision was caused by shortcomings of the partner.
For organisations more concerned about the other party a negotiate separation allows
both parties to rationalise the event.

Indirect exit strategies
These are subtler and take longer, and leave the partner uncertain as to the state of the
relationship. Disguised exits involve a conscious attempt to conceal the intention to end
the relationship e.g. cost escalation, making greater demands and signalling
dissatisfaction.

Key factors in determining the choice of strategy:
1. Power of the partner
In a market where there are few alternative partners, partner-centred strategies are more
appropriate. Sometimes the disengaging organisation may take a reactive stance and
destroy other relationships because they are no longer sensitive to the partners interests.

2. The mechanics of the relationship
When where are strong personal bonds between individuals in the different organisations,
partner-centred strategies are more appropriate.

3. The relationship network
Where the details of the dissolution are likely to be widely known throughout the
disengaging organisations relationship network, the strategy must be adjusted according
to rational norms of the network of the partner e.g. a network that values trustworthy,
partner centred behaviour will react badly to partner-centred strategies.



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Limitations of strategy
Strategy is more properly planning rather than implementation, intention rather than
action. Strategy offers little in terms of concrete results, but provides guidance to make
decisions e.g. resource allocation and provide direction and motivation for staff.


STRUCTURE

Functions of organizational structures:

1. Separate jobs with different levels of complexity.
2. Ensure that people are accountable for what they do.
3. Add value to work.
4. Vehicle for performance evaluation & staff appraisal.
5. Motivate & direct staff.
6. Enhance flow of information.
7. Help individuals understand their organizational roles.

Extensions to the list:
8. Motivation and direction of staff
By assigning leadership and authority, structure can be a vehicle by which instructions
can be passed down through the organisation, and control mechanisms that ensure that
these instructions are carried out.

9. Flow of information
Staff on the ground can have a clear point of reference, due to a clear structure that
enhances the flow of information.

10. Understanding organizational roles
Helping individuals in the organisation to understand their roles and responsibilities
and how they fit in with, and are separate from, others in the organisation; is
perhaps the most powerful function in the organisation.

Disadvantages of corporate structures (NB)

1. Promote internal focus
They provide means by which individuals or departments can obtain greater rewards than
others in the organization, this can encourage staff to view the organization as a
competitive arena and ignore the external environment.

2. Obstruct information flow
Flattening the structure is a necessary stage in the development of customer orientated
organizations. It is difficult for a customer orientation to preside in the entire business
because of the view that it is only the role of staff in direct contact with customers.


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3. Reduce flexibility
The existence of strictly defined procedures, rules, lines of communication and
responsiveness militates against responsiveness to customer needs.

4. I nhibit inter-functional coordination: (toetsvraag)
1. Flatter structures:
Elimination of the middle layers of management. Also known as downsizing,
organizational renewal or reforming can lead to lost knowledge. Customers may defect
in reaction to the redundancy of individuals with whom they has strong personal links.

2. Decentralization:
The authority over the marketing function must be decentralized, to facilitate close and
fast support to customers. By devolving the authority needed to satisfy to those staff with
direct customer contact.

3. Organize business teams & functions around customers:
Re-organization of the business into key processes, multifunctional teams became the
primary business unit. This achieves greater coordination between what have hitherto
been seen as separate elements of the organization.

4. Customer champions:
Organizing teams or individual activities around customers by assigning responsibility
for a specific customer or group of customers to a specific individual or team.

The network view of the organization:
1. The hollow network
Found in highly unstable marketing environments, has limited internal capabilities, but
uses other organizations to perform functions in response to individual transactions. The
network is transaction based.

2. The flexible network
Maintains longer-term relationships with other network members, each member is more
adaptable in the face of demands in changing conditions.

3. The value-added network
Here organizations come together because of the way their core competencies
complement one another in the creation of customer value.

4. The virtual network
Seek to create competitive advantage through closer collaboration and creation of joint
systems.





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Limitations of structural perspective

Is a good indication of the business functions & relationships but
does not provide an understanding of how the business will be managed on a day-
to-day basis
or how relationships will be managed.


SYSTEMS

Importance of systems
The development of a customers trust requires reliable fulfilment of promises over time.
Careful attention must be paid to the design and maintenance of systems and processes.

Total Quality Management (TQM)
Quality
mechanistic & humanistic
specifications which must be delivered with reference to the customer.
Reliability (effectiveness and efficiency)
Ensure that production meets the quality specification.
Continuous improvement
Mechanistic approach to TQM
business is a machine with components working together
through: communication & aligning goals & objectives
TQM should contain:
1. Guiding principles
2. Targets and strategies
3. Performance measures and check points
4. Supporting processes
5. Actions, deadlines and responsibilities.
Humanistic approach to TQM
quality culture (within organization)
staff use own initiative & judgment to deliver quality
TQM principles:
1. Empowered employees
2. Continuous improvement
3. Quality improvement teams

Business Process Re-engineering (BPR)

Business should be totally redesigned around quality specification.

Thus, entire business & its functions & activities should be changed / redesigned
to focus on delivering quality throughout the business.


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Chapter 7
Monitoring and controlling relationships

APPROACHES TO MONITORING AND CONTROL
(Exam question: which one would you recommend?)

1. Hard versus soft monitoring and control

Hard monitoring and control
Rely on quantitative measures of achievement, and reward and punishment linked to
those measures. They are appropriate where the performance levels are easily defined.

Hard mechanisms are based on the principle that employees must be closely monitored,
and constantly offered incentives to optimise their performance.

e.g. Budgetary control, managers should not spend organisational resources to freely.

Soft monitoring and control
They are less clearly defined. They are based upon the principle that properly selected
and trained employees do not need constant attention and will perform better if they are
not directly monitored and controlled.
Soft mechanisms are appropriate when employee achievements are difficult to define.
E.g. Customer service. This approach emphasises mechanisms which motivate
employees to achieve and support mechanisms such as training.

2. Performance versus diagnostic monitoring

Performance indicators
E.g. Profitability and customer satisfaction. They are useful in providing reassurance that
the company is successful or warning that a change in strategy is needed.

Diagnostic monitoring
E.g. Service quality measurement and cost benefit analysis. Such measures look in depth
at actions of the company and their effect on the customer to learn from failures and
identify causes of success.

Comprehensive monitoring system
Includes diagnostic and performance monitoring mechanisms.

3. The Balanced scorecard approach (eksamenvraag)
Performance is easily defined and analysed in financial terms, the business will stand or
fall by the amount of money it makes. Financial measures indicate the effects of success
rather than the causes though.



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Performance indicators:
1. Financial
Measures of sales, profitability or cash flow.
2. Customer
Customer loyalty and satisfaction levels.
3. Internal business
Operational effectiveness: Production costs, cycle times, reliability and defects as
well as human resources and competencies.
4. Innovation and learning
The organisations capacity for continuous improvement.

4. RM orientated scorecard measures
Use of the balanced scorecard ensures that a range of strengths and weaknesses can be
identified and also prevents the organisation from becoming fixated on a single aspect of
its business. E.g. production efficiency and new product development. The balanced
scorecard should be developed with a clear strategic mission in mind, and informed
by shared values as they way to compete.

5. Different levels of monitoring
The balanced scorecard approach portrays a broad picture of the organisation and
portrays little diagnostic information.
1. Management-level monitoring
Senior managers establish that the organisation is generally healthy, identifying
areas of strengths and weaknesses. Managers charged with managing specific
relationships will diagnose and rectify specific problems.
2. Relationship-level monitoring
Provide detailed information about the contribution of individual relationships to
overall performance.
3. Corporate-level monitoring
Give information about the general profitability of the organisation. Measures
that can be used are: return on capital employed and profit margins. At
relationship level the manager should review information about each customer.














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MEASURES OF RELATIONSHIP SUCCESS

Relationship-level monitoring

1. Relationship facilitators
Factors that contribute to the development of a strong, long-term relationship.
Quality, trust and satisfaction are prerequisites for loyalty.
2. Relationship features
Those factors that describe the nature of the relationship itself.
Measures include:
Customer loyalty;
Fidelity and
Commitment.
3. Relationship returns
Monetary rewards accruing to the supplier from the relationship. The most
satisfied, trusting and loyal customer, may provide the best returns.

Levels of attitudemonitoring

1. Cognitive level
Focus is on the measurement of service quality and cost, which is the customers
rational judgement about the benefits received and the cost of maintaining the
relationship.
2. Affective level
The customers emotions towards the relationship, measured through satisfaction.
3. Co-native level
The customers actual behaviour.

Defn Dissonance
Customers will seek to reduce inconsistencies between attitudes between the affective,
cognitive and co-native levels of attitude.
e.g. If a customer develops a liking for a salesperson of a competitor, he will look for
rational arguments as to why he should switch to that supplier.

Measuring satisfaction:

Customer satisfaction
Defn satisfaction
An emotional state arising from the favourable disconfirmation of expectations.

Research has shown that satisfaction is a reliable predictor of customers intentions to re-
buy. Satisfaction is therefore one of the most important prerequisites of loyalty.
Measuring satisfaction is commonly used to measure quality.
(Customers find it difficult thought to make judgements about their own satisfaction
levels, measuring it is more accurate when surveying different dimensions.)

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Employee satisfaction
The relationship between satisfaction and loyalty works the same way for internal
customers as external. Staff satisfaction leads to: staff loyalty and retention, lowering
training cost and increasing experience, skills, motivation and experience.
Staff satisfaction is measured with internal service quality. Relationship success
depends on interpersonal bonds between the individual members of staff and
customers.

Drawbacks of satisfaction monitoring
Dealers can put emotional pressure on customers to return high satisfaction scores
when it is in an inheritably unstable state.
Satisfaction surveys are a poor quantitative measure of relationship performance.
Customer satisfaction levels may change without any influence from the supplier
due to the role of expectations.
It is difficult to conduct reliable satisfaction surveys.

Satisfaction surveys can however provide useful feedback, identifying problems or major
shifts in customer expectations.

Complaints data and satisfaction monitoring
Useful indications of customer satisfaction can be gained by monitoring customer
complaints.

Measuring quality: (nie so NB vir eksamen)
Satisfaction arises from a positive judgement of service quality received and costs
incurred. Quality measurement focuses on the cause of satisfaction rather than the
result.

SERVQUAL
Principles:
1. Customers judgements of service are made by comparing perceptions with
expectations.
2. Made on quality dimensions: reliability, assurance, tangibles, empathy and
responsiveness.

SERVPERV
Disputes the two key principle of SERVQUAL. Inclusion of expectations in measuring
quality is at best unnecessary, and at worse it detracts from reliable quality ratings. The
five dimensions of quality overlap.

Which to use?
Research indicate that expectations are often poorly identified in customers minds, and
are not a reliable benchmark against measure quality. SERVPERF may provide a more
reliable performance measure of service quality.


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Measuring loyalty:

Measuring behaviour
Measurement of attributes such as satisfaction or perceived quality has not been found a
reliable or accurate predictor of customer behaviour. Satisfaction and perceived quality
can useful general information on relationship performance and diagnose problems.

Internal records
Loyalty can be monitored without additional customer surveys. Loyalty monitoring can
be built into sales data, customers do not need to be troubled with requests to complete
satisfaction or quality surveys.

Measures of loyalty:
1. Length of relationship
Relationships become more profitable as the relationship lengthens. Loyalty
measured in time is a good measure of relationship value, but not a indicator of
profitability or customer satisfaction.
2. Share of customer
Assessing the extent to which the customer uses competitors products alongside
that of the supplier.
3. Commitment
The volume of ongoing business a customer places, and willingness to invest in
the relationship.

Financial measures of loyalty

Long-term focus
Timescale is important to asses relationship returns. Relationship building requires
significant investment in the early stages, which is recouped as the relationship matures.

Indirect benefits
Increases in income arise form cross-selling and referral businesses, whilst costs may be
reduced by savings on promotional spending and the ability to plan and develop products
and processes.

Measures of measuring financial performance:
1. Profitability (Return On Relationship - ROR)
Profitability is a performance indicator rather than a diagnostic tool. As many as
80 percent of customers may be unprofitable. The net profit for each relationship
is worth measuring.
2. Income
Current income must be monitored so that cash flow constraints can be met.
3. Cross-purchasing
Income from cross selling may be overlooked, different parts of the organisation
may monitor income from individual goods or services separately.

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4. Referral
The tendency of loyal customers to generate new business through word-of-
mouth. The supplier should have a system to gauge the amount of business
generated by its customers. Data collection should record if a customer heard of
the supplier through word-of-mouth and which customer is responsible for the
referral.
5. Customer lifetime value
The relationship between the income generated and the costs incurred by
servicing a particular customer will vary over the life of the relationship.
6. Servicing cost
The cost of servicing a particular customer. Some customers are habitually more
expensive to satisfy than others.

Selecting relationship level measures
An organisation should use as many measures as possible without overloading its
managers with information. A range of measures will reduce the risk of shortcomings or
opportunities going unnoticed and will help to set the results of one particular indicator in
broad context.


COMPLAINTS ANALYSIS AND HANDLING (NICE EXAM QUESTION)

The importance of complaints (Fig 7.3 p 155)
Complaints impact on both the monitoring and the control of relationship quality.

Operational level:
At operational level complaints handling is concerned with service recovery.
Defn Recovery
The practice of rectifying mistakes, by rectifying the mistake, compensating the customer
or apologising for the failure.
I mprovement level:
Continuous improvement keeps pace with increasingly demanding customer expectations
through strategic complaints analysis.

Service recovery
Promoting customer retention
The supplier should invite complaints, a customer who complains is offering the supplier
an opportunity to continue the relationship.
As rule customers dislike complaining because it costs them time, effort and emotional
stress.






Ana
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Principles of service recovery:
1. Make it easy to complain
Procedures and channels for customer complaints should be as clear and flexible
as possible. Complaints handling staff should have interpersonal skills.
2. Establish the grounds for complaint
Customers will be more willing to complain if they are confident that they will be
successful.
3. Offer immediate redress where possible
Until the complaint is resolved the customer will experience negative emotions
concerning the source of their grievance. The negative impact decreases the
faster a complaint is resolved.
4. Communicate
Negative perceptions of a service failure are intensified if they feel that the failure
could have been prevented.

Strategic complaints analysis:
(Often used as a performance indicator)

Company weaknesses
Information provided by complaints analysis is the identification of weaknesses in
production and service delivery processes.

Changing customer expectations
An increase in customer complaints may be caused by increased expectations rather than
declining company performance.

Key product attributes
Customers will only complain about the performance aspects of goods and services that
are important to them.

CONTROLLING SERVICE QUALITY (SELF-STUDY)

The GAPS model for managing service quality
The use of the SERVQUAL questionnaire to measure quality by investigating
perceptions and expectations in different dimensions. Service quality can be managed by
introducing systems that reduce each gap. Marketing information systems ensure that
managers remain aware of customer expectations.

Hard control techniques:
Attempt to define service delivery with sufficient clarity to allow for monitoring and
control.
Service blueprinting
The development of a flowchart that describes the service encounter from the customers
point of view. Blueprints map out the processes that are visible to the customer and the
supporting processes that must take place.

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Critical incidents analysis
Focuses only on the events or interactions that are crucial in shaping the customers
perceptions of service quality.

Soft control techniques
External service quality is too dynamic and subjective for organisations to gauge
correctly. Senior managers should concentrate on internal service quality, ensuring that
staff are competent, motivated and supported by a customer-centred culture. Customers
on the ground can then determine and respond to changing customer expectations.

Hard or soft control?
The prudent organisation will use a combination of both hard and soft measures and
control mechanisms.
The key value of RM strategies lie in the human elements of service quality.
Personal relationships between individuals are very important.


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Chapter 8
Ethical considerations in Relationship Marketing

THE BACKGROUND
Criticisms of marketing
1. Charging high prices (many intermediaries taking a share of the profits, heavy
advertising and mark-ups)
2. Deceptive practices
3. Selling and marketing shoddy and unsafe products
4. Planned obsolescence
More specific criticisms:
1. Insider dealings in shares
2. Miss-selling of personal pensions
3. Miss-selling of endowment mortgages
4. Excess payment to top directors
5. The use of child labour.

Intervention by government and consumer organisations
Consumer organisations, pressure groups and government monitor the activities of
marketers through legislation.
Trade descriptions act face or inaccurate descriptions of products, regarding
size, quantity, use, previous ownership etc.
Sale and supply of goods act goods sold should be of satisfactory quality unless
defects are made clear.
Consumer protection act safety standards which customers are entitled to
expect, giving legal rights to those who have been injured by products.

Consumerism, social responsibility and ethics

Defn Consumerism
An organised movement of citizens and government agencies to improve the rights and
power of buyers in relation to sellers.

Added rights of buyers by the movement:
1. The right not to purchase
2. Expect the product to be safe
3. Expect the product to perform as claimed
Additions sought are:
1. To be well informed about important aspects
2. To be protected against products which are questionable
3. To improve the quality of life through influencing products and marketing
practices.

Defn Social responsibility
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An organisations obligation to maximise its positive impact and minimise its negative
impact on society.
ETHICS

Defn Ethics
Carefully thought out rules and moral values that guide individual and group decision
making.

In marketing ethics refer to: moral principles that guide decisions.

Some organisations attempt to adhere to ethical standards of behaviour in order to gain
competitive advantage over their rivals.
e.g. The Body Shop first test its products on animals and put something back into
communities from which they draw their raw materials.

Approaches to ethical decision-making
Relativism- each situation must be judged according to its own merits. When in
Rome, do as the Romans do
Utilitarianism The moral merits of a decision lie in whether it serves the greatest
number of people.
Universalism/deontology Successful results do not justify a decision that is
basically unethical. do unto others as you would have them do unto you
The justice theory The loss of individual liberty nullifies any gains in economic
efficiency.
The virtue theory going beyond mere duty and self-interest.

Ethics and Relationship marketing NBNBNB

RM cannot develop without adherence to what customers may adhere to as ethical
behaviour. Behaviour that is perceived as unethical could easily lead to lack of trust.
But in mass marketing it may be difficult to prove whether a company would profit from
a more ethical stance.
To pinpoint needs and wants RM relies on two-way communication between a
customer and supplier.
Things that is essential in RM:
Keeping promises
Generation of trust
Long-term commitment
Achievement of mutual objectives

RM and ethical issues in communication

Ethical considerations pose major challenges for successful RM strategies because
communication and two-way dialogue is essential.
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Improvements in technology make it possible for companies to collect substantial
information on customers; technology-based communication is a prerequisite of RM to
retailing and consumer service markets.
A right balance aught to be struck between the need for up-to-date information and
to respect the customers time.
Customers also need to be informed about what type of data is gathered, the purpose for
which the information is gathered and not share such information to other organisations
without the customers consent. Customers also have a duty not to divulge information
about suppliers to competitors to cause disadvantage to them.

Main ethical issues relating to communication relate to:
1. Frequency of information gathering
2. The nature of the information
3. Methods of gathering information
4. Purposes for which the information is used
5. Privacy of information

RM and the ethics of keeping promises

The keeping of promises helps create trust between the parties in the relationship and
achieve the required long-term commitment.
Breaking promises may lead to the break-up of a relationship and a lost opportunity, bad
publicity and damage to create a trustworthy image.
Sometimes the actual promise and the perceived promise may not coincide.
External stakeholders ought to be selected from amongst organisations which share the
same values and objectives.

Ethics and maintaining long-term commitment

In a long-term relationship customers forego opportunistic behaviour and may even pay
premium prices to gain benefit. Initial efforts to get customers to commit should not be
replaced by taking the customer for granted. Exaggerated promises and over-persuasive
communication are non genuine relationship-building tactics and also may be unethical.

Ethics and achieving mutual objectives

To achieve respective objectives parties engage in a long-term relationship and forsake
opportunistic behaviour. Such behaviour is typically characterised by confidence, social
and special treatment benefits.
It is difficult to balance the objectives of, and sought by different marketing stakeholders.
Therefore a fair balance should be struck between transparency and honesty.

The legal implications of unethical RM

Data protection particularly relates to RM. Application of RM strategies require
continuous utilisation of databases for collection and analysis of customer data, for
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profiling and communicating to customers. Certain information should be handled
delicately and obtained with the full consent e.g. health, race, religion, sexual orientation
etc. must be handled delicately.
Principles of good information handling: (data must be: )

1. Lawfully processed
2. Processed for limited purposes
3. Adequate and relevant
4. Accurate
5. Not kept for longer that necessary
6. Processed in accordance to customers rights.
7. Secure
8. Not transferred to countries without adequate data protection
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Chapter 9
Key Account Management

WHAT IS KAM?

Defn KAM
The process of building and maintaining relationships over an extended period, which
cuts across multiple levels, functions and operating units in both the selling organisation
and in carefully selected customers (accounts) that contribute to the companys objectives
now or in the future.

KAM is characterised by:
The conscious selection of key accounts:
Identify customers who will equate to strategic partners based on the strategic objectives
of the organisation.
The development and maintenance of long-term relationships:
The organisation must have strategies and structures in place to build and maintain a
business relationship.
The establishment of cross-functional processes for servicing accounts:
The organisational structure and systems must enable multifunctional processes based
around individual accounts.

KAM activities (suppliers):
1. Special pricing
2. Customisation of products and services
3. Development of special products or services
4. Joint coordination of workflow
5. Information sharing
6. Taking over the customers business processes

THE KEY ACCOUNT DEVELOPMENT CYCLE (NB)

Pre and early KAM
The scanning and attraction stages. The supplier is concerned with the identification of
potential key accounts, and gaining information by which the selection decision can be
made.

Mid-KAM
Trust and commitment begin to develop between the parties, the focus shifts towards the
process. The range of value added services offered by the supplier is just as important to
the buyer as the product and the price. The number of contact points between the two
organisations will begin to increase.



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Mature KAM / Partnership and synergistic
The boundaries between the two companies reduce as the structural and social bonds
between them strengthen. The sharing of information and joint problem-solving will be
common practice.

Uncoupling KAM
Relationship disintegration may take place at any stage. Relationship breakdown is most
frequently attributed to a breach of trust. Relationship dissolution should not be viewed
as a failure, it may be in the interest of a party to end the relationship.

Implications of the key account development cycle (Nie so NB)
Early and mid-KAM stages are particularly demanding for the supplier, requiring
investment activities such as information gathering, communications and the developing
of value added services in an attempt to gain confidence of the buyer. Major benefits
occur in later stages; balance of the relationship portfolio must be maintained.

IDENTIFYING KEY ACCOUNTS

The need for selection criteria
The cost/benefit implications of the key account development cycle make the careful
selection of key accounts critical. Companies that explicitly identify key accounts are
more sophisticated understanding their customers.

Selection criteria:

1. Relationship history
Presumes that KAM is being implemented against a background of established accounts
and cannot be easily applied to new prospects. Longevity is of strategic importance to as
an indicator of an account, constituting evidence of commitment and trust.

2. Volume
When promoting the importance of the account internally, key account managers found
that sales turnover was well recognised throughout the business. Potential sales volume
is as important as current.

3. Profitability
High sales volume does not always lead to profitability, the total revenue of an account
must exceed its servicing costs within a given timeframe.

4. Status
Organisations often derive benefit from association from a reputable partner. Research
has shown that the prestige of being associated with these organisations facilitated
winning further customers.
Companies with a good reputation are more likely to focus on long-term value creating
activities rather than short-term cost issues.
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5. Ease of replacement
By calculating the cost of replacing an existing customer, supplier or organisation can
obtain a useful quantitative measure of the relationships value.

6. Resource synergies
The selling organisation is able to service the account more effectively if it is able to
leverage any resources or competences that distinguish it from its competitors. It should
look for partners that will benefit particularly from its unique strengths.

7. Strategic compatibility
The alignment of organisational goals, modus operandi, culture and relation norms. Not
all organisations seem willing or able to maintain long-term relationships.

8. Criteria for selecting a key supplier:
1. Product quality:
The product quality and relevance of value added service will be very important
to the buying organisation.
2. Ease of doing business:
Aggravation and problem-solving are significant costs to the buying organisation.
3. People quality:
Purchasing officers take into account the personality and skills of key contacts
within the selling company, valuing: honesty, integrity and a spirit of understanding.


SERVICING KEY ACCOUNTS: KAM ACTIVITIES

Adding value for key accounts
Identify the means to which the relationship can be built. This can in part be addressed
by the installation of special resources that service the account, the organisation must first
identify the activities to which such resources can be applied. special pricing: the use of
discounting by listing cost savings can be one of the benefits of account relationships by
focusing on means by which added value can be generated.

Quality improvement
A most common buyers prerequisite. Product excellence at any one moment is less
important than the capacity to continuously develop product offerings in response to
market conditions, buyer requirements and competitor activity.

Customisation
To initiate exclusivity, customisation is a requirement of any relationship. Offer the
buyers something that competitors cannot by means of physical modification or tailored
services.



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Conflict resolution and problem-solving
A key determinant of a buyers trust in a supplier is in accepting responsibility for
resolving buyers problems. Responsiveness is often considered as a dimension of
service quality. This will determine the later satisfaction over time.

Information sharing
Mature relationships are characterised by the free exchange of commercially sensitive
information. Sharing of information can stimulate relationship achievement by
enhancing operations planning for the buyer and expression of trust.

Resource sharing
The pinnacle of key account relationships is the ability of the two parties to share
resources for mutual exchange. This can be a result of, and a stimulus or, very close
bonds.

Communication (NB factor)

The nature of the communication:
1. Informality:
Customers are concerned with efficient interaction and find informal methods less
cumbersome. Informal communication is also linked to trust.
2. Bidirectionality:
Communication must be two-way. Suppliers both listening and acting on feedback of
customers.
3. Frequency:
Frequent, short episodes of interaction make customers feel that they are in kept in
touch.
4. Strategic content:
Customers respond better to communication which feels of strategic importance.


SERVICING KEY ACCOUNTS: DEVELOPING KAM INFRASTRUCTURE

Identifying the type of KAM system

Types of key account programme:
1. No programme:
No formal system or infrastructure.
2. Part-time programme:
People with other roles take on responsibility of managing the account.
3. Full-time programme:
The system is operated by fully dedicated staff, but decentralised at business unit level.
4. Corporate-level programme:
Run centrally by dedicated staff.
5. National account division:
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A Separate operating unit is dedicated to the account.
Types of KAM system: (not so important)

1. Top-management KAM:
The highest degree of top managers involved, usually located at the organisations
headquarters.
2. Middle-management KAM:
Highly formalised, less attention from senior management. The intensity of collaborative
activities and the pro-activity of the supplier are only medium level.
3. Operating-level KAM:
Relatively formalised, standardised procedures and contributing significant value to key
accounts.
4. Cross-functional, dominant KAM:
Access to resources is high, senior management involvement is significant. Processes and
structures are well developed. Pro-activity and insensitivity of collaboration are both
high.
5. Unstructured KAM:
Characterised by a lack of formality and standardisation and a reactive stance to
collaborative activity.
6. Isolated KAM:
Activities are instigated by local sales effort but lacks support from central business units.
Access to functional resources is limited.
7. Country-club KAM:
High degree of involvement from top management, but little else. Structures and
processes are poorly developed, and teams are hardly ever formed. Special activities are
neither intense nor pro-active.
8. No KAM:
Awarding sales or general managers the title account coordinator or similar. No special
activities are undertaken for their key customers.

Isolated KAM approaches perform the worst, while cross-functional, dominant KAM
companies performed particularly well against organisation-level outcomes. Top-
management KAM systems were found to be associated with the most profitable
companies, this means greater gains from other approaches are offset by higher costs.

The role of the account manager: (Eksamenvraag)

Maintain sales and profitability
Customization of the offering
Facilitation of inter-level or inter-functional value-adding processes
Promoting the KAM concept within the organization
Promoting the interests of the account within the organization




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Checklist on the responsibility, authority and resources allocated to key account
managers:

1. Full or part-time system:
Should account managers also have other responsibilities?

2. The position of the account managers in the system:
Should they be integrated into the sales department or should a new organisational layer
be created? Should they be located at head office or locally?

3. Allocation of responsibility:
How many accounts should each manager control?

4. Allocation of authority:
What resources should the account manager control?

Skills of the Key Account Manger
High calibre people able to diagnose/analyse complex commercial and technical
situations;
equipped to cope with highly politicized interaction and
personal tensions.

Competencies required by KAM representatives:
1. Integrity
2. Product service knowledge
3. Understanding of the buying companys business and business environment
4. Selling/negotiating skills
5. Communication skills as key competence

THE RELEVANCE OF KAM TO RM (SELF-STUDY)

A specific application of RM
Theories of KAM have been developed in high value, low volume, business-to-business
markets.

The need for senior management support
Empirical research provides evidence that KAM strategies will not work without the
active support of senior management.

The need for cross-functional coordination
KAM programmes work better when they are supported by teams arranged around
customers rather than functional areas. Focus on structures providing a more flexible,
network structure which can adapt to changing customer requirements.

The importance of communication
The central role of communication is important to maintain trust.