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OUM Business School

BBMR4103
Relationship Marketing

Copyright © Open University Malaysia (OUM)


BBMR4103
RELATIONSHIP
MARKETING
Dr Che Amiza Che Wel
Dr Nor Asiah Omaroc Pro

Copyright © Open University Malaysia (OUM)


Project Directors: Prof Dato' Dr Mansor Fadzil
Prof Dr Wardah Mohamad
Open University Malaysia

Module Writers: Dr Che Amiza Che Wel


Dr Nor Asiah Omar Prof Dr Hajah Fauziah Hanim

Moderator: Dr Baderisang Mohamed


Multimedia University

Developed by: Centre for Instructional Design and Technology


Open University Malaysia

First Edition, August 2014


Second Edition, August 2015 (rs)
Copyright © Open University Malaysia (OUM), August 2015, BBMR4103
All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia (OUM).

Copyright © Open University Malaysia (OUM)


Table of Contents
Course Guide ix-xv

Topic 1 Introduction to Relationship Marketing 1


1.1 Definition of Relationship Marketing 2
1.2 What is Meant by Relationship? 2
1.1.1 Basics of Building a Relationship 3
1.1.2 Levels of Relationship Building 3
1.3 The Rise of Relationship Marketing 4
1.4 Conditions that are Conducive to Relationship Marketing 5
1.4.1 Factors for Successful Relationship Marketing 5
1.4.2 Conducive Environment for Relationship Marketing 9
1.5 Interaction and Network Approaches to Marketing 11
1.6 Changes in the Marketing Environment 15
Summary 19
Key Terms 19
References 19

Topic 2 Characteristics of Relationship Marketing 23


2.1 Transaction versus Relationship 24
2.2 Characteristics of Relationship Marketing 25
2.3 The Relationship Continuum 26
2.3.1 Financial Stage 27
2.3.2 Social Interaction Stage 27
2.3.3 Interdependent Partnership Stage 27
2.4 Level of Relationship Marketing 28
2.5 Benefits of Relationship Marketing 30
2.6 Disadvantages of Relationship Marketing 33
Summary 33
Key Terms 35
References 35

Topic 3 Drivers of Relationship Marketing 38


3.1 Satisfaction 39
3.1.1 Know Your Customer 39
3.1.2 Why is Customer Satisfaction Important to the
Organisation? 40
3.2 Relationship Quality 41
3.3 Customer Value 42
3.3.1 What are the "Values" that Customers Look for? 43

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3.3.2 CustomerÊs Value Chain 44


3.3.3 Process of Relationship Development 44
3.4 Loyalty 45
3.4.1 Principles of Customer Loyalty 46
3.4.2 Benefits of Customer Loyalty 48
3.5 Commitment and Trust 49
3.5.1 Commitment 49
3.5.2 Trust 50
Summary 53
Key Terms 53
References 54

Topic 4 Planning a Relationship Marketing Programme 56


4.1 The Relationship Marketing Plan 57
4.1.1 Marketing Planning 57
4.1.2 Steps in the Marketing Planning Process 58
4.2 Situational Analysis 59
4.2.1 Content of the Situation Analysis 60
4.2.2 Information Obtained from the Situational Analysis 61
4.3 Assessing Relationship Strength 64
4.3.1 Definition of Relationship Strength 64
4.3.2 Measuring Relationship Strength 64
4.4 Assessing Customers Potential 65
4.4.1 Definition of Potential Customer 65
4.4.2 Identify Customers and Learn the Market 65
4.4.3 What Makes a Customer Attractive? 67
4.4.4 CustomerÊs Buying Behaviour 67
4.5 Company Audit 68
4.5.1 The Origin of the Word "Audit" 68
4.5.2 Definition of Audit 69
4.5.3 The Essential Features of Auditing 69
4.5.4 Classification of Audit 70
4.6 Relationship Marketing Planning Objectives 72
4.6.1 Definition of Objectives 72
4.6.2 Relationship Marketing Planning Objectives 73
Summary 74
Key Terms 74
References 75

Topic 5 Implementing Relationship Marketing Programmes: 76


Strategy, Structure and Systems
5.1 Strategy: Implementing Relationship Marketing 77
5.1.1 Tools in Relationship Marketing Strategy 83

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TABLE OF CONTENTS W v

5.1.2 Structure in Relationship Marketing 86


5.1.3 Types of Organisational Structure Implemented in
Relationship Marketing 87
5.2 System: Implementing Relationship Marketing 88
5.2.1 Decision-support System (DSS): System in
Relationship Marketing 88
5.2.2 The Structure of Proposed Marketing DSS 89
Summary 91
Key Terms 92
References 92

Topic 6 Implementing Relationship Marketing Programmes ă 95


Shared Value, Staff, Styles and Skills
6.1 Internal Marketing 96
6.1.1 Employees as Customers 97
6.1.2 Internal Marketing as a Change Management Tool 97
6.1.3 Internal Marketing as a Social Process 98
6.1.4 Internal Relationship Marketing as Knowledge
Renewal 98
6.1.5 Internal Marketing as Implementation Tool and
Business Philosophy 99
6.2 Shared Value and Culture 100
6.3 Staff and Internal Service Quality 104
6.3.1 Staff 104
6.3.2 Internal Service Quality 105
6.4 Style 109
6.5 Skills 111
Summary 113
Key Terms 115
References 115

Topic 7 Monitoring and Controlling Relationship 119


7.1 Approaches to Monitoring and Controlling 120
7.1.1 Hard Mechanism versus Soft Monitoring and
Controlling 120
7.1.2 Performance versus Diagnostic Monitoring 121
7.1.3 The Balanced Scorecard Approach 121
7.2 Measures of Relationship Success 123
7.2.1 Relationship Facilitators 123
7.2.2 Relationship Features 126
7.2.3 Relationship Returns 127
7.3 Complaint Analysis and Handling 128
7.4 Controlling Service Quality 130

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Summary 133
Key Terms 134
References 134

Topic 8 Ethical Considerations in Relationship Marketing 137


8.1 Ethics and Marketing 138
8.1.1 Criticisms of Marketing 138
8.1.2 Consumerism, Social Responsibility and Ethics 139
8.2 Approaches to Ethical Decision-Making 140
8.3 Ethics and Relationship Marketing 142
8.3.1 Relationship Marketing and Ethical Issues in
Communication 142
8.3.2 Relationship Marketing and the Ethics of
Keeping Promises 144
8.3.3 The Legal Implications of Unethical Relationship
Marketing 144
Summary 145
Key Terms 146
References 146

Topic 9 Key Account Management (KAM) 147


9.1 What is Key Account Management? 148
9.2 The Key Account Development Cycle 150
9.3 Identifying Key Accounts 152
9.4 Servicing Key Accounts: KAM Activities 154
9.5 Servicing Key Accounts: Developing a KAM Infrastructure 156
9.6 The Relevance of Key Account Management to
Relationship Marketing 159
Summary 160
Key Terms 162
References 162

Topic 10 Customer Relationship Management (CRM) 164


10.1 Definitions of Customer Relationship Management 165
10.2 Common Myths of the Approach to CRM 166
10.3 CRM Tools and Customer Profiling 167
10.4 Strategic Approach to CRM 170
Summary 173
Key Terms 174
References 174

Copyright © Open University Malaysia (OUM)


COURSE GUIDE

Copyright © Open University Malaysia (OUM)


Copyright © Open University Malaysia (OUM)
COURSE GUIDE W ix

COURSE GUIDE DESCRIPTION


You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through
the course material. It also suggests the amount of time you are likely to spend in
order to complete the course successfully. Please keep on referring to the Course
Guide as you go through the course material as it will help you to clarify
important study components or points that you might miss or overlook.

INTRODUCTION
BBMR4103 Relationship Marketing is one of the courses offered by OUM
Business School at Open University Malaysia (OUM). This course is worth 3
credit hours and should be covered over 8 to 15 weeks.

COURSE AUDIENCE
This course is offered to all students taking the Bachelor of Business
Administration (BBA) programme. This module aims to impart the relationship
marketing perspective especially for those majoring in Marketing. This module
should be able to form a strong understanding on the importance to impart the
relationship marketing views or perspectives in all marketing activities in the
organisations.

As an open and distance learner, you should be acquainted with learning


independently and being able to optimise the learning modes and environment
available to you. Before you begin this course, please ensure that you have the
right course material, and understand the course requirements as well as how the
course is conducted.

STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.

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x X COURSE GUIDE

Table 1: Estimation of Time Accumulation of Study Hours

Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 3
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), Test(s) and Examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120

COURSE OUTCOMES
By the end of this course, you should be able to:

1. Discuss the roles and importance of relationship marketing in a business


organisation;

2. Describe the different levels and characteristics of relationship marketing;

3. Elaborate on the strategy, structure and system involved in implementing


relationship marketing;

4. Explain the importance of internal marketing and service quality in


relationship marketing;

5. Discuss the major approaches of monitoring and controlling in relationship


marketing;

6. Explain the concept of consumerism, social responsibility and ethics in


relationship marketing; and

7. Describe Customer Relationship Management (CRM) and the factors to be


considered for successful implementation of CRM strategy.

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COURSE GUIDE W xi

COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic can be listed as
follows:

Topic 1 begins with an introduction to relationship marketing, factors that arise


and influences that change it. The role of relationship marketing, the importance
of interactions and network are discussed.

Topic 2 examines the characteristics of relationship marketing and the three main
levels of relationship continuum which will bring benefits to the company and
the customer.

Topic 3 discusses how the drivers of relationship marketing help to identify


customersÊ satisfaction and the importance of relationship quality. We will
discuss the values that customers look for in products or services provided by the
company and the process of developing successful relationship marketing.

Topic 4 provides an important foundation for making situational analysis. It


discusses the importance of establishing internal and external audit. These
activities provide a structure for a company to use its unique strengths. The
objectives of relationship marketing planning are also discussed.

Topic 5 addresses issues relating to the strategy, structure and system involved
in implementing relationship marketing programmes in the company in order to
plan the marketing strategy.

Topic 6 describes the concept of internal marketing and internal service quality in
relationship marketing. The level of training process and the sources of
evaluating a training programme are also covered here.

Topic 7 explains the major approaches of monitoring and controlling such as


balance scorecard. Areas in measuring relationship success such as relationship
facilitators, relationship features and relationship returns are also covered.
Besides that, complaint analysis and service quality are also discussed in this
topic.

Topic 8 discusses the concept of consumerism, social responsibility and ethics in


relationship marketing. The role of ethics and the approaches to ethical decision-
making are also covered in this topic.

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xii X COURSE GUIDE

Topic 9 describes key account management cycle, key decisions and activities.
The relevance of key account management to relationship marketing is also
discussed.

Topic 10 deals with the criticisms, the role and the myth of Customer
Relationship Management (CRM). The factors to be considered for a successful
implementation of CRM strategy are discussed in this topic.

TEXT ARRANGEMENT GUIDE


Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:

Learning Outcomes: This section refers to what you should achieve after you
have completely covered a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your understanding of the topic.

Self-Check: This component of the module is inserted at strategic locations


throughout the module. It may be inserted after one sub-section or a few sub-
sections. It usually comes in the form of a question. When you come across this
component, try to reflect on what you have already learnt thus far. By attempting
to answer the question, you should be able to gauge how well you have
understood the sub-section(s). Most of the time, the answers to the questions can
be found directly from the module itself.

Activity: Like Self-Check, the Activity component is also placed at various


locations or junctures throughout the module. This component may require you to
solve questions, explore short case studies, or conduct an observation or research.
It may even require you to evaluate a given scenario. When you come across an
Activity, you should try to reflect on what you have gathered from the module and
apply it to real situations. You should, at the same time, engage yourself in higher
order thinking where you might be required to analyse, synthesise and evaluate
instead of only having to recall and define.

Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should
be able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.

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COURSE GUIDE W xiii

Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.

References: The References section is where a list of relevant and useful


textbooks, journals, articles, electronic contents or sources can be found. The list
can appear in a few locations such as in the Course Guide (at the References
section), at the end of every topic or at the back of the module. You are
encouraged to read or refer to the suggested sources to obtain the additional
information needed and to enhance your overall understanding of the course.

PRIOR KNOWLEDGE
Learners of this course are required to pass BBSG4103 Marketing Management
and Strategy course.

ASSESSMENT METHOD
Please refer to myINSPIRE.

REFERENCES
Ahmed, P. K., & Rafiq, M. (2002). Internal marketing: Tools and concepts for
customer-focused management. New York, NY: Butterworth-Heinemann.

Brown, S. A. (2000). Customer relationship management: A strategic imperative


in the world of e-business. New York, NY: Wiley.

Buttle, F. (2004). Customer relationship management: Concepts and tools.


Oxford, England: Elsevier Butterworth Heinemann.

Christopher, M., Payne, A., & Ballantyne, D. (1991). Relationship marketing:


Bringing quality, customer service and marketing together. Oxford,
England: Butterworth-Heinemann.

Gronroos, C. (1981). Internal marketing: An integral part of marketing theory.


Proceedings of the American Marketing Association Service Marketing
Conferences, 236-268.

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xiv X COURSE GUIDE

Gronroos, C. (2000). Creating relationship dialogue: Communication, interaction


and value. The Marketing Review, 1(1), 5-15.

Gummersson, E. (2002). Total relationship marketing: Marketing management,


relationship strategy and CRM approaches for the network economy.
Oxford, England: Butterworth Heinemann.

Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of
marketing. Harlow, England: Pearson Education.

Kumar, V., & Reinartz, W. J. (2006). Customer relationship management: A


database approach. Hoboken, NJ: John Wiley and Sons.

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: South-Western Cengage Learning.

Ojasalo, J. (2001). Key account management at company and individual levels in


business-to-business relationships. Journal of Business and Industrial
Marketing, 16(3), 199-218.

Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 12-40.

Rabb, G., Ajami, R. A., Gargeya, V. B., & Goddard, G. J (2008). Customer
relationship management: A global perspective. Hampshire England:
Gower Publishing Limited.

Reichheld, F., Markey Jr, R., & Hopton, C (2000). The loyalty effect-the
relationship between loyalty and profits. European Business Journal,
12(3), 449-463.

Zikmund, W. G., McLeod, R. Jr., & Gilbert, F. W. (2002). Customer relation


management: Integrating marketing strategy and information technology.
Hoboken, NJ: Wiley.

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COURSE GUIDE W xv

TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL


LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible
through the OUM portal, provides access to more than 30 online databases
comprising e-journals, e-theses, e-books and more. Examples of databases
available are EBSCOhost, ProQuest, SpringerLink, Books24x7, InfoSci Books,
Emerald Management Plus and Ebrary Electronic Books. As an OUM learner,
you are encouraged to make full use of the resources available through this
library.

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xvi X COURSE GUIDE

Copyright © Open University Malaysia (OUM)


Topic  Introduction to
1 Relationship
Marketing
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define relationship marketing;
2. Explain the rise of relationship marketing;
3. Explain the conditions which are conducive to relationship
marketing;
4. Describe the interaction and network approaches to marketing; and
5. Discuss the changes in the marketing environment.

 INTRODUCTION
By the mid-20th century, people began to realise that the most important factor in
business was the satisfaction of the customer, rather than just the profit. A happy
and satisfied customer would bring more profit as he or she would be willing to
pay the organisation for its products or services which hold a valuable quality.

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2  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

1.1 DEFINITION OF RELATIONSHIP


MARKETING
Table 1.1 lists the definitions of relationship marketing (RM).

Table 1.1: Various Definitions of Relationship Marketing

Source Definition
Berry (1983) Attracting, maintaining and in multi-service organisations,
enhancing customer relationships.
Berry & Relationship marketing concerns attracting, developing and
Parasuraman (1991) retaining customer relationships.
Gummesson (1994) Relationship marketing is marketing seen as relationships,
networks and interactions.
Gronroos (1994) Relationship marketing identifies and establishes, maintains
and enhances relationships with customers and the
stakeholders or a profit so that the objectives of all parties
involved are met and that this is done by a mutual exchange
and fulfilment of promises.
Sheth (1994) The understanding, explanation and management of the
ongoing collaborative business relationship between suppliers
and customers.

1.2 WHAT IS MEANT BY RELATIONSHIP?


Any meaningful relationship between a customer and a business enterprise
begins with the expectation of mutual benefits. Through such a relationship the
customers expect to:
(a) Realise cost savings;
(b) Improve the efficiency of their decision making;
(c) Reduce their risk by dealing with trustworthy companies, services and
products;
(d) Acquire solutions that are tailored for their particular needs and budgets; or
(e) Realise the social and other value added benefits such as simplifying their
choice process.

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  3

1.1.1 Basics of Building a Relationship


The defining features of corporate relationship building are based on the
assumptions shown in Figure 1.1.

Figure 1.1: Assumptions in defining features of corporate relationship building

1.1.2 Levels of Relationship Building


The company needs quantum in building the loyalty factor. For this purpose, the
investment in customer relationship building should be distinguished into the
five different levels shown in Table 1.2.

Table 1.2: Levels of Relationship

Level Description
Basic marketing The salesperson sells the product.
Reactive marketing The salesperson sells the product and encourages the
customer to call if she or he has questions, comments or
complaints.
Accountable The salesperson calls the customer to check whether the
marketing product meets the expectations of the customer and asks for
any product or service improvement suggestions and specific
disappointments.
Proactive marketing The salesperson contacts the customer from time to time with
suggestions about improved product uses or new products.

Partnership The company works continuously with its large customers to


marketing help improve their performance.

Source: Shajahan (2004)


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4  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

ACTIVITY 1.1

Explain the levels of relationship marketing.

1.3 THE RISE OF RELATIONSHIP MARKETING


The changes in the concept and practice of business have been reshaping the
marketing discipline. Gruen (1995) and Gronroos (1989) suggested that the
business philosophy has shifted from a production orientation to selling
orientation, to a marketing orientation and then to a relationship marketing
orientation. Relationship marketing stresses that the traditional short-term
transaction-based exchange must be replaced with long-term relationship-based
exchange (Sin et al., 2005).

According to Christopher (1991), in the 1950s, marketing interest was primarily


focused on consumer goods. In the 1960s, increased attention was directed
towards the industrial market. Considerable academic interest was placed on the
area of non-profit or social marketing in the 1970s. In the 1980s, the attention
moved to service sectors, an area of marketing that has received remarkable
attention in view of its importance in the overall company. In the 1990s and
beyond, relationship marketing is an area which has and will receive increasing
attention.

The emphasis is now moving from transaction focus to a relationship focus


(Christopher et al., 1991; Boone & Kurtz, 2006). The changes are characterised in
Table 1.3. As opposed to transaction marketing, relationship marketing is
characterised as having a long-term orientation and the focus is to retain
customers for the organisation. Frequent customer contact and customer
commitment are key components of customer service. Buyer-seller interaction is
based on trust and cooperation, while company-wide commitment is a source of
quality service.

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  5

Table 1.3: Comparison between Transaction-based Marketing and Relationship


Marketing Strategies

Characteristics Transaction Marketing Relationship Marketing


Time orientation Short term Long term
Organisational goal Make a sale Emphasis on retaining
customers
Customer service Relatively low Key component
priority
Customer contact Low to moderate Frequent
Degree of customer Low High
commitment
Basis for seller-customer Conflict manipulation Cooperation and trust
interactions
Source of quality Primarily from Company-wide commitment
production

Source: Boone & Kurtz (2006)

1.4 CONDITIONS THAT ARE CONDUCIVE


TO RELATIONSHIP MARKETING
Successful relationship marketing will evolve when there are win-win situations
for both customers and the organisation. In maximising the profit for the
organisation, the benefits of a relationship should end with satisfaction of the
customers while the organisation should manage to reduce the economic
retention at the same time.

1.4.1 Factors for Successful Relationship Marketing


Generally, there are eight factors for successful relationship marketing as shown
in Figure 1.2.

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6  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

Figure 1.2: Factors accounting for successful relationship marketing


Source: Hunt & Arnett (2001)

Let us now discuss the factors for successful relationship marketing one by one.

(a) Resource factor


Resources are any tangible or intangible entity available to the firms that
enables it to produce efficiently and/or effectively a market offering that
has value for some market segment(s) (Morgan & Hunt, 1995). According to
Lambe et al. (2002), the types of resources are as shown in Figure 1.3.

Figure 1.3: Types of resources

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  7

(b) Competence factor


Competence is an ability to sustain the coordinated deployment of assets in
a way that helps the firm to achieve its goal (Sanchez, Heene, & Thomas,
1996).

In a car workshop business, the chief mechanic needs to identify and


integrate resources that his workers have in order for development,
facilitative mechanism and effective knowledge leveraging.

(c) Internal marketing factor


The organisation should identify the needs and wants of the employees.
The internal market orientation will raise the internal aspects of
performances such as employee commitment and satisfaction which in
return affect positively both the organisationÊs external market orientation
and external part of performances, for example, customer satisfaction and
profit (Hunt, Arnett, & Madhavaram, 2006).

(d) Relational factors


The relational factors involved are as follows (Hunt et al., 2006):
(i) Trust;
(ii) Commitment;
(iii) Cooperation;
(iv) Keeping promises; and
(v) Communication.

(e) Public policy factor


Public policy is a very complex and skilful process. According to Ross et al.
(n.d), it involves the participation of many parties such as businesses,
interest groups and individuals who are competing and collaborating to
influence the policy makers to act in a certain way on a variety of policies.
The following are some of the possible ways to influence the policy makers:
(i) Lobbying;
(ii) Advocating their positions publicly;
(iii) Attempting to educate supporters and opponents; and
(iv) Mobilising allies on a particular issue.

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8  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

(f) Information technology factors


To make relationship marketing strategies a success, it is required that a
firm adopts the interorganisational information system (electronic data
interchange or EDI) and creates an organisational process that is conducive
to knowledge use and sharing (Hunt et al., 2006).

(g) Market offerings factors


A market offering is a distinct entity that is composed of a bundle of
attributes, which may be tangible (such as a car's motor and body style) or
intangible (such as a car's warranty and reliability), objective or subjective,
and which may be viewed by some potential buyers as a want satisfier
(Hunt, 2000).
(i) As for quality, higher levels of quality are associated with market
offerings that are perceived as follows:
 Better in meeting consumer needs and wants;
 More reliable;
 More durable; and
 More valueable.
(ii) As for innovativeness, this refers to a market offeringÊs perceived
newness, originality, uniqueness and radicalness (Henard &
Szymanski, 2001). Kleinschmidt and Cooper (1991) find that
innovative market offerings are more likely as follows:
 To be successful and more profitable;
 To have higher domestic and foreign market shares;
 To open new windows of opportunity; and
 To meet sales and profit objectives.

(h) Historical factors


According to Morgan and Hunt (1994), historical factors can have a
significant impact on inter-firm relationships and the identified factors
include opportunistic behaviour, past relationship benefits and the build-
up of high termination costs. These identified factors are explained as
follows:

(i) Opportunistic behaviour


This entails "deceit-orientated violation of implicit or explicit promises
about one's appropriate or required role behaviour" (John, 1984).

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  9

(ii) Termination costs


These are expected losses from termination and a result of the
perceived lack of comparable potential partners, relationship
dissolution expenses and/or substantial switching costs (Morgan &
Hunt, 1994).

1.4.2 Conducive Environment for Relationship


Marketing
A relationship develops between a customer and an organisation when there are
benefits to both from one or more exchanges for a profit maximising firm where
the benefits of relationship marketing with end users arise from the economics of
retention (Reichheld, 1996). For the customer, the benefits of a relationship with
the organisation include customisation and decreased cost due to the efficiencies
in dealing with known supplier including lower search costs and risk reduction
(Sheth & Parvatiyar, 1995).

The environments conducive to relationship marketing success are shown in


Figure 1.4.

Figure 1.4: Environments conducive to relationship marketing success

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10  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

Let us now discuss these environments in detail.

(a) Customisation
Relationship marketing in the mass market requires that the market
consists of different benefit segments that can potentially be served by
differentiated products. Customisation must be possible within the product
category for relationship to develop via people or technology (Bhattacharya
& Bolton, 2000). It is considered as a toll to build loyalty when mass-market
quality is no longer a sufficient differentiator (Gilmore & Pine, 1997).

(b) Customer Intimacy


In the mass market, relationship marketing can facilitate customer intimacy
by invoking emotions in a variety of contexts. Broadcast media can create a
sense of identification or affiliation with the organisation. Organisational
procedures can influence customersÊ perceptions of the fairness of the
exchange relationship. In favourable situations, these circumstances can
invoke emotions such as happiness, pride and achievement. In
unfavourable situations, these same circumstances can invoke emotions
such as anger and frustration. Customers and employees in organisations
who engage in favourable relationships feel a sense of „commitment‰
towards one another (Morgan & Hunt, 1994).

(c) Two-way Interactions


An exchange relationship between the organisation and the customer
requires a (direct) two-way interaction. The two-way interaction can also
reduce the propensity of customers to switch to new suppliers as customers
invest in educating their suppliers about their needs and have to start all
over again with a new supplier (Hart, 1996).

Table 1.4 describes two-way interactions in different settings further.

Table 1.4: Two-way Interactions in Different Settings

Two-way Interaction Description


In service The customer frequently interacts with the organisation
organisations when he or she comes in contact with service employees
such as a salesperson, a customer service representative
or a service provider.
In manufacturing The customer interacts with the organisation by mail, toll
firms free telephone numbers, sweepstakes and contests, e-mail
addresses and the World Wide Web.

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  11

ACTIVITY 1.2

Why is internal marketing important to a firm? Discuss.

1.5 INTERACTION AND NETWORK


APPROACHES TO MARKETING
The role of communication has to and will be somewhat different in the research
of business relationships and networks from that of traditional marketing (Rami,
Henrikki, & Kimmo, 2000). The interactions and network approaches are very
close to each other and increase significantly with the increasing global market
value and the expanding of new information and communication technologies.

We will discuss the four relationship marketing approaches which are


introduced by Payne (1995), Kotler (1992), Morgan and Hunt (1994) and
Gummesson (1997). The four approaches to relationships marketing are as shown
in Table 1.5.

Table 1.5: Four Approaches to Relationships Marketing

Sources Categories Sub-categories


Payne (1995) 6 markets  Customer markets
 Supportive markets
Kotler (1992) 10 players  Immediate environment (4)
 Macro-environment (6)
Gummesson 30 relationships  Market relationships:
(1997) – Classic; and
– Special.
 Non-market relationships:
– Mega-relationships; and
– Nano-relationships.
Morgan and 10 partnerships  Buyer partnership
Hunt (1994)  Lateral partnership
 Supplier partnership
 Internal partnership

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12  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

The four approaches to relationship marketing are described as follows:

(a) Payne (1995)


Payne (1995) introduced the six markets stakeholders of relationship
marketing. The original models of the six markets are explained in Table 1.6.

Table 1.6: The Six Markets in Relationship Marketing Activity

Market Who
Consumer markets  Customer markets in the business-to-business sector
Internal markets  Employees
Supplier and alliance  Business partners
markets  Suppliers
 Consultants
 Contractors
Influencer markets  Venture capitalists
 Regulators
 Lobbyists
 Litigators
Referral markets  Customers advocates
 Intermediaries
 Business advisors
Recruitment markets  Employment agencies
 Graduates
 The pool of potential employees

(b) Kotler (1992)


Kotler mentioned that a firmÊs success in relationship marketing depends
on 10 critical players as follows:
(i) Suppliers;
(ii) Distributors;
(iii) End users;
(iv) Employees;
(v) Financial firms;
(vi) Government;

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  13

(vii) Media;
(viii) Allies;
(ix) Competitors; and
(x) General public.

(c) Gummesson (1997)


According to Gummesson, there are about 30 types of relationship
marketing which fall under four categories (refer to Table 1.7).

Table 1.7: Four Categories of Relationship Marketing

Categories Description
Classic market 1. The classic dyad: The relationship between the
relationships supplier and the customer.
2. The classic triad: The drama of the customer-supplier-
competitor triangle.
3. The classic network: The distribution channel.
Special Market 4. Relationships via full-time marketers (FTMs) and part-
Relationships time marketers (PTMs).
5. The service encounter-interaction between customers
and service providers.
6. The many-headed customer and the many-headed
supplier.
7. The relationship to the customerÊs customer.
8. The close versus distant relationship.
9. The relationship to the dissatisfied customer.
10. The monopoly relationship ă the customer or supplier
as prisoner.
11. The customer as a „member‰.
12. The e-relationship.
13. Pre-social relationships: relationships to brand and
objects.
14. The non-commercial relationship.
15. The green relationship.
16. The law-based relationship.
17. The criminal network.

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14  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

Mega- 18. Personal and social networks.


relationships 19. Mega marketing where the real „customer‰ is not
always found in the marketplace.
20. Alliances which change the market mechanisms.
21. The knowledge of the relationship.
22. The alliances which change the basic conditions for
marketing.
23. The mass media relationship.
Nano-relationship 24. Market mechanisms which are bought inside the
company.
25. The internal customer relationships.
26. Quality providing a relationship between operations
management and marketing.
27. Internal marketing.
28. The two-dimensional matrix relationship.
29. The relationship to external providers of marketing
services.
30. The owner and financier relationship.

(d) Morgan and Hunt (1994)


Morgan and Hunt discovered ten forms of relationship marketing
approaches which can be identified within four types of partnership. These
partnerships are supplier partnerships, lateral partnerships, internal
partnerships and buyer partnerships (refer to Table 1.8).

Table 1.8: Four Types of Partnership

Type of Partnership Relationship


Supplier partnership  Goods supplier
 Service supplier
Lateral partnership  Competitors
 Non-profit organisations
 Government
Internal partnership  Business units
 Employees
 Functional departments
Buyer partnership  Intermediate customers
 Ultimate customers

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  15

1.6 CHANGES IN THE MARKETING


ENVIRONMENT
The marketing environment is influenced by six forces, which are as follows:
(a) Competitive forces;
(b) Economic forces;
(c) Social-cultural forces;
(d) Technological forces;
(e) Legal and regulatory forces; and
(f) Political forces.

The management of the organisation needs to have a very strategic plan to


survive through the environmental forces which are always fluctuating rapidly
or those that are slow and dynamic. Any changes within the marketing
environment create uncertainty, threats and also opportunities for marketers. As
for monitoring changes in the marketing environment effectively, marketers need
to engage in environmental scanning and analysis (see Figure 1.5).

Figure 1.5: Two methods of monitoring marketing environments

Now, let us discuss the six forces in greater detail.

(a) Competitive Forces


A marketer generally defines competition as other firms that market
products that are similar to or can be substituted for its products in the
same geographic area. These competitors can be classified into any one of
the four types of competition forces shown in Figure 1.6.

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16  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

Figure 1.6: Four types of competition forces


Source: Pride & Ferrell (2010)

There are four types of competitorsÊ structure which are monopoly,


oligopoly, monopolistic and pure competition (refer to Table 1.9).

Table 1.9: Four Types of Competitors Structure

Structure Definition
Monopoly A competitive structure in which an organisation offers a
competition product that has no close substitutes, making that
organisation the sole source of supply.
Oligopoly A competitive structure in which a few sellers control the
competition supply of a large proportion of a product.
Monopolistic A competitive structure in which a firm has many potential
competition competitors and tries to develop a marketing strategy to
differentiate its product.
Pure A market structure characterised by an extremely large
competition number of sellers, not strong enough to significantly
influence price or supply.

Source: Möller (2006)

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  17

(b) Economic Forces


One of the environmental forces is the nature of our economy.
Entrepreneurs must recognise the activities at the macroeconomic level of
the economy such as whether the economy is growing as well as determine
the rate of consumer spending. At the microeconomic level, entrepreneurs
must determine if the consumer actually has the ability to buy particular
products or services (Pride & Ferrell, 2010).

(c) Social-cultural Forces


Social forces include the characteristics of the population as well as its
values and its behaviour. Some entrepreneurs have launched businesses to
appeal to specific ethnic groups, particularly ethnic food businesses.

Another social force is culture and in recent years, many countries have
experienced notable cultural changes that have affected consumer attitudes
and values. For example, with more working women, the number of tasks
to do is expanding while the time available to do them is shrinking. This
has led to the phenomenon of time poverty. Entrepreneurs are responding
to this trend by creating ventures that help alleviate or reduce the
consumerÊs time poverty such as delivery services, online shopping
business and ready-to-eat foods (Pride & Ferrell, 2010).

(d) Technological Forces


New technologies are forever changing the way consumers shop and what
they buy. Moreover, new technologies are enabling entrepreneurs to create
unique new businesses or enhance how they can conduct their businesses.
One of the most important technologies that have changed the marketing
landscape is the Internet.

The Internet has also given rise to a host of new businesses built upon the
concept of electronic social networks or communities such as Myspace and
Facebook as well as electronic trading businesses such as eBay (Pride &
Ferrell, 2010).

(e) Legal and Regulatory Forces


A number of federal laws influence marketing decisions and activities.
Regulatory agencies and self-regulatory forces also affect marketing efforts
(Pride & Ferrell, 2010).

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18  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

(f) Political Forces


The political forces of the marketing environment have the potential to
influence marketing decisions and strategies. At a macro-level, it might
involve government policy directly affecting an industry. A change of
government often leads to new policies. The most obvious and important
policy for many fields is the government policy in relation to funding
support (Pride & Ferrell, 2010).

SELF-CHECK 1.1

1. Why is the environmental scanning and analysis process very


important for business development?
2. What are the four types of competitive forces? In your opinion,
which is the most important type of competitive force for an
organisation to focus on?
3. Explain how the social-cultural environment influences marketing.

4. Discuss the impact of the technological environment on the


organisationÊs activities.

ACTIVITY 1.3

1. For each of the following products, identify the brand


competitors, product competitors, generic competitors and budget
competitors:
(a) LadyÊs Choice Real Mayonnaise;
(b) Zalora; and
(c) Celcom.

2. Technological forces have very big impact on the customers.


Explain how technological forces affect your needs as a customer.

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  19

 There are a few factors that play a crucial role in the rise of relationship
marketing, which are, strategy of enhancing the breadth of the products or
services, the changes of customer behaviour over the time and the increasing
value of products or services by the manufacturer and the provider.

 The marketing environment includes competitive, economic, political, legal


and regulatory, technological and social-cultural forces.

 The environmental scanning is the process of collecting information about


forces in the marketing environment while environmental analysis is the
process of assessing and interpreting information that has been obtained in
the scanning process.

CompetitorÊs force Marketing mix


Economic force Network picture
Environmental forces Political forces
Environmental scanning Social-cultural force
Marketing Technological forces

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quality. New York, NY: Free Press.

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20  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

Boone, L. E., & Kurtz, D. L. (2006). Principles of marketing. Mason, OH: Thomson
South-Western.

Chai, L. G. (2009). A review of marketing mix: 4PÊs or more. International Journal


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Bringing quality, customer service, and marketing together. Boston, MA:
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marketing-mix/

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markets. International Business Review, 4(4), 447-469.

Gummesson, E. (1994). Making relationship marketing operational. International


Journal of Service, Industry Management, 5(5), 5-20.

Hart, C. W. (1996). Technology is making it feasible to reach that market of one.


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Henneberg, S. C., Mouzas, S., & Naudé, P. (2006). The building blocks for
network picture. Network pictures: Concepts and representations.
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Hunt, S. D. (2000). A general theory of competition. Thousand Oaks, CA: Sage


Publications.

Hunt, S. D., & Arnett, D. B. (2001). Competition as a process and antitrust policy.
Journal of Public Policy & Marketing, 20(1), 15-26.

Hunt, S. D., Arnett, D. B., & Madhavaram, S. (2006). The explanatory foundations
of relationship marketing theory. Journal of Business & Industrial Marketing,
21(2), 72-87.

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TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  21

John, T. M. (2004). Fundamentals of supply chain management. Thousand Oaks,


CA: Sage Publications.

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performance. The Journal of Product Innovation Management, 8(4), 240-51.

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Lambe, C. J., Spekman, R. E., & Hunt, S. D. (2002). Alliance competence,


resources, and alliance success: Conceptualization, measurement and initial
test. Journal of the Academy of Marketing Science, 30(2), 141-58.

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sustainable business. In The sustainable business case book. Retrieved from
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.0-ch03_s01

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Finland: Helsinki School of Economics & Business Administration.

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Research traditions in marketing. London, England: Kluwer Academic
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Page.

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22  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING

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Targeting, Measurement & Analysis for Marketing, 14(3), 260-276.

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Boston, MA: Houghton Mifflin.

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Topic  Characteristics
2 of Relationship
Marketing
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Contrast transactional based marketing with relationship marketing;
2. Identify the three levels of relationship continuum; and
3. Describe the benefits of relationship marketing.

 INTRODUCTION
Relationship marketing was first defined by Berry (1983). The aim of relationship
marketing is to build a long-term mutually satisfying relationship with
customers, suppliers and distributors in the hopes of earning and retaining their
long-term preference and business (Kotler, 2000).

Relational benefits are defined as those benefits which customers receive from
long-term relationships above and beyond the core service performance
(Gwinner, Gremler, & Bitner, 1998). Specifically, these benefits result from
engaging in long-term relational exchanges with service firms and can be
categorised into three distinct types of relational benefits as shown in Figure 2.1.

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24  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

Figure 2.1: Three distinct types of relational benefits

Customer relationships are of particular interest to service providers as they


provide evaluative criteria for consumers to evaluate aspects of the service
encounter such as providing trust, commitment and reliability (Hennig-Thurau,
Gwinner, & Gremler, 2002).

2.1 TRANSACTIONAL VERSUS RELATIONSHIP


Transactional marketing and relationship marketing approaches have different
objectives and scopes. Transactional marketing concentrates on getting new
customers from time to time, while relationship marketing works on developing
an ever-improving relationship within the organisation and the customer in
addition to having new prospects (Musadiq, 2008). Table 2.1 explains the
differences between transactional marketing and relationship marketing.

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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  25

Table 2.1: Differences between Transactional Marketing and Relationship Marketing

Transactional Marketing Relationship Marketing


 Focuses on a single sale  Focuses on a series of independent
transactions
 Aims to catch the customer  Aims to keep the customers
 Little emphasis on customer service  High emphasis on customer service
 Mass market broadcast  Dialogue and tailored communication
 Limited customer commitment  High customer commitment
 Moderate customer contact  High customer contact (interaction
(interaction between an organisation between an organisation and the
and the customers for a limited time customers for a longer period)
period)
 Business is defined by its products  Business is defined by its customer
relationship

Source: Musadiq (2008)

2.2 CHARACTERISTICS OF RELATIONSHIP


MARKETING
The relationship characteristics describe the development of a relationship over
time. Figure 2.2 shows the three characteristics of relationship marketing.

Figure 2.2: Three characteristics of relationship marketing

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26  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

Let us now discuss further the characteristics of relationship marketing one by


one.

(a) The duration of the relationship (length)


Length refers to the duration of a relationship where the early stages of a
relationship are characterised by high uncertainty and low customer
experience. In this phase of the relationship, the specific investments are
low and the mutuality between the parties is not greatly evolved.

As the relationship progresses over time, the following happen:


(i) Trust develops between the parties;
(ii) Customers gain experience in using the products and services;
(iii) Familiarity and interdependencies between the parties grow; and
(iv) Psychological attachment increases.

(b) Service usage (depth)


Service usage provides customers with a better knowledge of the company
and the process needed to use the services satisfactorily.

(c) Cross-buying behaviour (breadth)


Breadth of a relationship is reflected in the number of additional products
or services purchased from a company over time. Buying additional
products or services from the firm provides customers with better
knowledge of the company, which leads to more accurate expectations and
less uncertainty as well as increases the number of points where the
customer and vendor connect.

SELF-CHECK 2.1

Explain the characteristics of relationship marketing in your own


words.

2.3 THE RELATIONSHIP CONTINUUM


The buyer-seller relationship functions at a variety of levels. As an individual or
firm progresses from the lowest to the highest level on the continuum of
relationship marketing, the strength of commitment between the parties grows.
All the marketers want to move their customers along this continuum,
converting them from the financial stage to the structural stage.

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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  27

2.3.1 Financial Stage


Interactions at this stage of relationship marketing are the most superficial and
the least likely to lead to a long-term relationship. The relationship marketing
efforts rely on pricing and other financial incentives to motivate customers to
enter into buying relationships with a seller. For example, fast-food chains use
value and menu promotions offering more food for less to attract indecisive
customers. This lower prices method makes the product attractive.

Although this method can be attractive to users or buyers, it may not create long-
term buyer relationships. Since the programmes are not customised to the needs
of individual buyers, they are easily duplicated by competitors (David, 2013).

2.3.2 Social Interaction Stage


As the buyers and sellers reach this stage in the relationship marketing, their
interactions develop on a social level, that is, one that features deeper and less
superficial links than the financially motivated exchange. Sellers have begun to learn
that social relationships with buyers can be considered as very effective marketing
tools. Customer service and communication are key factors at this stage.

Social interaction can take many forms such as the following:


(a) The owner of a local shoe store might chat with customers about local
events;
(b) The service department of an auto dealership might contact customers after
providing services to know if the customers are satisfied or have any
questions; and
(c) The investment firm might send holiday cards to all customers.

Marketers are beginning to see the potential for more precise targeting through
the use of social networking (David, 2013).

2.3.3 Interdependent Partnership Stage


At the structural level of relationship marketing, the relationships are
transformed into structural changes that ensure buyers and sellers are true
business partners. As buyers and sellers work more closely together, they are
developing interdependency that continues to grow over time (David, 2013).

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28  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

2.4 LEVEL OF RELATIONSHIP MARKETING


Relationship marketing can be practiced at multiple levels depending on the
types of bond(s) used to foster customer loyalty (Berry, 1995). Business
organisations can build customer relationships by initiating one of these three
bonds of relationships ranging from financial, social and structural (refer to
Table 2.2).

Table 2.2: Three Levels of Relationship Marketing

Characteristic Level One Level Two Level Three


Primary bond Financial Social Structural
Degree of Low Medium Medium to high
customisation
Potential for sustained Low Moderate High
competitive advantage
Example American Harley- Federal ExpressÊs
AirlineÊs DavidsonÊs Harley Powership
Advantage Owners Group Programme
Programme (HOG)

Source: Berry (1995)

The following are further explanations for the three levels of relationship
marketing:

(a) First Level: Financial Bonds


Financial incentives are one of the tools that can be offered by businesses to
enhance customer relationships. If businesses only rely on pricing to secure
customer relationships, they only reach level one of relationship marketing.
Previous research shows that one of the motivation factors for customers to
engage in relational exchanges is to save money (Berry, 1995; Gwinner,
Gremler & Bitner, 1998), but customers who are prone to financial
incentives normally would be more vulnerable to competitorsÊ promotion
and offers. This means that financial incentives offer the lowest potential for
sustainable competitive advantage.

(b) Second Level: Social Bond or Interaction


When the buyers and sellers reach the second level of relationship
marketing, their interaction develops on a social level. Social bonding
involves personalisation and customisation of the relationship, for example,
communicating with customers regularly through multiple means,
referring to customers by name during transactions, providing continuity of
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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  29

service through the same representative and augmenting the core service
with educational or entertainment activities such as seminars or parties
(Berry, 1995). Although social bonding is not a substitute for having a
strong, up-to-date core service (Crosby & Stephan, 1987), it can build the
customer loyalty when competitive differences are almost similar.

(c) Third Level: Structural Bonds or Independent Partnership


At the third level of relationship marketing, relationships are transformed
into structural changes that ensure buyers and sellers become true business
partners. As buyers and sellers work more closely together, they develop an
interdependency that continues to grow over time (Boone & Kurtz, 2006).

A strong foundation for maintaining and enhancing relationships is built


when the relationship marketer „offers target customer value-adding
benefits that are difficult or expensive for business to provide and that are
not readily available elsewhere‰ (Berry, 1995). However, level three of
relationship marketing is more suitable for business-to-business
relationships since it requires huge investments. See Table 2.3 for the
examples of the three levels of relationship marketing.

Table 2.3: Example of the Three Levels of Relationship Marketing

Level Description
Level One The firm uses pricing incentives to encourage customers to continue
doing business with it. Frequent flyer programmes are an example of
Level One relationship marketing. This level of relationship
marketing is the least effective in the long term because its price-
based advantage is easily imitated by other firms.
Level Two The customers receive emotional rewards such as easy recognition
and greeting on special dates. Poh Kong, a jewellery company, gives
away birthday cards and also discount coupons for customers to
redeem on their birthdays.
Level Maths Clinic, a famous tuition centre in Klang Valley offers not only
Three a reasonable price for its students but also provides them with
transportation services and also a free motivational session.
Marketing programmes like this give the organisation the strongest
potential for sustaining long-term relationships and attracting more
customers.

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30  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

ACTIVITY 2.1

Identify the levels of relationship marketing and how they affect the
business flow.

2.5 BENEFITS OF RELATIONSHIP MARKETING


Most businesses spend more money acquiring new customers than keeping the
existing customers. This is actually a big mistake because of the following
reasons:

(a) It typically costs five times as much to acquire new customers than to retain
a current one (Peppers & Rogers, 1993). Therefore, the firmÊs effort in
acquiring and keeping customers must be distributed accordingly.

(b) It is proven that if a company retains just 5 per cent more of its customers,
profits will increase by 25 to 125 per cent. This is because loyal customers
are less likely to switch and make more purchases than non-loyal customer
(Reichheld, 1996). This is a strong case that supports organisations that
develop and use customer retention strategies to retain current customers.

(c) It is more effective to retain a customer than to acquire a new one; it is


easier and less costly to sell more products to one regular customer than to
sell the same amount to two new customers. In other words, it is easier to
persuade the existing customer than to persuade new customers. This is
due to the reason that current customers are normally more confident
towards the firms compared to new customers.

(d) Happy customers make recommendation about stores, products or services


to their friends. Word-of-mouth communication among customers has been
at the heart of relationship marketing. One research reported that each
satisfied customer tells nine or ten people about their happy experiences
and 13 per cent of dissatisfied customers tell more than twenty people
about how bad the company or products were (Sonnenberg, 1993).

(e) It is also believed that relationship marketing is beneficial to firms because


it can foster customer loyalty and repatronage behaviour. Because of
psychological comfort of purchasing from a similar company, customers
who are engaged in relational exchanges are more satisfied compared to
those in discrete transactions. Priluck (2003) has proven that relationship
marketing can also mitigate product or service failures. The good

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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  31

relationship that the firm has with the customers makes them to be more
forgiving of the firmsÊ small mistakes or failures.

Type of Benefits
Now, we will discuss the types of relational benefits as introduced to you in
Figure 2.1.

(a) Confidence Benefits


The confidence benefits refer to perception of reduced anxiety and
increased comfort in knowing what to expect from service encounters
(Gwinner et al., 1998).

Customers that perceive high confidence benefits are likely to have a


feeling of security and comfort in developing a relationship (Gwinner et al.,
1998), thus reducing anxiety and increasing confidence in the service
providerÊs ability to deliver on its promises.

The confidence benefits are shown in Figure 2.3 (Hennig-Thurau et al., 2002).

Figure 2.3: The confidence benefits

(b) Social Benefits


Gwinner et al. (1998) define social benefits as the benefits customers receive
from the emotional aspects of relationships such as personal recognition,
familiarity and friendships. Social benefits refer to the benefits received
from actual relationships with service firms.

As customer-employee interactions are central to the customerÊs quality


perception in many services (Reynolds & Beatty, 1999), it is understandable
that social benefits are an important consideration to the customer-provider
relationship.

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32  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

The social benefits are shown in Figure 2.4 (Bitner, 1995).

Figure 2.4: The social benefits

(c) Special Treatment Benefits


Special treatment benefits are the most tangible benefits customers receive
from service firms. Special treatment benefits pertain to benefits such as
price breaks, faster service or individual service for customers with an
established relationship (Gwinner et al., 1998).

For example, special treatment benefits may take the form of customisation
such as tailored service. Customers forego relationships with other service
providers with the expectation of receiving special treatment when needed
(Gwinner et al., 1998).

The customers also feel compelled to reciprocate, which fosters relationship


commitment. In other words, customers with perceived special treatment
benefits from a firm experience the feel good emotions and/or raised their
cognitive switching barriers and are ultimately more committed to the firm
(Gwinner et al., 1998).

ACTIVITY 2.2

What benefits does relationship marketing provide to the customer?


Discuss.

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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  33

2.6 DISADVANTAGES OF RELATIONSHIP


MARKETING
There are five possible disadvantages of engaging in relationship marketing,
which are explained in Table 2.4.

Table 2.4: Five Disadvantages of Engaging in Relationship Marketing

Disadvantages Description
Loss of control Developing a relationship inevitably results in some loss of
control over matters such as resources, activities and
intentions.
Indeterminateness A relationship is subject to continuous change with an
uncertain future which is in part determined by its history but
also by current events and the partiesÊ expectations of future
events.
Resource Effort is required to build and maintain a relationship which
demanding can be viewed as an investment and a maintenance cost.
Preclusion from There is always a need to prioritise the use of limited resources;
other opportunities hence, it may not be possible to pursue all of the individually
attractive opportunities. Additionally, some relationships may
be irreconcilable with an existing relationship.
Unexpected Given that the two parties in a relationship will also have other
demands relationships, establishing a relationship means being linked if
only passively into a network of relationship. Such linkage or
membership of a network may bring with it obligations or
expectations by others of specific behaviours.

 Relationship marketing can increase the market share by attracting more new
customers, doing more business with existing customers and reducing the
loss of customers.

 Relationship marketing allows for customisation that results in increasing the


customerÊs commitment and better satisfying their needs and wants.

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34  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

 There are three types of relational benefits, which are as follows:


– Confidence benefits;
– Social benefits; and
– Special treatment benefits.

 Transactional marketing concentrates on getting new customers while


relationship marketing works on building long-lasting relationships within
the organisation and with potential customers to have new prospects.

 The characteristic of relationship marketing is based on the length, depth and


breadth of the time.

 The following are the three stages in relationship continuum:


– Financial stage;
– Social interactions stage; and
– Interdependent partnership stage. s

 There are three levels of relationship marketing, which are as follows:


– First level: Financial bonds;
– Second level: Social bonds or interaction; and
– Third level: Structural bonds or independent partnership.

 The following are the five disadvantages in relationship marketing:


– Loss of control;
– Indeterminateness;
– Resource demanding;
– Preclusion from other opportunities; and
– Unexpected demands.

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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  35

Characteristic of relationship Relationship continuum


marketing
Social benefits
Confidence benefits
Special treatment benefits
Level of marketing
Transactional marketing
Relational benefits

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36  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING

Crosby, L. A., & Stephens, N. (1987). Effects of relationship marketing and


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paradigm shift in marketing. Management Decision, 32(2), 4-20.

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Henard, D. H., & Szymanski, D. M. (2001). Why some products are more
successful than others. Journal of Marketing Research, 36(3), 362-75.

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in a marketing channel. Journal of Marketing Research, 21(3), 278-89.

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TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  37

Kotler, P. (2000). Marketing managements: Millenium eds. New Jersey, NJ:


Prentice Hall.

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121-34.

Copyright © Open University Malaysia (OUM)


Topic  Drivers of
3 Relationship
Marketing
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Identify the factors of customer satisfaction;
2. Explain the importance of relationship quality;
3. Describe the values that customers look for;
4. Describe the principle of loyalty; and
5. Discuss the importance of commitment and trust.

 INTRODUCTION
The driver of relationship marketing plays a very important role in a successful
business strategy. It covers customer satisfaction, loyalty, trust and commitment
to ensure the successful of oneÊs business.

Satisfaction, trust and commitment are three essential aspects of a relationship


(Wulf, Odekerken-Schröder, & Iacobucci, 2001). Sometimes, dissatisfied
customers might move away if they believe they can get better value,
convenience or quality elsewhere (Egan, 2000). Satisfaction is only a proxy for
loyalty (Bennett & Rundle-Thiele, 2004) but it is still an important factor
(Grönroos, 2000). Satisfaction is also needed to generate customer loyalty, trust
and commitment.

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  39

ACTIVITY 3.1

How do factors of trust, satisfaction and loyalty influence each other?


Discuss.

3.1 SATISFACTION
Before we begin, do you know what satisfaction is?

Let us proceed with the discussion on the definition of customer satisfaction.


Customers describe satisfaction in many ways. They can achieve satisfaction
through the high value of the customer service, the value on the availability of
the grocery items, the speed of internet or even the size and design of the latest
fashion that suits them. According to Oliver (2010), satisfaction can best be
described as the customerÊs fulfilment response, where the judgement of a
product or service feature or the product or service itself, provided (or is
providing) a pleasurable level of consumption-related fulfilment, including levels
of under- or overfulfilment.

Each and everyone in the service industries include retailing needs to focus on
the customerÊs satisfaction as it is a very prominent investment for the
organisation. Satisfaction also needs to be achieved in order to be staying in
business. This can be done by gathering the information from the customers,
communicating with the staff within the organisation and through a marketing
survey.

3.1.1 Know Your Customer


A customer is a person who buys a product or obtains the service from an
organisation. He or she can be categorised as either an internal or external
customer. The idea of internal customers suggests that each and every employee
is both supplier and also customer to other employees within the organisation,
who establish a good working relationship in order to provide product or service
of good quality to the external customers. Table 3.1 explains the focal group of
internal customer and the types involved.

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40  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

Table 3.1: The Types of Focal Group and Internal Customer

Type of Focal Group Type of Internal Customer


PrincipalÊs office Teachers, clerks and parents.
Cafe Management, cooks, waiters and cashiers.
Attorney in law Secretaries, law clerks and accounting.
firms
Sports complex Senior management, accounting, maintenance, publicity and
grounds.

Source: Gilbert (2004)

External customers are people who we address as „customers‰. They are called
as „external customers‰ because they are not involved in producing the products
or giving the services, they are merely the people who enjoy using them. They
bring in all the gross revenues that keep the companies going.

3.1.2 Why is Customer Satisfaction Important to the


Organisation?
Obtaining both the internal and external customer satisfaction may bring many
benefits for the organisation. Customer satisfaction is important as it is the key
indicator of future customer behaviour. Furthermore, it will project the future of
company performance.

The satisfaction of internal customers such as the workers of the organisation is


vital to the organisation. The organisation is responsible to gain internal
customer satisfaction by increasing employeesÊ commitment, resulting in
increased job satisfaction and performance. This in turn will bring down staff
turnover. Satisfied workers will ensure the best quality of product or service be
delivered to the external customers. Table 3.2 describes the satisfaction factors
and the elements in a supermarket.

Table 3.2: Satisfaction Factors and the Elements (Specific Attributes) in a Supermarket

Satisfaction Factors Elements (Specific Attributes)


Customer service  Friendliness of cashier
 Service provided
 Speed of service
 Overall store service
 Accuracy of scanning prices at checkout counter
 Cleanliness of parking lot

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  41

Quality  Variety in produce department


 Quality in produce department
 Overall cleanliness inside the store
 Variety of fresh meat item
 Quality of fresh meat item
 Availability of everyday grocery items
Value  Overall value for the customer money
 Overall prices as compared to competition
 Prices of loyalty card specials
 Availability of loyalty cards special
 Variety of advertised loyalty cards items

Source: Gomez, McLaughlin & Wittink (2004)

ACTIVITY 3.2

Explain how firms can enhance customer satisfaction and how this is
measured.

3.2 RELATIONSHIP QUALITY


Relationship quality is defined as an overall assessment of the strength of a
relationship and the extent to which it meets the needs and expectations of the
parties based on a history of successful or unsuccessful encounters or events
(Smith, 1998).

According to Little and Marandi (2003), the five dimensions shown in Figure 3.1
seem best supported by the research finding on the relationship quality

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42  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

Figure 3.1: Dimensions of relationship quality


Source: Little & Marandi (2003)

3.3 CUSTOMER VALUE


Customer values are the advantages and benefits that a customer gains from a
product or service before and after making a purchase. Customer value also
means to have a continuous business relationship which outperforms customer
expectation. The value that has been set up by the companies will differentiate
themselves from their competitors.

The companies need to understand the area that will help them to increase the
value of their product or service in order to fulfil the current market. The
following are few strategies to guide the organisations to provide a better quality
product or service to the customer:
(a) Understand the demands of the customer;
(b) Identify the customer segments;
(c) Improve the quality of service and products;
(d) Strengthen the communication between the organisation and customers;
(e) Build the customer loyalty; and
(f) Develop strong customer relationship.

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  43

3.3.1 What are the "Values" that Customers Look


for?
There are a lot of factors which influence a customerÊs decision to buy a product.
Certain values are very important in order to satisfy their needs and wants.

Research shows that the factors in Table 3.3 collectively influence a consumerÊs
decision to buy a durable product like a microwave and hence may be termed as
„values‰ that a customer looks for (Saxena, 2009).

Table 3.3: Factors Influencing a ConsumerÊs Decision to Buy Products for Value

Factors Description Example


Personal The demographics and lifestyle of A student may buy a simple
the customer are personal factors microwave oven to heat up food,
that influence the customer to buy while a housewife may need a
a product. microwave oven that can cook food
in a shorter time.
Esteem One of the significant factors in the Luxury products or premium priced
purchase of a product or service is products are often bought to enhance
its status value. the status of the buyer.
Utility Different target markets attach Younger customers may perceive
different utility values for the same staying in continuous contact with
product. friends as the major purpose of
purchasing a mobile phone, whereas
senior customers may perceive a
mobile phoneÊs primary utility as a
means of communication only during
an emergency.
Social The customersÊ social needs A good neighbourhood or
sometimes drive them to buy the community is an important social
product when the primary value a value in the purchase of an apartment
product serves is social value. or a house.
Price Important value in the purchase of Moderate prices and product quality
a product is reflected by its price draw customers to a big bazaar,
tag. while the value of exclusivity
attached to premium priced products
draws customers to designer
showrooms.
Emotional The customersÊ mental or When using a smartphone, the
psychological needs towards customers can send interesting
products or services. pictures or jokes.

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44  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

3.3.2 Customer’s Value Chain


The customerÊs value chain (CVC) has been described as a customerÊs activity
cycle, relationship management chain and as a constellation of values which the
customer buys. It involves taking care of the following elements shown in
Figure 3.2.

Figure 3.2: CustomerÊs value chain


Source: Saxena (2009)

3.3.3 Process of Relationship Development


Since relationship marketing calls for developing, maintaining and enhancing
relationship between a marketer and his customers, therefore the relationship
development process involves a few stages as depicted in Figure 3.3.

Figure 3.3: Stages in relationship development


Source: Dwyer, Schurr & Oh (1987)

Now, let us discuss the stages in a relationship development one by one.

(a) Awareness Stage


Customer identifies which product or service suits his or her needs.

(b) Exploration Stage


The customer explores the possibility of testing and initiates trial purchases.
In this stage, both parties show some commitment to build a successful
relationship by initiating communication. The communication which takes
place will be used as medium of conveying the issues, wants, needs and
priority needs; whilst the effort in showing commitment might provide the

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  45

momentum to bring the relationship to the next level. It is also initiating the
acceptance of the parties to establish a stronger bond between them
(Musadiq, 2008).

(c) Expansion Stage


This stage helps the parties to understand each other through extended
interaction. It provides an opportunity to an organisation, not only to
understand the customer needs and expectation better, but also to identify
the means and ways to meet the growing demands. The expansion stage
calls for more commitment and effort of the parties for a long-term
relationship (Musadiq, 2008).

(d) Commitment Stage


Both parties feel a sense of responsibility to help each other in attaining
their goals from the relationship. This stage in fact reveals not only the
contribution of each party to a relationship, but also the degree of effort
they have put in to encourage future interactions (Musadiq, 2008).

(e) Dissolution Stage


The possibility of disengaging of the parties from the relationship is
considered a normal phenomenon. The dissolution of the relationship
occurs if the desired outcomes discussed for each stage are not attained by
the parties. The scenario happens if there is a loss of commitment in the
relationship by any party due to their own reasons (Musadiq, 2008).

3.4 LOYALTY
According to Oliver (1999), customer loyalty is defined as a buyerÊs deeply held
commitment to stick to a product, service, brand or organisation consistently in
the future, despite new situations or competitive overtures to induce the
switching process.

Getting the customers to return is the most crucial part in every business. No
business can achieve success by continually dealing with new customers. Repeat
customers are the source of profit that allows a business to grow and prosper.
Figure 3.4 provides some examples of statements indicating customer loyalty.

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46  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

Figure 3.4: Statements indicating customer loyalty

3.4.1 Principles of Customer Loyalty


The customers should be happy and feel satisfied with the transaction,
relationship, products or services of a company in order for them to become loyal
customers. Customer loyalty generates income.

The five principles that create customer loyalty are shown in Figure 3.5.

Figure 3.5: Principles of customer loyalty


Source: Lawfer (2004)

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  47

Let us discuss the principles of customer loyalty one by one.

(a) People do business with other people


It is important to know that customers share the mutual feeling of doing
business with people that they like and with those who like them. In order
to become the customerÊs choice, we need to take the following steps listed
in Figure 3.6.

Figure 3.6: Steps to become the customerÊs choice

(b) Differentiation
A customerÊs selection from different products or suppliers is based on the
differentiators. The differentiators can highlight the unique features of
some products. Other attributes such as the payment terms, the service
given and the function of products can create a level of difference. This can
attract customersÊ attention, making the product the preferred one.

(c) Value and assurance


The value of the product or service is providing the true benefits to the
customer such as the extended warranties, better prices and better service.
Besides adding value, customers should also be given the assurance of
quality. The only incentive the customers receive from purchasing on a
repeat basis is the assurance that they will consistently receive products
with good value.

(d) Effective communication


Communication is the largest single factor that determines the relationship
between you and your customers. This includes simple acts like greeting
customers with a smile or sending greeting cards on their birthdays and
special occasions.
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48  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

(e) Focus
In order to get the loyal customers and achieve the customer retention, we
need to focus on the customer wants and needs. The customer satisfaction
survey or the customer loyalty programmes will help companies to get to
know the customers better.

ACTIVITY 3.3

What can you interpret from these words?

Source: Brooks (2010)

3.4.2 Benefits of Customer Loyalty


The benefits of loyal customers are similar for every business (see Figure 3.7).

Figure 3.7: Benefits of loyal customer


Source: Lawfer (2004)

According to Zins (2001), behavioural, attitudinal and composite measurements


have generally been accepted as measurements of loyalty. Let us look at the
following descriptions of the measurements of loyalty.
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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  49

(a) Behavioural measurements


Behavioural measurements primarily focused on the customerÊs purchase
history recency, frequency and monetary value.

(b) Attitudinal measurements


Attitudinal measurements have the elements that underlie the purchasing
motives and future actions where it will reflect the emotional and the
psychological attachment inherent in loyalty.

(c) Composite measurements


Composite measurements are a combination of behavioural and attitudinal
measurements.

ACTIVITY 3.4
One of the leading software companies is thinking of designing a
customer loyalty programme based on the coupon redemption. Design
a programme for the company.

3.5 COMMITMENT AND TRUST


In this subtopic, we will discuss further on commitment and trust.

3.5.1 Commitment
Do you know the meaning of commitment? Do you think Figure 3.8 depicts
commitment correctly?

Figure 3.8: A cartoon sketch on commitment


Source: https://icscicomm.wordpress.com/2014/03/27/the-science-of-love/

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50  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

Now, we will discuss the definition of commitment.

„Commitment is an enduring desire to maintain a valued relationship‰.


Morgan & Hunt (1994)

Commitment involves loyalty, dependability and stability in a relationship.


Commitment is also considered to be an important element in a successful
relationship marketing practice (Morgan & Hunt, 1994). Commitment is typically
associated with notions of solidarity and cohesion. Organisations that engender
commitment in their employees exhibit lower levels of employee turnover (John
& Natalie, 1991).

Three distinct components of commitment are shown in Figure 3.9.

Figure 3.9: Components of commitment


Source: Bansal, Irving & Taylor (2004)

3.5.2 Trust
In your opinion, what is the meaning of trust in relationship marketing? Do you
think Figure 3.10 illustrates trust accurately?

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  51

Figure 3.10: A cartoon sketch on trust


Source: www.geogle.com

Now, we will discuss the definition of trust.

„Trust exists when one party has confidence in an exchange partnerÊs


reliability and integrity‰.
Morgan & Hunt (1994)

Trust is one of the significant factors in determining a successful relationship.


Trust shows that the customers believe more in the organisationÊs capability in
meeting their demands and expectation as compared to the competitors.
Therefore, the organisation must fill in the market offering and fulfil the
promises made to the customer.

How to achieve trust?


A companyÊs strategy must communicate effectively, adopt the customerÊs
relationship norms and avoid negative reputation.

According to Dalrymple and Cron (as cited in Musadiq, 2008), there are a few
attributes associated with achieving customerÊs trust by an organisation (see
Figure 3.11).

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52  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

Figure 3.11: Attributes to achieve trust


Source: Morgan & Hunt (1994)

Meanwhile, Figure 3.12 illustrates the model of commitment and trust.

Figure 3.12: Model of commitment and trust


Source: Morgan & Hunt (1994)

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  53

 Customer satisfaction is always related to the good experiences of using the


products or services. It also reflects the customerÊs level of positive feeling for
a service provider or the manufacturer of the product.

 Trust can be seen as a considerably significant factor in building and


maintaining relationship.

 The element of trust helps the organisation to sustain its customers who
consume its products or services.

 The customerÊs purchase is always influenced by different values such as


functional, social and emotional values.

 The sequence of gaining loyalty starts from the customersÊ increasing


revenue, reducing the acquirement cost and lowering the costs of securing
repeat purchasers.

 Organisations that have workers with high commitment towards their job
will have fewer problems in handling human resource turnover. Customers
who have strong commitment to certain products or services would always
be good buyers and loyal customers.

Commitment Relationship marketing


Communication Satisfaction
CustomerÊs value chain Trust
Loyalty Value and assurance

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54  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING

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TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  55

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loyalty. Franklin Lakes, NJ: Career Press.

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: Thomson Learning.

Manzie, R. L. (2004). Why customers come back: How to create lasting customer
loyalty. New Jersey, NJ: The Career Press.

Morgan, R. M, & Hunt, S. D. (1994). The commitment-trust theory of relationship


marketing. Journal of Marketing, 58(3), 20-38.

Musadiq, A. S. (2008). Strategic marketing: Making decisions for strategic


advantage. New Delhi, India: Prentice-Hall.

Oliver, R. L. (1997). Satisfaction: A behavioral perspective on the customer. New


York. NY: McGraw-Hill.

Oliver, R. L. (1999). Whence consumer loyalty? Journal of Marketing, 63, 33-44.

Oliver, R. L. (2010). Satisfaction: A behavioral perspective on the consumer (2nd


ed.). New York, NY: M.E. Sharpe.

Saxena, R. (2009). Marketing management. New Delhi, India: Tata McGraw-Hill.

Smith, J. B. (1998). Buyer-seller relationships: Similarity, relationship


management and quality. Psychology & Marketing, 15(1) 3-21.

Wulf, K. D., Odekerken-Schröder, G., & Iacobucci, D. (2001). Investments in


consumer relationships: A cross-country and cross-industry exploration.
Journal of Marketing, 65(4), 33-50.

Zins, H. A. (2001). Relative attitudes and commitment in customer loyalty


models. International Journal of Service Industry Management, 12(3),
269-294.

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Topic  Planning a
4 Relationship
Marketing
Programme
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the process of marketing planning;
2. Review situational analysis;
3. Assess relationship strength;
4. Analyse customers' potential;
5. Distinguish between internal and external audit; and
6. Discuss the objectives of relationship marketing planning.

 INTRODUCTION
In order to develop a successful relationship marketing programme, a good and
sensible way of managing the programme is required. This process can be
defined as marketing planning, which is the planned application of marketing
resources to achieve the marketing objectives. In other words, a marketing plan is
a logical sequence and a series of activities leading to the setting of marketing
objectives and the formulation of action plans to achieve them.

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TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME  57

4.1 THE RELATIONSHIP MARKETING PLAN


In this subtopic, we will discuss the steps involved in a relationship marketing
planning process.

4.1.1 Marketing Planning


What is planning?
The company needs to define the objectives before it develops the marketing
plan. Planning is a continuous process that includes identifying objectives and
determining the actions through which the firm can attain those objectives.

Planning is classified on the basis of the companyÊs scope and breadth. Some
plans focus on long-range organisational objectives that will significantly affect
the firm for five or more years. Other marketing objectives of individual business
units are planned for shorter periods. Figure 4.1 explains two types of marketing
planning.

Figure 4.1: Two types of marketing planning

It is necessary to position the marketing planning firmly within the context of


strategic planning. The important factors in making strategic decisions are shown
in Figure 4.2.

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58  TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME

Figure 4.2: Factors in strategic decisions

SELF-CHECK 4.1

In your own words, define marketing plan.

4.1.2 Steps in the Marketing Planning Process


The marketing planning process begins from the corporate level with the
definition of a firmÊs mission. It then determines its objectives, assesses its
resources and evaluates the environmental risk and opportunities. Figure 4.3
shows the basic steps in the process.

Figure 4.3: The marketing planning process

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TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME  59

ACTIVITY 4.1

1. Distinguish between strategic planning and tactical planning.


2. Identify the marketing planning process and the importance of
each step.

4.2 SITUATIONAL ANALYSIS


Before a company decides on the marketing objectives, it needs to know the
positioning of the business and the situation in the marketplace. Situational
analysis is a process which helps the company to assess the marketplace (see
Figure 4.4).

Figure 4.4: The situational analysis process

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60  TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME

4.2.1 Content of the Situation Analysis


Situation analysis is involved in analysis of the organisation and its environment. A
comprehensive analysis commonly involves the following elements (see Table 4.1).

Table 4.1: Elements in Situation Analysis

Elements Description
Strengths Identify the strong points of your products, brand image and
marketing programmes so that you know what to develop in your
plan.
Weaknesses Identify the areas in which your products, brand image and
marketing programmes are relatively weak.

Opportunities Your situation analysis needs to look for opportunities, such as new
growth market you can participate in or an exciting new way to reach
out to prospective customers.
Threats A threat is an external trend or change that can reduce your sales or
profits or makes it harder for you to achieve your growth goals.
Common threats include new technologies that create new
competitors, large competitors that can outspend you, and economic
or demographic shifts that cut into the size or growth rate of your
customer base. Your plan needs to respond to these threats effectively.

Refer to Table 4.2 for an explanation of the typical marketing challenges and
opportunities.

Table 4.2: Typical Marketing Challenges and Opportunities

Common Threats Common Opportunities


New, tough competitors New products
Economic problems or trends New ways to promote or sell
Ageing or loss of a customer base New types of customers to pursue

Source: Alexender (2000)

ACTIVITY 4.2

Select any existing firm and do an analysis on the company. Based on


your research, create a SWOT analysis of the firm. Outline your own
ideas for increasing the firmÊs strengths and reducing its weaknesses.

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4.2.2 Information Obtained from the Situational


Analysis
There are six major marketing factors which control the sales and profits of a
company. These are shown in Figure 4.5.

Figure 4.5: Six major marketing factors

Now, we will discuss the marketing factors one by one.

(a) The product


The product is divided into the following:

(i) Informal tests of the product in use


The most important thing in analysing the product is to obtain
samples of the entire line and become thoroughly familiar with them
from the point of a prospective buyer. They potential buyer may want
to assess the features such as quality, price, style and convenience of
the product.

(ii) Technical tests


These tests are about becoming familiar with the advantages and
disadvantages of the product itself. The tests indicate the efficiency of
the product in doing its job, as well as showing its hidden merits and
weaknesses or limitations.

(iii) The package


The important aspects of packaging are:
 The convenience of the size and shape;
 The identification and recall purposes; and
 The product preservation through transportation, storage and
handling in the dealerÊs store.
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(iv) History of the product


All available information regarding the history of the product should
be studied by an analyst. Knowledge of the general development of
the business of inventions and patents involved and of the personality
of the organisation is important.

(v) Specific uses of the product


Most products are designed for one particular use but it is frequently
found that new uses may be discovered to the advantage of the
product manufacturer.

(b) The company, industry and competition


The following are the explanation for the company, industry and
competition factor:

(i) General history of the industry


In studying the company pertaining to its relation to the industry and
its competition, one becomes thoroughly familiar with all phases of
the industries in which the company is involved. An example is that
of the meat-packing industry. The operations of individual packers
are standardised by the general practices of the trade.

(ii) Competitive products


The selling points of each competitor should be determined and
comparisons of competitive products made with those of the
company for which the analysis is being undertaken. This is necessary
to determine the principle advantages and disadvantages of the
product over its competition as well as to find possible opportunities
for product improvement.

(c) The market


Factors in the market are as follows:

(i) Influence of demographic


This includes all information which may give a clue to the influence of
factors such as gender, income and occupational status – on the
purchase and use of the product.

(ii) Basic psychological, social and economic factors


Basic psychological, social and economic factors relating to the
purchase and use of the product should be given careful
consideration. The degree to which the purchase is emotional or
rational is often important. Changes in habits, attitudes and customs

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which affect the position of the product in the social structure should
be taken into consideration as well.

(d) Channels of distribution


Channels of distribution are the paths along which the products move from
manufacturers to the customers. There are a few channels of distribution
which include wholesale distribution, retail distribution and many more.

(e) Sales organisation – General structure of the sales organisation


The analysis of the sales organisation is done to obtain a clear picture of the
structure of the sales division. This includes an analysis of the number and
types of salesmen, their geographic distribution and the form of sales
supervision in the central office HQ and in district or branch offices.

(f) Advertising and sales promotion


Advertising and sales promotion involves the following:

(i) Advertising by competitors


The competitorsÊ advertisements should be thoroughly studied to
understand their strategies. In addition to obtaining copies of the
published advertisement, it is possible to determine the breakdown of
a competitorÊs advertising expenditures in different types of media
across geographic areas and individual markets through various
services.

(ii) Special sales promotions


An analyst should study all special consumer merchandising methods
which have been employed and should become thoroughly familiar
with the records of the results of each effort where ever possible.
Among the more common strategies are:
 Samples;
 Booklets, premiums and gift offers;
 Contests; and
 Special devices such as one-cent sales and trade-in deals.

ACTIVITY 4.3

What are the benefits of carrying out a situational analysis? Discuss.

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4.3 ASSESSING RELATIONSHIP STRENGTH


In this subtopic, we will discuss further the definition and measurement of
relationship strength.

4.3.1 Definition of Relationship Strength


The following is the definition of relationship strength.

„Both the economic ties and the social bonding of partners: believe in the
spirit of cooperation and trust and actions taken indicate the strength of the
relationship.‰
Donaldson & OÊToole (2000)

4.3.2 Measuring Relationship Strength


There are a few factors which are commonly associated with strong relationships.
These are the criteria for assessing relationship strength (see Table 4.3).

Table 4.3: The Criteria for Assessing Relationship Strength

Criteria Description
Economic  The most easily applied measure of relationship strength.
content  A supplier must measure the share of turnover of its customers to
or profits arising from a particular customer.
Interactions  The amount of contact between customer and supplier.
Loyalty, trust  These important tools are required in retaining a customer.
and  Inferences can be made by monitoring customersÊ buying patterns,
commitment complaints information and various other factors.
Alignment  The supplier and the customer share similarities in appearance,
lifestyle, culture, value and goods.
Relationship  Care should be taken to interpret the significance of any past
history conflicts in the context of the relationship conditions at the time.
 Relationship duration is also associated with relationship strength
– the longer the relationship, the stronger it is likely to be.

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SELF-CHECK 4.2
Explain the criteria for assessing relationship strength.

4.4 ASSESSING CUSTOMERS POTENTIAL


In this subtopic we will be assessing a customerÊs potential. We will look into the
definition of a potential customer, learning the market, identifying an attractive
customer and customerÊs buying behaviours.

4.4.1 Definition of Potential Customers


Potential customers are people who are not your customers yet, but they are
facing some problems that your products and services can solve. They are also
considered as your future customers and represent new revenue for the next year
and the years after that (Stull, Myers, & Scott, 2008).

You can also have broader levels of customers such as the following (Whitton, &
Hollingworth, 2002):
(a) Local, state or federal government departments or agencies;
(b) Advertising, marketing and human resource organisations;
(c) Small businesses, from health food stores to music stores;
(d) Larger companies such as insurance offices, banks and car manufacturers;
(e) Academic institutions, from schools to universities; and
(f) Clubs or associations related to sports, religion, culture or arts.

4.4.2 Identify Customers and Learn the Market


You can start by identifying prospective customers based on observations and also
through research such as your target customersÊ buying habits, your competitorÊs
current activities and important industrial trends (Pakroo, 2010).

Demographic profiles will also help to identify and define the target customersÊ
specific characteristics that you believe would most likely lead them to buy your
product or service. Common characteristics used to classify customers include
the following:
(a) Age;
(b) Gender;
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(c) Income level;


(d) Buying habits;
(e) Occupation or industry;
(f) Marital status;
(g) Family status (number of children);
(h) Geographic location;
(i) Ethnic group;
(j) Political affiliation or leanings; and
(k) Hobbies and interest.

Refer to Table 4.4 for explanations on research tools.

Table 4.4: Research Tools

Subject Question to Answer Methods


Customers  Who are your target  Primary research methods:
customers? – Surveys and questionnaires
 What products or services – Focus group
do they need or want?
– One-to-one interviews or
 Where and how do they inquiries of trusted contacts
buy these products or
 Secondary research methods:
services?
– Magazine or trade journal articles
 How much do they
typically pay for your type – Reports from previously
of products or service? conducted studies

Competition  What do they offer?  Primary sources (such as


 What do they charge? marketing materials and
websites)
 How do they provide the
products or services?  Trade shows
 Who are their customers?  Networking
 What is their competitive  Magazine or trade journal
edge? articles

Industry  What are the standard  Magazine or trade journal articles


practices?  Trade shows
 What are the latest trends?  Books
 What does the future hold?

Source: Pakroo (2010)

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4.4.3 What Makes a Customer Attractive?


The customer attractiveness may depend on his or her financial condition,
whether he/she is being introduced to the latest and innovative products, the
price of the products, the ease of services and many more. Pricing the products
and services may be the most important component. You need to get a feel of
what products and services are being offered and how much the customers are
willingly to pay for them.

The following are some relevant questions to guide you in identifying attractive
customers:
(a) What is the worth of your product or service to your prospective
customers?
(b) Have you targeted the right market for your products and services?
(c) Are you providing the right products and services to your target market?
(d) How much are your prospective customers willing to pay (price)?
(e) Is the price low, high or somewhere in between?

4.4.4 Customer’s Buying Behaviour


There are a few factors that drive a customerÊs behaviour (see Figure 4.6).

Figure 4.6: The factors that drive a customerÊs behaviour

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We can characterise each category of consumers by using six psychological traits


as explained in the following (Viardot, 2004):

(a) Innovators
Enjoy trying new products and are adventurous. They are the leading-edge
customers who are not afraid of the „bleeding edge‰ of any new product or
service.

(b) Forerunners
Forerunners often comprise respected opinion leaders who are more careful
than innovators. Forerunners are customers or business customers who are not
very price-sensitive. They are ready to pay a premium in order to be special.

(c) Mainstream users


This type of customers will purchase a product not because it is innovative
or different, but because it fulfils a need such as saving time or money.
They choose the product because it is more practical or reliable than the
existing solution.

(d) Followers
Labelled as „conservatives‰, this group goes along with the majority, but at
a much later time. They are under the influence of the incapacitating FUD
(Fear, Uncertainty and Doubt) factor.

(e) Traditionalists
This type of customers are considered as „sceptics‰ who do not buy a
product or service until it has become a part of tradition. They are very
often old customers and ancient companies who do not like change.

(f) Rebels
Rebels will always reject a product because of its very nature.

4.5 COMPANY AUDIT


This subtopic will explain further the definition of audit, the essential features of
auditing and the classification of audit.

4.5.1 The Origin of the Word "Audit"


The word „audit‰ is derived from the Latin word „audire‰ which means „to
hear‰. The origin of audit can be traced back to olden times but auditing as its
existing form was established only in the middle of the 19th century (Basu, 2009).

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4.5.2 Definition of Audit


In ancient times, business transactions were mainly performed in cash and the
work of auditing was limited to details of cash inflow and outflow. Different
experts have defined auditing in different ways.

The following are a few important definitions of auditing:

According to Philip Kotler:


„Marketing audit is a comprehensive, systematic, independent and periodic
examination of a companyÊs or a business unitÊs marketing environment,
objectives, strategies and activities with a view of determining problem
areas and opportunities and recommending a plan of action to improve the
companyÊs marketing performance.‰
Philip Kotler (as cited in Avasarikar & Chordiya, 2007)

According to Lawrence R. Dickee:


„An audit is an examination of accounting records undertaken with a view
to establishing whether they correctly and completely reflect the
transactions to which they relate. In some instances it may be necessary to
ascertain whether the transactions themselves are supported by authority.‰
Lawrence R. Dickee (as cited in Ravinder & Virender, 2007)

ACTIVITY 4.4
Auditing is a systematic examination of books and records of a business
or other organisation in order to ascertain or verify and to report upon
the facts regarding its financial operations and the results thereof.
Elaborate and explain the objectives of auditing.

4.5.3 The Essential Features of Auditing


The following are essential features of auditing:
(a) Audit is an instrument of accounting control. The truth and fairness of
accounting information is controlled and checked by auditing activities.
(b) Audit acts as a safeguard on behalf of proprietors against extravagance,
carelessness or fraud.
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70  TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME

(c) Audit assures on the proprietorÊs behalf that the accounts maintained truly
represent facts and that expenditure has been incurred with due regularity
and propriety.
(d) Audit assesses the adequacy of the accounting system in order to ascertain
its effectiveness in maintaining accounting records of an organisation.
(e) Audit carries out a review of financial statements to know whether the
accounting records are in agreement with those statements.
(f) Audit is a tool of reporting on financial statements as required by the terms
of the auditorÊs appointment and in compliance with the relevant statutory
obligations.

ACTIVITY 4.5
What benefits would the company get from employing an independent
auditor? Discuss.

4.5.4 Classification of Audit


The functions of auditors depend on the job scope of the auditor. Auditing can be
of the following types:

(a) External Auditor


External audit is conducted by an independent external auditor. This type
of audit is usually conducted to fulfil the requirements of the provision law.
The auditor who conducts such an audit is „independent‰ of the enterprise
under audit and is an independent professional who does not have any
relationship with the company, as this might adversely affect his ability to
form an objective judgement about the company.

The following are the features of an external audit:


(i) External audit is usually conducted by an independent qualified
auditor;
(ii) External audit is conducted periodically; and
(iii) This type of audit is conducted mainly to safeguard the interest of the
owners, shareholders and other parties who do not have knowledge
of day-to-day operations of the organisation.

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(b) Internal Audit


Internal audit is conducted by specially assigned staff within the
organisation. It is an audit through which a thorough examination of the
companyÊs system according to the procedures is conducted. It is
undertaken to verify the accuracy and authenticity of the records presented
to the management.

The following are the features of an internal audit:


(i) The internal audit system is considered to be part of the management
control system;
(ii) The scope of internal audit depends on the requirement of the
management;
(iii) The extent of checking also depends on the size and type of the
business organisation;
(iv) It embraces not only the operational audit of various operational
activities in the organisation but also includes the audit of
management itself;
(v) The function of internal audit can be considered as an integral part of
the internal control system;
(vi) Generally, the internal audit is conducted by the permanent staff of
the organisation; and
(vii) The existence of internal audit is helpful to the external auditor.

Table 4.5 will explain the differences between external audit and internal audit.

Table 4.5: The Differences between External Audit and Internal Audit

Differences External Audit Internal Audit


Nature It is conducted for reporting It is conducted with the purpose of
on the reliability and checking adherence to norms and
fairness of financial established procedures and
statements. protecting the assets of the
organisation.
Qualifications The external auditor must No specific qualification is required
possess specific to be possessed by the internal
qualifications as prescribed auditor.
by the respective statutes.
Scope of work This type of audit must be The scope of work of the internal
complete in all respects. Its audit is determined by the
scope cannot be curtailed in management.

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72  TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME

any way by the


management.
Purpose The objective of this type of The basic objective of internal audit
audit is to protect the is to improve performance,
interests of the owners and efficiency and profitability of the
other parties related to the enterprise.
enterprise.
Appointment of The external auditors are The internal auditor is appointed
auditor usually appointed by the by the management.
owners and in some cases by
the government.
Status The auditor is an outsider The internal auditor is an employee
and independent person. of the organisation. He/she is
He/she is not bound by any bound by the rules and regulations
rules and regulations of the of the organisation.
organisation.
Continuity The external audit may be The internal audit is continuous in
periodical or continuous in nature. It is carried out throughout
nature. the year.
Advice or Giving advice or The internal auditor may give
recommendation recommendation is not part advice to the management to take
of the external auditorÊs corrective measures against
duty. He/she will only irregularities in the organisationÊs
report on the financial accounts.
statement as prepared by the
management.

Source: Basu (2009)

4.6 RELATIONSHIP MARKETING PLANNING


OBJECTIVES
In this subtopic, we will discuss the definition of objectives and relationship
marketing planning objectives.

4.6.1 Definition of Objectives


A marketing objective is a statement of what is to be accomplished through
marketing activities. In order for the objective to be useful, the objectives should
meet several criteria as explained in Figure 4.7.

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TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME  73

Figure 4.7: Several criteria in stated objectives


Source: Lamb, Hair, & McDaniel (2010)

4.6.2 Relationship Marketing Planning Objectives


Objectives are the planÊs progress that are measureable and can serve a number
of key functions as explained in Table 4.6 (Little & Marandi, 2003).

Table 4.6: Key Functions in Planning Relationship Marketing Objectives

Key Functions Description


Motivation Objectives provide a goal to an organisation and its constituent
departments.
Monitoring Progress towards a given objective is the criterion by which the
success of an organisationÊs strategy can be judged.
Coordination Objectives ensure that all parts of a marketing organisation are
working together towards the same goal.
Communication Objectives are clear statements of what an organisation seeks to
achieve. Therefore, they communicate the strategic direction for the
whole organisation.
Control Objectives enable managers to control the activities of the
organisation. In some companies, corporate objectives are directly
linked to senior managersÊ appraisal targets and are used as a basis
for salary review.

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74  TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME

ACTIVITY 4.6

Discuss the importance of drawing up objectives for companies.

 The marketing planning process consists of situation analysis, objectives,


strategy and tactics and monitoring and control.

 The situation analysis covers the strength, weakness, opportunity and threat
analysis.

 The criteria of relationship strength are economic situations, interactions


between the customers and suppliers, loyalty and trust, alignment and
relationship history.

 Consumer behaviour is influenced by psychosocial, personal and


psychological factors.

 External audit is an assessment which must be conducted in a certain period


of time by a qualified, independent auditor from outside the organisation.

 The internal audit is a process of auditing conducted by the management


within the same organisation based on documented risk assessments.

 Developing the objectives of a company is very important in order to achieve


certain goals.

Audit Relationship strength


External audit Situational analysis
Internal audit Strategic planning
Potential customer Tactical planning
Relationship marketing plan

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TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME  75

Avasarikar, D. P., & Chordiya, S. B. (2007). Marketing research. Tamil Nadu,


India: Nirali Prakashan.

Basu, S. K. (2009). Fundamental of auditing. Upper Saddle River, NJ: Pearson


Education International.

Donaldson, B., & OÊToole, T. (2000). Classifying relationship structures:


Relationship strength in industrial market. Journal of Business and
Industrial Marketing, 15(7), 491-506.

Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2010). MKTG4: Student edition.
Mason, OH: South-Western Cengage Learning.

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: Thomson Learning.

Pakroo, P. (2010). Small business start-up kit for California. Valencia, CA: Delta
Printing Solutions.

Ravinder, K., & Virender, S. (2005). Auditing: Principles and practice. New Delhi,
India: Prentice-Hall of India.

Stull, C., Myers, P., & Scott, D. M. (2008). Tuned in: Uncover the extraordinary
opportunities that lead to business breakthroughs. Hoboken, NJ: John Wiley
& Sons.

Viardot, E. (2004). Successful marketing strategy for high-tech firms. Boston, MA:
Artech House.

Whitton, R., & Hollingworth, S. (2002). Mission possible: How to make money
from your writing. Altona, VIC: Common Ground.

Copyright © Open University Malaysia (OUM)


Topic  Implementing
5 Relationship
Marketing
Programmes:
Strategy,
Structure and
Systems
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Discuss the types of marketing strategies;
2. Describe the components that constitute a successful relationship;
and
3. Explain the components of the structure and the system in
implementing relationship marketing.

 INTRODUCTION
As Palmatier, Dant, Grewal and Evans (2006) asserts, in the progress from a
transactional programme to a relational paradigm, a big step has been taken by
the marketing academics and organisations in order to maintain the consumer
relationship to ensure the organisationÊs financial and long-term survival.

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TOPIC 5 IMPLEMENTING RELATIONSHIP MARKETING PROGRAMMES:  77
STRATEGY, STRUCTURE AND SYSTEMS

The key point of this relationship programme is that it takes place from mass
marketing (transactional marketing) which involves sending messages about a
standard product offering to an anonymous person to personalised marketing
(relational marketing) with messages and offerings tailored to a specific
individual (Shajahan, 2004).

5.1 STRATEGY: IMPLEMENTING RELATIONSHIP


MARKETING
The following is the definition of a strategy.

A strategy is a senior managementÊs plan of action with which the efforts of


the staff are coordinated and ensure a long-term relationship in business.

The following are the two types of strategies in implementing the relationship
marketing (RM):

(a) Strategy: Company-to-Company


According to David (2000), relationship marketing signals a strategic shift
in managerial thinking from extraction value from transactions, to
developing mutual value through relationships.

We may need hard work, resources and patience in order to face all new
acquaintances who long to be part of a new close relationship and network
(Mosad, 2002). Each phase of a relationship life cycle conceives a high level
of cooperative effort and differences in information, expectations,
experiences, needs, wishes, strategy requirements and consequences.

The phases of relationship development and the duration of each phase may
vary considerably depending on the involved partners, the nature of potential
relationship and the nature of values to be exchanged. Therefore, a good
strategy needs to be applied in order to develop a strong bond within the
companies. Companies must consider each relationship as part of a portfolio of
relationships and develop separate strategies and expectations (Mosad, 2002).

The following are the explanations for the various phases of the ZineldinÊs
relationship life cycle (ZLC).

(i) The Discovery Phase


During this phase, the companies identify their needs and willingness
to start a strategic relationship arrangement. If, in this phase, the

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parties discover that they fail to understand each otherÊs needs and
wants, and develop an appropriate offering or act in a manner
inconsistent with expectations, then, the next phase will probably not
occur (Mosad, 2002).

Since uncertainties are greater in the earlier phases, it is very


important to highlight the objectives of the business, its strengths and
the key strategic implications for marketers such as the following:
 To identify potential customers;
 To create interest in the company and its product/service
packages;
 To deliver a wide range of product/service package options;
 To talk and listen to customers or intermediaries;
 To precisely understand the customersÊ needs and wants and to
what extent these needs are being met, what do they use for their
needs at the present time; and
 To emphasise the most appealing features of a companyÊs
competence and product/service.

(ii) The Development Phase


According to Ellram (1991), the objective of the development stage is
to formulate a relationship and explore whether a mutually beneficial
relationship is possible. At this stage, the parties are becoming
familiar with each other and they are sure about the object-related
value. They will acquire some more knowledge of each otherÊs norms
and values as a result of the interaction (Mosad, 2002).

The key strategic implications and the effective mix elements in the
development phase are for marketers to function in the following
ways:
 To convince the customers that their requirements will be fulfilled
by the benefits of the product/service on offer;
 To identify future customer needs and wishes more efficiently and
effectively;
 To identify the level of satisfaction currently obtained by
customers;
 To monitor customer queries or complaints;
 To identify trends in attitudes to the company; and

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 To identify the current and future key clients by conducting a


customer analysis.

(iii) The Commitment Phase


Commitment refers to an implicit or explicit pledge of relational
continuity between exchange partners. At this phase, maintaining
product/service quality and performance are the most important
marketing tasks. The degree of customer loyalty and retention is
higher at this phase (Mosad, 2002).

Some key relationship mix elements and strategic implications for


sustained advantage are as follows:
 Adaptation, innovation and product/service attractiveness are
more important;
 Professional/individual contact is most important to „clientising‰
the relationships;
 Marketers should be more able to reduce deficiencies; and
 Marketers have better opportunity to talk to clients and to
understand how they view the company and its ability to solve
their problems and satisfy their specific needs and wishes.

(iv) The Loyalty Phase


The relationship is now a strong loyal relationship. Commitment,
experiences, expectations, flexibility, adaptations, capability and
ability of creating added value are very high. The main goal of this
phase is to maintain and stabilise the strategic business relationship
while each partner achieves the benefits of the close cooperation and
association (Mosad, 2002).

The loyal partners develop mechanisms-structure, processes and skills


for bridging organisational and interpersonal differences and
achieving real value from the strategic business relationship. These
mechanisms and processes ensure interdependence.

Some key strategic implications at this phase are as follows (Mosad,


2002):
 Loyal clients feel that they are receiving values/meanings and are
willing to pay premium price for the benefits of the
products/service offerings and the mutually beneficial
relationship;

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 The organisation is expected to use the latest IT tools to gather and


store data about every individual client;
 Trust, ethical values and mutual dependence increase rapidly as
the relationship gains strength;
 Flexibility and high ability of commitment and problem-solving
must always exist; and
 The ability to create new/additional value together is higher.

The phases of ZineldinÊs relationship life cycle are shown in Figure 5.1.

Figure 5.1: Phases of ZineldinÊs relationship life cycle (ZLC)


Source: Mosad (2002)

(b) Strategy: Company-to-Employee/Organisation (Staff)


According to Annekie and Adele (2008), internal marketing refers to the
relationship that develops between the employees of an organisation and
the organisation itself, in order to facilitate the implementation of a
customer relationship management (CRM) programme.

Most quality experts agree that a strong leadership by the senior management
is critical in developing and sustaining a quality-based culture in an
organisation. Good leadership and innovation will establish and communicate
the purpose, vision and goals of the organisation and determine core business
strategies with its workers (Shams-ur Rahman, 2002).

According to David (2000), this strategy is known as „happy staff equals to


happy customers‰. This staff climate/customer satisfaction link is also
emphasised by others. The staff are more committed when they believe that
they (as staff) are required to increase the customerÊs value (Ballantyne, 1997).

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„Staff satisfaction‰ becomes a possible indicator of the process of internal


marketing in action rather than its goal. Whatever strategies used, the goal
is to enhance the customer consciousness of employees or customer
perceived performance or more broadly, stakeholder value (David, 2000).

Research done by Audhesh, Charles and Fransisco (2011), relies on the


strategy frameworks suggested by Porter (1980), and Slater and Olson (2002)
to operationalise the notion of marketing strategy as shown in Figure 5.2.

Figure 5.2: Strategy frameworks suggested in operationalising the notion of marketing


strategy

According to Tony and Jonathan (2000), there are a few components involved in
the implementation of a successful relationship marketing strategy. The main
components of successful relationships are shown in Figure 5.3.

Figure 5.3: Components of successful relationships

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Now, let us discuss the components of successful relationships one by one.

(a) Commitment
Commitment can be described as follows:
(i) Is of central importance in developing relationships;
(ii) The strongest predictor of voluntary decisions to remain in the
relationship (Rusbult, 1983);
(iii) Influenced by social bonding, which is the degree of mutual personal
friendships and liking shared by partners who have strong personal
relationships. They are more committed to maintain the relationship
than less socially bonded partners; and
(iv) The greater the level of investment made by a manufacturer in a
relationship, the greater the increase in that manufacturer's
commitment to its relationship with its distributor.

(b) Trust
This component can be described as follows:
(i) The precondition for increased commitment.
(ii) As a generalised expectancy held by an individual that the word of
another can be relied upon.
(iii) Ali and Birley (1998) identified two types of trust:
 Characteristic-based trust because of who they are which pertains
only to individuals; and
 Process-based trust because of how they behave which refers to
the association between "trust and long-term relationships".
(iv) Established through interaction and combined with other external
factors such as word of mouth opinions and media reports about the
seller to form an overall perception of trust of the seller.

(c) Customer Orientation or Empathy


This component can be described as follows:
(i) It refers to the understanding or the ability to see a situation from
someone else's point of view although many use the term
synonymously with affinity and liking;
(ii) The greater the degree of empathy or "liking" between the parties
concerned, the fewer the barriers to relationship building; and

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(iii) "Liking" a particular individual (or group of people) gives a more


positive outlook towards that person.

(d) Experience or Satisfaction


The more satisfied the customer, the more durable the relationship
(Buchanan & Gillies, 1990).

(e) Communication
Communication can be described as follows:
(i) According to Schramm (1954), communication is a process of
establishing a commonness or oneness of thought between a sender
and a receiver; and
(ii) In the field of marketing communication, a new trend towards
integrating communication elements such as advertising, direct
marketing, sales promotion and public relations into a two-way
integrated marketing communications perspective emerges.

ACTIVITY 5.1
1. Explain the different types of strategies in relationship marketing.
2. How does the implementation of relationship marketing bring
good business benefit to the company? Discuss.

5.1.1 Tools in Relationship Marketing Strategy


Relationship marketing strategies are intentionally designed to gather
information to assist the organisation in identifying and retaining their best
practices and to optimise customer value and profitability (Christy, Stephanie,
Naveen, & Katherine, 2011). It is also best described as „the ongoing process of
engaging in cooperative and collaborative activities and programmes with
immediate and end-user customers to create or enhance mutual economic value
at reduced cost‰ (Parvatiyar & Sheth, 2000).

There are many tools in relationship marketing strategy used in such


programmes including those shown in Figure 5.4.

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Figure 5.4: Tools in relationship marketing strategy

Let us now look into the tools in relationship marketing strategy one by one.

(a) Loyalty card programmes


The main goal for loyalty card programmes is to build a long-term
relationship with customers. It also plays a role in attracting new
customers. Satisfied loyalty programme members increase their word-of-
mouth advertising because of the loyalty programmeÊs activities. Through
the programmeÊs benefits, the customers have something to talk about and
this will increase the number of contacts between the customers and the
manufacturers or dealer. The loyalty programme communication ensures
that the product has a higher profile in the membersÊ minds. Furthermore,
this may increase the number of times they refer to the product or
recommend it to their friends (Stephan, 2002).

Advantages of a Loyalty Programme


Apart from these, a customer loyalty programme can benefit an
organisation in different ways (see Figure 5.5).

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Figure 5.5: Benefits of a customer loyalty programme

(b) Company Credit Cards


Most banks offer credit card redemption rewards. For example, Maybank
BerhadÊs TreatsPoints reward programme allows consumers to experience
the flexibility and freedom of cash-free shopping. Through this programme,
the customers are able to shop by using the points that they have earned
when they use the card.

Citibank provides their customers with five reward categories that suit
their lifestyle: shopping, entertainment, driving, home and travel. Each time
they use their credit card for any of the five categories, the customer will be
rewarded with five times worth of points, bonus coupons upon renewal
and automatic protection for every purchase.

(c) Rebate Offers


Purchasing is made on a daily basis. The marketers increase price salience
and incentivise purchases by making coupons and rebate offers available to
consumers (Michael, Carol, Aimee, & Kimberly, 2009), where both
approaches have considerable appeal since they can be used to encourage
purchasing by the price sensitive customers and increase overall sales.

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ACTIVITY 5.2

1. State some of the advantages of a relationship marketing


programme.
2. In your opinion, what are the disadvantages of a relationship
marketing programme? Discuss.

5.1.2 Structure in Relationship Marketing


The following is the definition of structure in relationship marketing.

The structure in relationship marketing denotes the way in which resources


and responsibilities are allocated.

It is important to adapt the structure of the organisation to reflect the changes in


strategy. The structure that is developed within the organisation is one that needs
to support the strategy and much has been written concerning the strategy-
structure relationship as well as the nature and types of structures that can be
used.

The selection of an organisational structure under certain circumstances may


require necessary adjustments to be made to the strategy to increase its
effectiveness (Annekie & Adele, 2008). Various factors affect the selection of an
appropriate organisational structure. These factors can be divided into three
main categories as explained in Table 5.1.

Table 5.1: Three Main Categories of Factors Affecting the Selection of an Appropriate
Organisational Structure

Categories Description
Internal factors Refer to issues found within the organisation that can affect its
structure. These include the skill levels of the staff, the motivation and
leadership styles as well as the culture of the organisation.
External factors Refer to the environment of the area/city, region and country in which
the organisation operates as well as the international environment in
which it operates.
Market factors Refer to the competitors that can be identified in the environment, the
organisationÊs customers, the product (or service) complexity and the
technological changes that can be identified.

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5.1.3 Types of Organisational Structure Implemented


in Relationship Marketing
Consistent with the relationship marketing programme, the dimensions of an
organisational structure are as shown in Figure 5.6.

Figure 5.6: The dimensions of an organisational structure

Let us now discuss the dimensions of an organisational structure one by one.

(a) Centralisation
The definition of centralisation is to inverse the amount of delegation of
decision-making authority throughout an organisation and the extent of
participation by organisational members in decision-making (Jaworski &
Kohli, 1993).

Centralisation is one of the basic dimensions of organisational structure and


captures the extent to which decision-making is concentrated in the hands
of the few, often people at the top of the power hierarchy (Audhesh,
Francisco, & Charles, 2012).

(b) Formalisation
The definition of formalisation is the degree to which rules define roles,
authority, relations, communications, norms, sanctions and procedures
(Jaworski & Kohli, 1993).

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Firms high on formalisation seek to control behaviours and processes by


setting rules and standards. It provides control and guidelines to problem
solving and enhances organisational commitment by reducing role
ambiguity and conflict and enhancing transparency in the work
environment (Auh & Menguc, 2007).

(c) Participation
The definition of participation is the extent to which everyone in the
organisation is free to participate and be involved in the decision-making
process (Audhesh et al., 2012).

5.2 SYSTEM: IMPLEMENTING RELATIONSHIP


MARKETING
In this subtopic, we will discuss the system in implementing relationship
marketing. The following is the definition of a system.

A system is a mechanism, procedure and process by which tasks are


completed.

5.2.1 Decision-support System (DSS): System in


Relationship Marketing
The advancement in computer technology and computer-based techniques for
handling information allows for the development of a decision-support system
(DSS) which will play a crucial role in the progress of a firm (Alexuoda, 2005).

A DSS is an interactive computer-based system designed to help in decision-


making situations by utilising data to solve unstructured problems (Noori &
Salimi, 2005). The aim of DSS is to improve and expedite the processes by which
the management makes and communicates decisions. A DSS is a coordinated
collection of data, system tools and techniques with supporting software and
hardware by which an organisation gathers and interprets relevant information
from its business and environment and turns it into a basis for making
management decisions.

The information can consist of primary information (such as the sales and cost
information from company records, or subjective judgements by managers about
the likely impact of increased advertising spending) and/or secondary

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information (such as sales of competitorsÊ products from a syndicated database


constructed via store audits).

DSS is divided into four main parts in a systematic view (see Figure 5.7).

Figure 5.7: Four main parts in a systematic view of DSS

5.2.2 The Structure of Proposed Marketing DSS


TodayÊs customers have such diversity of tastes and preferences that it is not
possible to group them into large homogenous populations that would help the
marketers to develop marketing strategies. The system through which database
marketing is characterised by marketing strategies is based on a great deal of
information available from the transaction database and customer databases (see
Figure 5.8). It has become popular and most organisations have built up a
massive database their customers and their purchase transactions (Noori &
Salimi, 2005).

The most important information about a customer is his or her profile. A


customer profile is a model of the customer based on which the marketer decides
on the right strategies and tactics to meet the needs of that customer.

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Figure 5.8: Components of customer profiling in DSS


Source: Noori & Salimi (2005)

Now, let us discuss the components of customer profiling in DSS one by one.

(a) Prospecting
Customer profiles especially their buying patterns give clues to the
marketer on prospective customers.

(b) Identifying Typical Customer Groups


The characteristic of each group can be obtained by class identification or
concept description. Knowing the customer and targeting them with the
right deal gets a far better response rate than a general message.

(c) Computing Customer Lifetime Values


With customer profiling supported by data mining and knowledge
discovery systems, a number of marketing activities can be enhanced such
as computing customer lifetime values, prospecting and evaluating success
or failure of marketing programmes.

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(d) Size of Purchases


How much does the customer spend on a typical transaction? This
information helps the marketer to devote appropriate resources to the
customer who spends more.

(e) Frequency of Purchases


How often does the customer buy your product or service? This
information will help the marketer (or manager) to build targeted
promotions such as frequent buyer programmes.

(f) Recency of Purchases


How long has it been since this customer last placed an order? The
marketer may investigate the reasons why a customer or group has not
purchased over a long period of time and take appropriate steps.

ACTIVITY 5.3

How does the IT element help in ensuring the success of a relationship


marketing programme? Discuss.

 The life cycle of relationship marketing consists of four phases ă the


discovery phase, development phase, commitment phase and loyalty phase.

 Factors involved in the implementation of relationship marketing are


commitment, trust, customer orientation/empathy, experience/satisfaction
and communication.

 A DSS is an interactive computer-based system designed to help in decision-


making situations by utilising data to solve unstructured problems in
relationship marketing.

 The structure of customer profiling in relationship marketing includes


prospecting, identification typical customer groups, computation of customer
lifetime value, size of purchases, frequency of purchases and recency of
purchases.

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Customer profiling Relationship marketing


Implementation Strategy
Life cycle Structure
Marketing strategy System

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product line design using evolutionary algorithms. Decision Support
Systems, 38(4), 495-509.

Ali, H., & Birley, S. (1998). The role of trust in the marketing activities of
entrepreneurs establishing new ventures. Journal of Marketing
Management, 14(7), 749-63.

Annekie, B., & Adele, B. (2008). Relationship marketing and customer relationship.
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Audhesh, K. P., Francisco, G., & Charles, B. (2012). Business to business


governance structure and marketing strategy. Industrial Marketing
Management, 41(6), 908-918.

Audhesh, K. P., Charles, B., & Fransisco, G. (2011). Relationalism in marketing


channels and marketing strategy. European Journal of Marketing, 45(3),
311-333.

Auh, S., & Menguc, B. (2007). Performance implications of the direct and
moderating effects of centralization and formalization on customer
orientation. Industrial Marketing Management, 36(8), 1022-1034.

Ballantyne, D. (1997). Internal networks for internal marketing. Journal of


Marketing Management, 13(5), 343-66.

Buchanan, R. W. T., & Gillies, C. S. (1990). Value managed relationships: The key
to customer retention and profitability. European Management Journal,
8(4), 523-6.
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Christy, A., Stephanie, M. N., Naveen, D., & Katherine, N. L. (2011). Why
customers wonÊt relate: Obstacle to relationship marketing engagement.
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David, B. (2000). Internal relationship marketing: A strategy for knowledge


renewal. International Journal of Bank Marketing, 18(6), 274-286.

Ellram, L. (1991). Life-cycle patterns in industrial buyer-seller partnerships.


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21(9), 12-21.

Jaworski, B. J., & Kohli, A. K. (1993). Market orientation: Antecedents and


consequences. Journal of Marketing, 57(3), 53-70.

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Mosad, Z. (2002). Developing and managing a romantic business relationship:


Life cycle and strategies. Managerial Auditing Journal, 17(9), 546-558.

Noori, B., & Salimi, M. H. (2005). A decision-support system for business-to-


business marketing. Journal of Business & Industrial Marketing, 20(4/5),
226-236.

Palmatier, R. W., Dant, R. P., Grewal, D., & Evans, K. R. (2006). Factors
influencing the effectiveness of relationship marketing: A meta-analysis.
Journal of Marketing, 70(4), 136-153.

Parvatiyar, A., & Sheth, J. N. (2000). The domain and conceptual foundations of
relationship marketing. In Sheth, J. N., & Parvatiyar, A. (Eds.). Handbook of
relationship marketing. Thousand Oaks, CA: Sage Publications.

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Rusbult, C. E. (1983). A longitudinal test of the investment model: The


development (and deterioration) of satisfaction and commitment in
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45(1), 101-17.

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process and effects of mass communication. Urbana, IL: University of
Illinois Press.

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Shajahan, S. (2004). Relationship marketing: Text and cases. New Delhi, India:
Tata McGraw-Hill.

Shams-ur Rahman. (2002). Leadership and HR focus in TQM research in


Australia: An assessment and agenda. Benchmarking: An International
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Slater, S. F., & Olson, E. M. (2002). A fresh look at industry and market analysis.
Business Horizons, 45(1), 15-22.

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England: Gower Publishing Company.

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importance of psychic distance. European Journal of Marketing, 34(11/12),
1391-1413.

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Topic  Implementing
6 Relationship
Marketing
Programmes ă
Shared Value,
Staff, Styles and
Skills
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the concept of internal marketing in relationship
marketing (RM);
2. Describe the functions of shared value and culture in RM;
3. Discuss the virtuous circle of how internal service quality affects
external service quality; and
4. Discuss the influence of styles and skills systems to the successful
implementation of RM.

 INTRODUCTION
This topic will examine the concept of internal marketing in relationship
marketing as well as the roles of shared values, culture, staff, internal service
quality, styles and skills in implementing relationship marketing in an
organisation.
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ACTIVITY 6.1

Read the following excerpt and discuss with your course mates:
Syarikat Zohar, a leading food delivery organisation found that
implementing a relationship marketing strategy required a great
deal of participation, commitment and reinforcement from the
employees. Before the strategy was implemented, the company
extensively tested the new sales force automation systems with the
employees involved in sales and customer service to seek their
opinions about the features they felt should be included and how it
should be used.

After the trial period, the system was successfully deployed in


many of ZoharÊs markets and was widely adopted by sales staff.
The new system was credited for an increase in the sales
performance of sales representatives by over 75 per cent. The
company believed that the success was largely attributed to the
initial involvement they had in designing the system.

6.1 INTERNAL MARKETING


People with good social skills are important in relationship-oriented
organisations. To maintain contact with customers every now and then, an
organisation needs sufficient and competent people to handle customers. This
involves the call centres, representatives, service counter staff as well as staff in
the administration departments of an organisation.

According to Kumar and Reinartz (2006), an employeeÊs behaviour can either


enhance or reduce the value for selected customers. Satisfied employees at work
are likely to drive customer satisfaction particularly for the service-based
business. In other words, winning and keeping good employees should be like
winning and keeping good customers.

Moreover, to get employeesÊ commitment in relationship marketing, the


company needs to market the strategy to them as if it was a product they were
expected to buy. Hence, a companyÊs relationship marketing strategy must
effectively address employeesÊ satisfaction in order to increase customer
satisfaction. An effective way of improving employee satisfaction is through the
process of internal marketing.

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6.1.1 Employees as Customers


The concept of internal marketing has been in existence for more than twenty
years where Berry (1981) suggested applying marketing-like strategies to people
management and treating employees as „internal customers‰. The focus of
BerryÊs conception of internal marketing was on employee recruitment and
motivation, with a view of the employee as the customer and the job as the
product.

6.1.2 Internal Marketing as a Change Management


Tool
Due to some comments made toward BerryÊs view of internal marketing, the
literature on internal marketing is now broad, complex and often contradictory,
stimulating arguments that mirror those on external marketing. Based on an
extensive review of literature, Rafiq and Ahmed (2000) recognised five elements
of internal marketing (see Figure 6.1).

Figure 6.1: Five elements of internal marketing

Hence, internal marketing can be defined as follows.

Internal marketing is „a planned effort to overcome organisational


resistance to change and to align, motivate and integrate employees towards
the effective implementation of corporate and functional strategies.‰
(Ahmed & Rafiq, 2002)

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6.1.3 Internal Marketing as a Social Process


The new paradigm for internal marketing by Varey and Lewis (1999) calls for a
model of internal marketing based exclusively on the 4Ps. The establishment of
internal marketing is to create the conditions in which the organisation can work
with its internal and external stakeholders towards the organisational goals.
According to Varey and Lewis (1999), internal marketing is not seen as a means
of effecting change, but as an end in itself.

Thus, internal marketing or internal relationship marketing is defined as follows.

Internal marketing seen as internal relationship marketing is „an integrative


process within a system for fostering positive working relationship in a
developmental way in a climate of cooperation and achievement.‰
(Varey & Lewis, 1999)

Varey and LewisÊs approach of internal relationship marketing have somehow


blurred the internal-external boundary of the organisation through the following:
(a) Customer involvement;
(b) Supplier and customer partnership;
(c) Relationship as enterprise assets;
(d) Exchange of ideas as mutual gains; and
(e) Collection and dissemination of customer information.

6.1.4 Internal Relationship Marketing as Knowledge


Renewal
There is a clear distinction between internal transaction marketing and internal
relationship marketing. Internal transaction marketing involves the capture of
knowledge through measurement, control, research methods and knowledge
coordination in the form of new product information, policy and strategy.

On the other hand, internal relationship marketing is related to knowledge


generation through cross-functional teams, creative approaches to problem
solving, knowledge circulation team-based learning programmes, feedback
systems and skills development workshops.

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To ensure that the internal RM works, trust is a prerequisite for the relationship
among the organisationÊs employees and between the employees and the
management.

The following is another definition of internal marketing.

Internal marketing „is a relationship development process in which staff


autonomy and know-how combine to create and circulate new organisational
knowledge.‰
(Ballantyne, 1997)

6.1.5 Internal Marketing as Implementation Tool and


Business Philosophy
Based on the marketing literature, the following are the two distinct approaches
to internal marketing:
(a) Internal marketing as an enabling device for the implementation of a given
initiative such as relationship marketing; and
(b) Internal marketing as a radical rethink of the organisation, its systems and
structures.

According to Gummesson (2002), the objective of internal marketing within


relationship marketing (RM) is to create relationships between management and
employees and between functions. Employees should be viewed as part-time
marketers who can create value for customers when the customer, employee,
process and system converge. Therefore, internal marketing may involve a number
of activities and processes at both strategic and tactical levels as shown in Figure 6.2.

Figure 6.2: Some activities and processes in internal marketing

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SELF-CHECK 6.1
1. What is internal marketing?
2. Explain internal marketing as a social process.

6.2 SHARED VALUE AND CULTURE


Now, let us discuss how shared value and culture help to implement relationship
marketing (RM) programmes. Organisational culture has been recognised as one
of the foundation of long-term marketing effectiveness (Egan, 2004). Culture can
be defined as follows.

„The deep-seated, unwritten system of shared values and norms within the
organisation which in turn dictates its climate.‰
(Egan, 2004)

To ensure optimal RM success, the right culture has to be created to get the
maximum benefit from the organisation and its people. The culture has to shift
from an organisation where top management directs, controls and instructs staff
to one where staff is encouraged to participate and become proactive to
contribute to the achievement of the RM vision. Hence, in order to achieve this,
the presence of a set of shared values for the development of a culture conducive
to RM is vital.

The following is the definition of shared values.

Shared values are „those ideas of what is right and desirable (in corporate
and/or individual behaviour) which are typical of the organisation and
common to most of its members.‰
(Christopher, Payne & Ballantyne, 1991)

According to Christopher et al. (1991), commitment to quality and customer


service are among the elements to be included in shared values.

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The following are a few elements which are important in the implementation of
RM programmes:

(a) Ethics and RM


Fair culture and shared values help organisations gain customer satisfaction
and loyalty. For example, when customers feel that they are getting fair
treatment from firms, in return, they will feel satisfied and become loyal
customers (Omar, Alam, Abd Aziz, & Nazri, 2011).

(b) The mission statement


Most mission statements answer the two simple questions of what business
we are in and what business we should be in (Wilson & Gillighan, 1997).
Mission is crucial to the success of a relationship-oriented organisation. The
chances of RM being implemented are low if the top management does the
following (Peelen, Verbeke, & Ouwerkerk, 1996):
(i) Focuses too much on the short term and the cost;
(ii) Is composed of „number crunchers‰;
(iii) Does not dare to take much risk;
(iv) Displays too much reactive behaviour;
(v) Does not have enough entrepreneurial spirit; and
(vi) Does not have enough vision.

Hence, the mission statements need to be supplemented with three values


which include the following (ASDA, 2013):
(i) Respect for the individual;
(ii) Service to the customers; and
(iii) Strive for excellence.

Employees will only commit to the mission if their individual values


coincide with those of the organisation as a whole. Moreover, having a
clear, meaningful mission statement and support from top management
provides guidance to employees, increasing their satisfaction, motivation
and effectiveness. Based on the past studies, there is a strong correlation
between employeesÊ perceptions of organisational commitment to the
mission and the alignment of their behaviour with the mission contents.

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(c) Marketing communication and shared values


A mission in and of itself does not provide enough guidance for the
relationship-oriented organisation. Relationships are impossible without
communication, in which trust and commitment are products of
communication. The key to successful RM communication are the shared
values that provide the basis for the integration of the various messages
transmitted and received by the organisation.

The quality of a relationship-oriented organisation depends to a large


extent on the quality of mutual communication (Peelan, 2005). Furthermore,
sharing of internal and external information is also crucial in order to
cultivate relationships.

The following are a few elements that are important in marketing


communications:

(i) Audience diversity: External and internal audiences


External audiences include suppliers, intermediaries, shareholders,
the press, government, industries, professional bodies and societies
who have an interest in what the organisation says, does or makes.
Sometimes, they are called stakeholders. Internal audiences are the
organisationÊs employees and in a relationship-oriented organisation,
communication systems encompass internal and external audiences.

(ii) Medium and message diversity


Most early stages of relationships depend on personal or independent
sources in developing trust (Murray, 1991). However, as the
relationship grows, firms can use planned promotional activities such
as advertising, public relations and direct marketing to maintain the
relationship. There are five types of message sources as shown in
Figure 6.3 (Gronroos, 2000).

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Figure 6.3: Five types of message sources

(d) The importance of integrated communication


Relationship-oriented firms need to integrate both planned communication
process and interaction process as one strategy in making RM successful
(Gronroos, 2000). Planned communication is the deliberate delivery of
planned messages and receipt of responses which include the recruitment
of new customers and the developing of relationships with existing
customers; while the integration process includes the customers giving and
receiving message through the consumption experience.

The planned messages will create expectations against which the customer
will evaluate the quality of the organisationÊs products or services. Hence,
failure to meet these expectations will destroy the customersÊ trust towards
the suppliers. It is suggested by Gronroos (2000) that organisations need to
treat planned communication as an extension of internal policies, processes
and values. For example, in creating the corporate image, the consistency of
messages between suppliers and customers is essential so that various
messages transmitted by the organisation do not conflict with one another
regardless of the various tools used.

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SELF-CHECK 6.2

1. Explain the relationship between shared values and RM.


2. Describe the importance of mission in RM.

6.3 STAFF AND INTERNAL SERVICE QUALITY


In this subtopic, we will discuss further staff and internal service quality.

6.3.1 Staff
Staff is an important supporting conditions for successful RM implementation.
Many commentators believe that staff is the most important element in the
performance of a RM strategy (Buttle, 2004). There are several reasons that
support the importance of staff in implementing RM strategies (see Figure 6.4).

Figure 6.4: Some reasons that support the importance of staff in


implementing RM strategy

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Moreover, staff who is rewarded with incentives for high quality work (praise
from customers and management, bonus pay due to customer satisfaction and
customer-oriented remuneration) are more motivated. This recognition boasts
affords the employees with an experience of success, which in turn, enhances
staff satisfaction and the willingness to make a commitment.

The two models proposed by Reichheld, Markey, and Hopton (2000) called
„virtuous circle‰ and, Heskett and Schlesinger (1994) called „service-profit chain‰
explain that employee retention is related to profitability.

Based on Reichheld et al. (2000), profitability can be enhanced through a


„virtuous circle‰ in the following ways:
(a) Profitable growth arises from loyal customers as loyal customers will
recommend the products or services to others;
(b) Customer loyalty arises from customer satisfaction as the organisation
meets or exceeds customer expectations;
(c) Customer satisfaction arises from high product value as the product
benefits exceed the costs;
(d) High product value due to satisfied and motivated staff who know their
job well;
(e) Employee retention that arises from satisfied employees; and
(f) Employee satisfaction due to internal service quality such as staff benefits
includes pay, status and promotion.

However, it should be noted that recent research has found that satisfaction alone
does not guarantee customer retention as trust and commitment are key
prerequisites of loyalty (Omar et al., 2011).

The key implications of the virtuous circle model is the assumption that the
organisations have an environment within which members of staff are motivated
and empowered to deliver good customer service. In order to promote growth
and employeesÊ satisfaction, organisations need to focus on internal service
quality in terms of monitoring and control mechanisms.

6.3.2 Internal Service Quality


Understanding the employeesÊ perspective is a critical tool in managing customer
satisfaction as it enables managers to exercise internal marketing, in effect,
meeting the needs of employees so that they can meet the needs of customers.
According to Horovitz and Panak (1992), employees who subscribe to the norms,

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values and cultures which apply within an organisation may become emotionally
involved in the organisation and are prepared to make extra efforts in the interest
of relationships. Similarly, Berry and Parasuraman (1991) emphasised the value
of treating staff the way you would want them to treat customers, in the belief
that this would provide an ideal climate for changing marketing behaviour ă
„happy staff equals happy customers‰.

Hallowell, Schlesinger and Zornitsky (1996) suggested eight components of


internal service quality which are able to improve external service quality and
create satisfaction. The eight components are as shown in Figure 6.5.

Figure 6.5: Eight components of internal service quality

It should be noted that the eight components of internal quality depend on the
nature of the service. It is suggested by Lovelock (1983) that the scope of service
personnel to exercise discretion in tailoring and customising the service to the
individual needs should be considered.

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There are four types of service as shown in Figure 6.6.

Figure 6.6: Four types of service

Now, let us discuss the types one by one.

(a) The service production line


This refers to standardised services and consistent standards. The role of
the service staff requires relatively little initiative. To ensure the staff
understands the process and is able to perform the service, the emphasis of
human resources management is on the training of service providers,
external monitoring and control, for example, fast food and public
transportation.

(b) The menu service


Based on the range of choice, customers can control the design of the
product by selecting standardised options from a set of range of products at
the customerÊs request such as a restaurant menu and personal banking.

To deliver menu service, the service providers need to be familiar with the
various ranges of products and procedures. However, they have no
authority to change the nature of the product to better suit the customer or

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make the final choice as to which product is offered to the customer. Thus,
the emphasis is still on staff training, monitoring and control in delivering
pre-set product ranges to customers.

(c) The performance service


This involves high level of discretion on the part of the service provider but
with the same service to all customers such as education and health care.
Provider contributions as well as organisation management are important
to the service design. Level of external control is low as management is not
in a position to specify performance standards. However, control
mechanisms will rely on the education of the individual towards values
and standards of the organisation.

To deliver performance service, delegation and employment are given to


the customer-facing employee for creating customer satisfaction. Thus,
training and development will emphasise general skills, knowledge and
confidence.

(d) The professional service


The professional service involves a high degree of complexity and discretion
on the part of the service provider. For example, professional services like
wedding planners and legal advice require low external control.

As employeeÊs ability and skills are vital, organisations need to focus on the
recruitment process with detailed specification of job requirements and
specifications.

As both trust and commitment are vital in RM, the classification of type of
service discussed above suggests that employee retention assumes a different
level of importance in different service situations. For instance, in the case of high
discretion service (performance service and professional service), employees
retention takes a greater role. On the other hand, for production line or menu
service, which involves simple service product, the perceived level of risk in the
recruitment of new staffs is lower as new staff can be trained more quickly and
cheaply.

Although employee retention assumes different levels of importance on various


service situations, the aim of the organisation should be to reduce staff turnover
at all levels. Hence, to develop RM, empowerment of the service provider in
terms of resources, authority or knowledge enables staff to deliver quality service
and build relationship quality.

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According to Bowen and Lawler (1992), the more enduring the relationship, the
stronger the case of empowerment. Creating an intra-organisational environment
in which employees are flexible and prepared to take decisions without referring
to management helps to promote organisation growth (Chaston, Badger, &
Sadler-Smith, 2000).

SELF-CHECK 6.3

1. List the four types of services.


2. Explain the virtuous circle.

6.4 STYLE
Managers at all levels of the organisation play a significant role in ensuring the
successful implementation of the RM strategy. Do you know what style is? The
following is the definition of style.

Christopher et al. (1991) defined style as „the way managers collectively act
with respect to use of time, attention and symbolic actions‰.

Hence, style is closely related to the management style of an organisation.


According to Gronroos (1981), the way managers behave will have a big impact
on the behaviour of staff. As a result, having a supportive management style is
one of the key elements of strategic internal marketing.

There are various ways in which managers can exert influence on staff in
implementing RM. Among them are through reward systems. Reward practices
can have significant effect on the implementation of Total Quality Management
(TQM) (Allen & Kilmann, 2001). The following are two types of reward systems:

(a) Non-monetary rewards


Non-monetary rewards are better implemented in the early stages of the
introduction of TQM. Non-monetary rewards deliver appropriate
reinforcement without involving a fundamental change in the organisationÊs
systems and structures (Allen & Kilmann, 2001). Examples of non-monetary
rewards that are often used by organisations are shown in Figure 6.7.

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Figure 6.7: Examples of non-monetary rewards

(b) Monetary rewards


To ensure TQM is embedded in the organisation culture, appropriate
monetary rewards are important. Allen and Kilmann (2001) suggest that
monetary reward systems are positively associated with high quality
performance. Examples of such monetary rewards are shown Figure 6.8.

Figure 6.8: Examples of monetary rewards

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6.5 SKILLS
PeopleÊs skills and knowledge required for successful RM performance may need
reviewing and upgrading as they are the ones who actually develop
relationships, not the IT applications. People with excellent social skills are vital
in relationship-oriented organisations. According to Brown (2004), interpersonal,
consulting and selling skills coupled with highly effective problem solving and
negotiating competencies are prerequisites for effectiveness in the sales arena
today.

The realisation of customer-centric practices requires fundamental changes in the


competencies of an organisationÊs resources, particularly those involved in the
sales process directly or indirectly.

Furthermore, most staff rely upon a wide array of technologies to keep abreast of
changes in the marketplace and to identify trends leading to new business
opportunities. Therefore, this requires company staff to be proficient in
technology and be supplied with up-to-date hardware systems and applications.
The training and retraining of staff are no longer something confined to
employee orientation, it has become a continuous, ongoing process. RM
managers should question whether existing skills and practices support the
adoption of relational approaches.

Hence, training will serve two key functions in RM, which are as follows:
(a) To motivate and empower staff in enhancing internal as well as external
relationships; and
(b) To maintain relationships with external customers by making the staff more
efficient and skilful.

Based on Little and Marandi (2003), the training process comprises three levels,
which are:

(a) The training needs assessment


This level is also known as skill audit. The main function of needs
assessment is to identify the purpose and nature of training. To ensure the
training meets the organisationÊs skills gap, the organisation can refer to
various sources of information to produce relevant training to their staff.
For instance, the organisation can refer to external consultants, managersÊ
assessments, employee and customer feedback and analysis of RM plans in
order to gather information.

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(b) Delivering the programme


The delivery of the training programmes can draw on outside expertise or
external training programmes or internal training. In-house training
through a workplace mentor or supervisor is useful for transmission of
corporate values, culture and routines to new staff.

On the other hand, external training programmes are vital for


organisational change particularly in bringing new ideas or practices. Thus,
the use of external training or education will be dictated by necessity.

(c) Evaluating the effectiveness of training


According to Kirkpatrick (1998), there are several ways of evaluating the
effectiveness of training programmes (see Figure 6.9).

Figure 6.9: Several ways of evaluating the effectiveness of training programmes

There are various sources of information that you can refer to in order to
understand the effectiveness of training (see Figure 6.10).

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Figure 6.10: Sources of information to understand the effectiveness of a training

SELF-CHECK 6.4

1. What are the three levels of training process?


2. Identify the sources of information in understanding the
effectiveness of training.

 Satisfied employees at work are likely to drive customer satisfaction


particularly for business involving services.

 A companyÊs relationship marketing strategy must effectively address


employeesÊ satisfaction in order to increase customer satisfaction.

 An effective way of improving employee satisfaction is through the process of


internal marketing.

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 According to Berry (1981), the conception of internal marketing is focused on


employee recruitment and motivation, with a view of the employee as the
customer and the job as the product.

 Internal transaction marketing involves the capture of knowledge through


measurement, control, research methods and knowledge coordination in the
form of new product information, policy and strategy.

 Internal relationship marketing is related to knowledge generation through


cross-functional teams, creative approaches to problem solving, knowledge
circulation team-based learning programmes, feedback systems and skills
development workshops.

 Internal marketing may involve a number of activities and processes at both


strategic and tactical levels including marketing objectives, market
segmentation and targeting, market positioning and marketing mix.

 To ensure optimal RM success, the right culture and shared values have to be
created to get the maximum benefit from the organisation and its people.

 There are few elements important to the implementation of RM programmes,


which are as follows:
– Ethics and RM;
– The mission statement;
– Marketing communication and shared values; and
– The importance of integrated communication.

 The staff of an organisation is an important supporting condition for


successful RM implementation.

 The following are the two types of reward systems:


– Non-monetary rewards; and
– Monetary rewards.

 People with excellent social skills are vital in relationship-oriented


organisations.

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 Understanding the employeeÊs perspective is a critical tool in managing


customer satisfaction as it enables managers to exercise internal marketing –
in effect meeting the needs of employees so that they can meet the needs of
customers.

 The way managers behave will have a big impact on the behaviour of staff.
Thus, having a supportive management style is one of the key elements of
strategic internal marketing.

 PeopleÊs skills and knowledge required for successful RM performance may


need review and upgrading. Thus, training is important in RM.

 Training process comprises three levels: needs assessment, programme


delivery and evaluation.

Culture Level of discretion


Empowerment Mission statement
Ethics Monetary rewards
Integrated communication Non-monetary rewards
Internal and external training Shared value
Internal marketing Virtuous circle
Internal service quality

Ahmed, P. K., & Rafiq, M. (2002). Internal marketing: Tools and concepts for
customer-focused management. Oxford, England: Butterworth-Heinemann.

Allen, R., & Kilmann, R. (2001). Aligning reward practices in support of total
quality management. Business Horizons, 44(3), 77-84.

ASDA. (2013). Saving you money every day. Retrieved from www.asda.co.uk.

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STYLES AND SKILLS

Ballantyne, D. (1997). Internal networks for internal marketing. Journal of


Marketing Management, 13(5), 343-366.

Berry, L. L. (1981). The employee as customer. Journal of Retail Banking, 3(1), 33-
40.

Berry, L. L., & Parasuraman, A. (1991). Marketing services: Competing through


quality. New York, NY: The Free Press.

Bowen, D. E., & Lawler, E. E. (1992). The empowerment of service workers:


What, why, how and when. Sloane Management Review, 33(3), 31-39.

Buttle, F. (2004). Customer relationship management: Concepts and tools.


Oxford, England: Elsevier Butterworth-Heinemann.

Chaston, I., Badger, B., & Sadler-Smith, E. (2000). Organizational learning style
and competences: A comparative investigation of relationship and
transactionally orientated small UK manufacturing firms. European Journal
of Marketing, 34(5/6), 625-642.

Christopher, M., Payne, A., & Ballantyne, D. (1991). Relationship marketing:


Bringing quality, customer service and marketing together. Oxford,
England: Butterworth-Heinemann.

Day, G. S. (1984). Strategic marketing planning: The pursuit of competitive


advantage. St Paul, MN: West Publishing.

Egan, J. (2004). Relationship marketing: Exploring relational strategies in


marketing (2nd ed.). London, England: Financial Times/Prentice Hall.

Gronroos, C. (1981). Internal marketing: An integral part of marketing theory.


Proceedings of the American Marketing Association Service Marketing
Conferences, 236-268.

Gronroos, C. (2000). Creating relationship dialogue: Communication, interaction


and value. The Marketing Review, 1(1), 5-15.

Gummesson, E. (1987). Using internal marketing to develop a new culture: The


case of Ericsson quality. Journal of Business and Industrial Marketing, 2(3),
23-28.

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STYLES AND SKILLS

Gummesson, E. (2002). Total relationship marketing: Marketing management,


relationship strategy and CRM approaches for the network economy.
Oxford, England: Butterworth Heinmann.

Hallowell, R., Schlesinger, L. A., & Zornitsky, J. (1996). Internal service quality,
customer, and job satisfaction: Linkages and implications for management.
Human Resource Planning, 19(2): 20-31.

Heskett, J. L., & Schlesinger, L. A. (1994). Putting the service-profit chain to work.
Harvard Business Review, 72(2), 164-174.

Horovitz, J., & Panak, M. J. (1992). Total customer satisfaction: Lessons from 50
European companies with top quality service. London, England: Pitman.

Kirkpatrick, D. L. (1998). Evaluating training programs: The four levels. San


Francisco, CA: Berrett-Koehler.

Kumar, V., & Reinartz, W. J. (2006). Customer relationship management: A


database approach. New York, NY: John Wiley and Sons.

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: South-Western Cengage Learning.

Lovelock, C. H. (1983). Classifying services to gain strategic marketing insights.


The Journal of Marketing, 47(5), 9-20.

Omar, N. A., Alam, S., Abd Aziz, N., & Nazri, M. A. (2011). Retail loyalty
programs in Malaysia: The relationship of equity, value, satisfaction, trust
and loyalty among cardholders. Journal of Business Economics and
Management, 12(2), 332-352.

Peelan, E. (2005). Customer relationship management. Harlow, England:


Prentice Hall.

Peelen, E., Verbeke, W., & Ouwerkerk, C. (1996). Exploring the contextual and
individual factors on ethical decision making of salespeople. Journal of
Business Ethics, 15(11), 1175-1187.

Rabb, G., Ajami, R. A., Gargeya, V. B., & Goddard, G. J. (2008). Customer
relationship management: A global perspective. Hampshire, England:
Gower Publishing.

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Rafiq, M., & Ahmed, P. (2000). Advances in the internal marketing concept:
Definition, synthesis and extension. Journal of Services Marketing, 14(6),
449-463.

Reichheld, F., Markey Jr. R., & Hopton, C. (2000). The loyalty effect – The
relationship between loyalty and profits. European Business Journal, 12(3),
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Varey, R. J., & Lewis, B. R. (1999). A broadened conception of internal marketing.


European Journal of Marketing, 33(9/10), 926-944.

Copyright © Open University Malaysia (OUM)


Topic  Monitoring and
7 Controlling
Relationship
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the three major approaches of monitoring and controlling;
2. Discuss the measures of relationship success;
3. Describe the importance of complaints analysis and handling in
customer relationship management (CRM); and
4. Discuss the Gaps model of service quality.

 INTRODUCTION
This topic will explain the strategic methods of monitoring and controlling
relationships at all levels, either strategic or tactical. Monitoring and controlling
relationships are becoming an important part of planning and implementation.
In fact, controlling is one of four management functions which mean monitoring
performances, comparing it with goals and taking corrective actions are needed.

Hence, monitoring systems provide the information that informs the planning
process while control mechanisms ensure the plan to be implemented.

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7.1 APPROACHES TO MONITORING AND


CONTROLLING
Little and Marandi (2003) classify monitoring and controlling approaches of
customer relationship management (CRM) into three major approaches as shown
in Figure 7.1.

Figure 7.1: Three major approaches to monitoring and controlling

7.1.1 Hard Mechanism versus Soft Monitoring and


Controlling
Hard monitoring and controlling mechanisms involve measuring activity or
achievement quantitatively. This mechanism will be adopted in a situation where
an employeeÊs critical output or performance level is easily defined and
measured. This mechanism is based on the principle that employees must be
closely monitored and their good performances will be rewarded. For example,
take promotion budgets where employees spend the money to achieve sales
targets.

On the other hand, soft monitoring and control mechanisms are based on the
principle that an employee does not require constant attention and monitoring.
This mechanism is appropriate when an employeeÊs output and achievements
are not easy to define or where variations in activity or output are not critical.

For example, let us look at the customer service units in maintaining customer
satisfaction. Although customer satisfaction can be monitored and linked to
employee reward schemes, an adversarial relationship between customers and
service staff will often exist.

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7.1.2 Performance versus Diagnostic Monitoring


Performance indicators are used as indicators of corporate performance. For
example, profitability and customer satisfaction measure the effects of a
companyÊs actions, providing feedback on its success or failure. It will be a useful
indicator as to whether a company objective is successful or if change of strategy
is needed.

Diagnostic monitoring is used as a diagnostic tool in service quality


measurement and cost benefit analysis. This approach allows a more in-depth
look at companyÊs actions and their effects on customers. Thus, this allows
managers to learn from failures and identify causes of success.

7.1.3 The Balanced Scorecard Approach


The balanced scorecard approach was advocated by Kaplan and Norton (1992).
This approach offers guidance on the development of corporate performance
measures. It will not only ensure that a range of strengths and weaknesses to be
identified and managed, but also prevents the organisation from becoming
fixated on a single aspect of its business.

According to Kaplan and Norton (1992), balanced scorecard performance


indicators can be categorised into four aspects (see Figure 7.2).

Figure 7.2: Four aspects of balanced scorecard performance indicators

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Now, let us discuss the four aspects in greater detail.

(a) Financial perspective


Typical financial goals have to do with profitability, growth and
shareholder value. Financial measures such as quarterly sales have been
criticised as being short-sighted and not reflecting contemporary value-
creating activities. Moreover, critics say that traditional financial measures
do not improve customer satisfaction, quality or employee motivation. For
example, sales by value or volume, market share and growth are indicators
for the financial aspect.

(b) Customer perspective


This could include measures of customer loyalty, satisfaction levels and the
balance of existing and new business or cooperative projects. Many
organisations consider taking care of the customer as the utmost priority.
The balanced scorecard translates the mission of customer service into
specific measures of concerns that really matter to customers.

Thus, the organisation process such as placing an order, delivering,


marketing communication, product development, the pricing policy and
the distribution are important in measuring performance.

For example, satisfaction level, number of complaints, income for current


and new customers and average number of contacts with customers are
indicators of customer perspective such as retention and satisfaction.

(c) Internal business perspective


This focuses on operational effectiveness and measurement of factor
characteristics such as production costs, cycle times, reliability and defects.
This part translates what the company must do internally to meet its
customersÊ expectations.

Some of the examples of indicators of internal business are number of


defects, number of complaints, number of returns, costs and staff
satisfaction.

(d) Innovation and learning perspective


Due to global competition which may force a company to keep changing
the targets for success, continual improvements to existing products and
processes as well as introducing new products periodically must be made.

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Therefore, an organisation must measure its research and development


efforts and its efficiencies in manufacturing and delivery. For example,
customer involvement in research and development (R&D) projects is an
indicator of customer input. Other examples such as customerÊs
involvement in R&D projects and the number of new products are
indicators that reflect the innovation and learning aspects.

For RM-focused organisations, the balanced scorecard measures should reflect


the relational perspective rather than being confined to a single aspect of the
business such as product development. In RM organisation monitoring, more
detailed information of individual or group contributions to the overall
performance of the organisation are vital. Thus, the manager of a RM
organisation needs to have access to information about the profitability of each
customer, segments, type of customer and low value markets.

7.2 MEASURES OF RELATIONSHIP SUCCESS


Relationship-level monitoring depends on three main areas in measuring
relationship success which are relationship facilitators, relationship features and
relationship returns (see Figure 7.3).

Figure 7.3: Relationship-level monitoring

7.2.1 Relationship Facilitators


These refer to those factors that contribute to the development of the strong,
long-term relationship. For example, satisfaction, quality and trust are
prerequisites of customer loyalty. Thus, it will be a valuable measure of RM
performance.

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Now, let us discuss more about customer satisfaction.

(a) Customer satisfaction


Consumers develop feelings of satisfaction or dissatisfaction during and
after the consumption of a service or product. Literature reveals a number
of studies related with satisfaction and the most widely used model is
based on the expectancy disconfirmation theory developed by Oliver
(1997). In this theory, disconfirmation refers to the consumerÊs comparison
of the service performance to an expectation, as illustrated in the following
equation:

Satisfaction = f (Perception ă Expectation)

There are two stages of customer expectation as follows:


(i) First, the consumer develops expectation about the company during
the customerÊs first encounter with the service firm, via advertising
and customer word of mouth; and
(ii) Second, after a previous encounter with the firm, the consumer
compares their expectations to the actual product performance.

The definition of consumer satisfaction has been divergent ever since


Cardozo (1965) introduced the concept of satisfaction into the marketing
field. The following is the definition of consumer satisfaction.

Howard and Sheth (1969) first denoted consumer satisfaction as „a


related psychological state to appraise the reasonableness between what
a consumer actually gets and gives.‰

Do you know what satisfaction is? The following is the definition of


satisfaction.

Oliver and Swan (1989) defined satisfaction as „a total psychological


state when there is an existed discrepancy between the emerging
emotion and expectation, and such an expectation is a consumersÊ
feeling anticipated and accumulated from their previous purchases.‰

Generally, consumer satisfaction is the most efficient and least expensive


source of market communication because consumers who are satisfied with
a product or service will be more likely to disseminate their favourable

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experience to others. However, if they are dissatisfied, they will spread


unfavourable appraisal of the product or service they encountered
(Dubroski, 2001).

(b) Employee satisfaction


Given the importance of employees in implementing the RM programme, it
is believed that measuring employee satisfaction is crucial. Reichheld,
Markey and Hopton (2000) claimed that the relationship between
satisfaction and loyalty works in the same way for internal customers as for
external ă employee satisfaction leads to their loyalty towards a company
and leads to staff retention, lowering training costs, increasing experience,
skills, motivation and productivity.

Heskett et al. (1994) recommended measuring staff satisfaction with


internal service quality. However, the idea of using satisfaction as a key
performance indicator has received a number of critics (Reichheld et al.,
2000). For example, the study by Omar, Abd Aziz, and Nazri (2011)
indicated that satisfaction is not related to store loyalty (share-of-wallet,
share-of-visit and store preference).

(c) Service quality


Based on literature, satisfaction occurs from a positive judgment of service
quality received and cost incurred. According to Gronroos (1990), there are
two dimensions of service quality: technical quality and functional quality –
the quality of what is delivered and how it is delivered, respectively.

Rust and Oliver (1994) developed another conceptual model in measuring


service quality which consists of three dimensions: service product (refers
to the technical quality of the service), service delivery (refers to the
functional quality of the service) and service environment.

Based on the work by Bloemer, Ruyter and Wetzels (1999), service quality is
often conceptualised as the comparison of service expectation with actual
performance perceptions. However, Brady and Cronin (2001) developed
some new thoughts on conceptualising perceived service quality where the
hierarchical and multilevel conceptualisation of the service quality model
was adopted as the overall perception of service. Thus, there are two main
model of service quality as follows:

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(i) SERVQUAL
Based on the work by Parasuraman, Zeithaml and Berry (1985),
research on service quality has been dominated by the SERVQUAL
instrument which consists of the Gap Model. Parasuraman et al.
(1985) identified ten dimensions that customers use to evaluate the
service and develop perceived service quality. The factors include
access, communication, competence, courtesy, credibility, reliability,
responsiveness, security, tangibles and understanding. Therefore, if
the customerÊs performance perceptions (based on the ten
dimensions) exceed the customer expectations, the service provider
has provided quality service. The difference in scores determines the
level of service quality. The following is the formula used to calculate
service quality:

Service Quality = Perceived Service − Expected Service

Later, these ten factors were summarised into five generic dimensions
which consisted of tangibles, reliability, responsiveness, assurance
and empathy.

(ii) SERVPERF
Another aspect of service quality introduced by Cronin and Taylor
(1992) stated that conceptualised service quality is similar to an
attitude. Cronin and Taylor (1992) maintained that performance
instead of performance-expectation determines service quality. They
suggested that the disconfirmation theory is intended to be a measure
of satisfaction, but not service quality. This produces an alternative
measurement tool which is called SERVPERF.

There are several criticisms on SERVQUAL that makes SERVPERF


more favourable such as expectations are often poorly defined in
customersÊ minds and not a reliable benchmark in measuring service
quality (Omar & Musa, 2011) and lack of universal applicability of the
scale across industries (Carman, 1990; Omar & Musa, 2011).

7.2.2 Relationship Features


Relationship features refer to factors that describe the nature of the relationship
itself, as is evident in the behaviour of the customer towards the supplier. This
measure will include various indicators of customer loyalty, fidelity and
commitment.

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Measuring Loyalty
Loyalty has been used to describe a customerÊs willingness to continue
patronising a firm over the long term and recommending the firmÊs products and
services to friends and associates (Lovelock & Wirtz, 2004). Jones and Sasser
(1995) pointed out that customer loyalty is the customer repeat purchase
intention of some specific product or service in the future classified into
long term and short term.

Long-term loyalty refers to the customerÊs long-term purchase which is not easy
to change, whereas, short-term loyalty refers to customers who may change their
minds immediately once they find a better merchant or product choice (Dick &
Basu, 1994). Loyalty can be measured in a number of different ways, the
relevance of which will depend on the nature of the product and its market (see
Figure 7.4).

Figure 7.4: Measurements of loyalty

7.2.3 Relationship Returns


This refers to the monetary rewards accruing to the supplier from the
relationship. Examples are present income, costs and customer lifetime value.

Most of the RM organisations focus on long-term gains which require a


significant investment in the early stages of relationship. In terms of financial
benefits, it is different from traditional performance indicators as it is long term
inclined towards focus and indirect relationship benefits.

According to Little and Marandi (2003), there are six measures that can be used
in measuring financial performance (see Table 7.1).

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Table 7.1: Six Measures of Financial Performance

Measures Description
Income Relationship Marketing Manager must continuously monitor to
ensure cash flow constraints are met.
Profitability It is necessary to monitor net profit from each relationship (return
on relationship or ROR) because profitability is a performance
indicator not a diagnostic tool.
Referral There is a tendency of loyal customers to become advocates and
generate new business to the organisation through positive
word-of-mouth.
Cross-purchasing Income from cross-selling and up-selling should not be
overlooked.
Customer lifetime It is necessary to assess the total net income arising from a
value particular customer over the relationship life cycle.
Servicing cost Shaw and Reed (1999) recommend using activity-based costing
(ABC) to help a company record the benefits, cost and time spent
on a particular activity by each customer. So, it can be used to
determine the cost of servicing a particular customer.

SELF-CHECK 7.1

1. Explain the four indicators of the balanced scorecard approach.


2. Discuss the two major models of service quality.

7.3 COMPLAINT ANALYSIS AND HANDLING


The first law of service productivity and quality may be: „Do it right the first
time‰. However, failures will continue to occur due to reasons beyond the
organisationsÊ control. How well an organisation handles complaints and
resolves problems may determine whether it builds customer loyalty or watches
former customers move their business elsewhere. In general, studies of consumer
complaining behaviour have identified the following four main purposes for
complaining:
(a) Consumers complain to recover some economic loss by seeking a refund,
compensation, and/or have the service performed again;
(b) Some customers complain to rebuild self-esteem and/or to vent their anger
and frustration;

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(c) When customers are highly involved with a service, they give feedback to
try and contribute toward service improvements; and
(d) Customers want to spare other customers from experiencing the same
problem(s) and they might feel bad if a problem is not highlighted.

Service Recovery
Service recovery is an umbrella term for systematic efforts by a firm to correct a
problem following service failure and to retain a customersÊ goodwill. The
service recovery mechanism is also becoming a vital part of relationship
marketing strategy by facilitating customer retention.

According to Little and Marandi (2003), service recovery is based on four basic
principles (see Table 10.2).

Table 10.2: Basic Principles in Service Recovery

Principle Description
Make it easy for How can managers overcome unhappy customersÊ reluctance
customers to to complain about service failures? The best way is to directly
complain and give address the reasons for their reluctance. Many organisations
feedback have improved their complaint collection procedures by
adding special toll-free phone lines, links on their web sites,
displaying customer comment card in their branches and
providing video terminals for recording complaints.
Establish the grounds Customers will be more willing to complain if they are
for complaint confident that they will be successful.
Offer immediate The more quickly the complaint is resolved, the lower the
redress where negative impact on the customerÊs attitudes. Where possible, it
possible is advisable to delegate authority and responsibility for
resolving complaints to customer-facing staff so that problems
can be resolved as they arise.
Communicate Often, all that is needed in order to diffuse customer
dissatisfaction is an apology, together with an explanation of
why the failure occurred and the steps that have been or will
be taken to ensure that it does not recur.

CustomersÊ complaints are part of a diagnostic tool which delivers valuable


information for organisationsÊ improvement. The following are some useful
information we can get from customersÊ complaints (see Figure 7.5).

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130  TOPIC 7 MONITORING AND CONTROLLING RELATIONSHIP

Figure 7.5: Useful information from customersÊ complaints

SELF-CHECK 7.2

1. Explain the main purpose of customer making complaints.


2. Describe the four principles of service recovery mechanism.

7.4 CONTROLLING SERVICE QUALITY


Based on the work by Parasuraman, Zeithaml, and Berry (1985), research on
service quality has been dominated by the SERVQUAL instrument, which is
based on the so-called Gaps model illustrated in Figure 7.6. The following
illustrations will explore the Gaps model for managing service quality.

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Figure 7.6: Gaps model

Refer to Table 10.3 for the description of the Gaps model.

Table 10.3: Descriptions of Gaps Model

Gaps Model Description


Gap 1 Difference between consumer expectations and management
perceptions of consumer expectations.

Gap 2 Difference between management perceptions of consumer expectations


and service quality specifications.
Gap 3 Difference between service quality specifications and the service
actually delivered.
Gap 4 Difference between service delivery and what is communicated about
the service to the consumer.
Gap 5 Difference between consumer expectations and perceptions.

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If the customerÊs performance perceptions (based on the service quality


dimensions) exceed the customer expectations, then the service provider is said
to provide quality service. The difference in scores determines the level of service
quality. The following is the formula used to calculate service quality.

Service Quality = Perceived Service − Expected Service

Marketing information systems will help organisations to be aware of the


customerÊs level of expectation. Hence, appropriate levels of service quality are
designed to meet customer expectations.

In understanding the Gaps model of service quality, the following are several
issues that need to be considered:

(a) Hard control techniques


The intangibility and heterogeneity of service products mean that it is
difficult to define how the service should be delivered and harder still to
develop mechanisms that ensure that delivery is consistent. As a result, the
closure of Gap 2 and Gap 3 produces particular problems.

(b) Service blueprinting


This technique involves the development of a flowchart that describes the
service encounter from a customerÊs point of view. The design process will
be documented and codified to map the sequence of events in a service and
its essential functions in an objective and explicit manner. Timings or other
performance standards can be placed on each element of the process.

(c) Critical incidents analysis


This is an adaptation of the service blueprint that focuses only on the events
or interactions that are crucial in shaping the customerÊs perceptions of
service quality. It will involve a set of procedures used for collecting direct
observations of human behaviour that have critical significance and meet
methodically defined criteria. These observations are then kept track of as
incidents, which are then used to solve practical problems. Mystery
shoppers are commonly used to monitor conformance to the specification.

(d) Soft control techniques


Although the Gaps model provides a prescriptive and clearly defined
framework for managing service and relationship quality, there is still some
debate about the practicality of implementing it. Reichheld (1993) has
suggested that external service quality is too dynamic and subjective for
organisations to gauge correctly.

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Thus, senior managers should concentrate on internal service quality,


ensuring that staff is competent, motivated and supported by a customer-
centred culture. The internal service quality can be monitored through
measures such as staff satisfaction and retention.

 The three classified monitoring and controlling approaches of CRM are as


follows (Little & Marandi, 2003):
– Hard mechanism versus soft monitoring and controlling;
– Performance versus diagnostic monitoring; and
– The balanced scorecard approach.

 Based on Kaplan and Norton (1992), balanced scorecard performance


indicators can be categorised into four aspects which are:
– Financial perspective;
– Customer perspective;
– Internal business perspective; and
– Innovation and learning perspective.

 Measures of relationship monitoring centre on the following:


– Relationship facilitators;
– Relationship features; and
– Relationship returns.

 The importance of complaints analysis and handling are as follows:


– To recover some economic loss;
– To rebuild self-esteem and/or to vent their anger and frustration;
– To give feedback to try and contribute toward service improvements; and
– To spare other customers from experiencing the same problems.

 According to Little and Marandi (2003), service recovery is based on four


basic principles:
– To make it easy for customer to complain and give feedback;
– To establish the grounds for complaint;
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134  TOPIC 7 MONITORING AND CONTROLLING RELATIONSHIP

– To offer immediate redress where possible; and


– To communicate.

 From customer complaints, we can get useful information relating to the


following:
– Company weaknesses;
– Changing customer expectations; and
– Key product attributes.

 Based on the work by Parasuraman et al. (1985), research on service quality


has been dominated by the SERVQUAL instrument, which is based on the so-
called Gaps model.

Complaint analysis and handling Relationship success


Controlling Satisfaction
Customer and employees satisfaction Service quality
Gaps model Service recovery
Loyalty SERVPERF
Monitoring SERVQUAL
Relationship facilitator, features and
returns

Bloemer, J., Ruyter, K. D., & Wetzels, M. (1999). Linking perceived service quality
and service loyalty: A multi-dimensional perspective. European Journal of
Marketing, 33(11/12), 1082-1106.

Brady, M., & Cronin, J. (2001). Some new thoughts on conceptualizing perceived
service quality: A hierarchical approach. Journal of Marketing, 65(3), 34-49.

Cardozo, R. M. (1965). An experimental study of consumer effort, expectation


and satisfaction. Journal of Marketing Research, 2(8), 244-249.
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TOPIC 7 MONITORING AND CONTROLLING RELATIONSHIP  135

Carman, J. M (1990). Consumer perceptions of service quality: an assessment of


the SERVQUAL dimensions. Journal of Retailing, 69(1), 127-139.

Cronin Jr, J. J., & Taylor, S. A. (1992). Measuring service quality: A reexamination
and extension. The Journal of Marketing, 56(3), 55-68.

Dick, A., & Basu, K. (1994). Customer loyalty: Toward an integrated conceptual
framework. Journal of Academy of Marketing Science, 22(2), 299-113.

Dubroski, D. (2001). The role of customer satisfaction in achieving business


excellence. Total Quality Management, 12(7/8), 920-925.

Gronroos, C. (1990). Service management and marketing: Managing the moments


of trust in service competition. Lexington, MA: Lexington Books.

Howard, J. A., & Sheth, J. N. (1969). The theory of buyer behavior (Vol. 14). New
York, NY: Wiley.

Jones, T. O., & Sasser, W. E. (1995). Why satisfied customers defect. Harvard
Business Review, 73(6), 88-99.

Kaplan, R., & Norton, D. (1992). The balanced scorecard approach ă measures
that drives performance. Harvard Business Review, 72(2), 164-174.

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: South-Western Cengage Learning.

Lovelock, C., & Wirtz, J. (2004). Services marketing: People, technology, strategy
(5 ed.). Upper Saddle River, NJ: Pearson Education International.

Oliver, R. L. (1997). Satisfaction: A behavioural perspective on the consumer.


New York, NY: McGraw-Hill.

Oliver, R. L., & Swan, J. E. (1989). Consumer perceptions of interpersonal equity


and satisfaction in transactions: A field survey approach. Journal for
Marketing, 53(2), 21-35.

Omar, N. A., Abd Aziz, N., & Nazri, M. A. (2011). Understanding the
relationships of program satisfaction, program loyalty and store loyalty
among cardholders of loyalty programs. Asian Academy of Management
Journal, 16(1), 21-41.

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Omar, N. A., & Musa, R. (2011). Measuring service quality in retail loyalty
programmes (LPSQual) implication for retailersÊ retention strategies.
International Journal of Retail and Distribution, 39(10), 759-784.

Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual model of


service quality and its implications for future research. Journal of
Marketing, 49(4), 41-50.

Reichheld, F. (1993). Loyalty-based management. Harvard Business Review,


71(2), 64-71.

Reichheld, F., Markey, Jr. R., & Hopton, C. (2000). The loyalty effect ă the
relationship between loyalty and profits. European Business Journal, 12(3),
134-139.

Shaw, R., & Reed, D. (1999). Measuring and valuing customer relationships: How
to develop the measures that drive profitable CRM strategies. London,
England: Business Intelligence.

Copyright © Open University Malaysia (OUM)


Topic  Ethical
8 Considerations
in Relationship
Marketing
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain ethical criticisms of marketing;
2. Discuss the concepts of consumerism, social responsibility and
ethics;
3. Explain the approaches to ethical decision-making; and
4. Discuss the role of ethics with reference to the characteristics of
relationship marketing (RM).

 INTRODUCTION
Ethics has always been an ongoing issue in the field of business. Prior to 1960,
there were some discussions about ethics in businesses such as the rights of
workers to just wages, truth in advertising and honesty in business dealings. The
increasing attention to ethics has called upon the marketers to include the social
and ethical considerations in their marketing practices. The need for marketers to
incorporate ethical and social considerations into marketing practices is also
consistent with relationship marketing (RM).

In terms of RM, ethics plays an important role in planning, implementing and the
monitoring of RM. Most traditional marketing activities create conflicts between
customers and companies as these activities focus on short-run tactics of
increasing sales. However, in RM, the concept of customers as „co-producers‰

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138  TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING

and „members‰ of various marketing programmes allows long-term interactions


based on fairness and creating value. Given that trust is a very important element
in RM, most important trends in current marketing thinking emphasises the
practice of ethical behaviour.

In understanding the relationship of RM and ethics, this topic will start with the
general criticism of marketing, the concept of consumerism, social responsibility
and ethics. The various approaches of ethical decision-making will also be
discussed. This is followed by an examination of the role of ethics with reference
to the characteristics of RM.

8.1 ETHICS AND MARKETING


Ethics is the study of what is good and evil, right and wrong as well as just and
unjust (Steiner & Steiner, 1997). An ethical manager will always try to do well
and avoid doing evil. Ethics relate to carefully thought out rules of moral values
that guide individual and group decision-making (Dibb, Ferrell, Pride, & Simkin,
2001), whereas, social responsibility is a contract with the society as a whole.

For example, would it be right for a sales manager to break a promise made to a
customer and sell some hard-to-find products to someone else, whose need for it
is greater? The application of ethics in business is an art that requires judgement
about both the motivations behind an act and the actÊs consequences. According
to Steiner and Steiner (1997), managers in every society are influenced by four
great repositories of ethical values, namely religion, philosophy, cultural
experiences and law.

8.1.1 Criticisms of Marketing


There has been a continuous intervention of consumer organisations, pressure
groups and government in monitoring the activities of marketers. Continued
attention is necessary as there have been reports of unsatisfactory products and poor
quality of practices by firms. Promotional activities for unwholesome products such
as cigarettes and selling high-priced products in less-developed countries indicate a
need for greater knowledge of ethical practices and judgements.

Little and Marandi (2003) suggest that marketers have been criticised from
several perspectives, which include the following:
(a) Charging high prices;
(b) Deceptive practices relating to promotion, pricing and packaging;

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(c) High pressure selling and marketing of shoddy or unsafe goods; and
(d) Planned obsolescence.

The following are some of the specific criticisms directed towards marketers:
(a) Insider dealing in shares;
(b) Mis-selling of personal pensions;
(c) Mis-selling of endowment mortgages;
(d) Excess payment to top directors; and
(e) The use of child labour in Asia by companies like Nike and Adidas.

Therefore, there is continuous intervention by consumer organisation pressure


groups and government through legislation and the monitoring of activities of
marketers.

8.1.2 Consumerism, Social Responsibility and Ethics


Consumerism is a movement to improve the rights and powers of consumers in
relation to the sellers of products and services (Steiner & Steiner, 1997). It is also
seen as a protest movement of consumers against what they or their advocates
see as unfair, discriminatory and arbitrary treatment. Kotler, Armstrong,
Saunders and Wong (2001) define consumerism as follows.

Consumerism is „an organised movement of citizens and government


agencies to improve the rights and power of buyers in relation to sellers.‰

According to Little and Marandi (2003), the consumer movement seeks to


improve the rights of traditional buyers as follows:
(a) To expect the product to be preserved;
(b) To expect the product to perform as claimed by the seller;
(c) To be well-informed about important aspects of the products offered for
sale;
(d) To be protected against products and marketing practices which are
questionable; and
(e) To improve the „quality of life‰ through influencing products and
marketing practices.

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The concept of social responsibility is partly a response to consumerism. It covers


both production and consumption covering the aspects of the environment and
consumers. The social responsibility of business encompasses the economic,
legal, ethical and philanthropic expectations placed on organisations by society
(Carroll, 1996). Dibb et al. (2001) define social responsibility as follows.

Social responsibility is „an organisationÊs obligation to maximise its positive


impact and minimise its negative impact on society.‰

SELF-CHECK 8.1

1. Define consumerism.
2. List how the consumer movement seeks to improve the rights of
traditional buyers.
3. Discuss the criticisms of marketing from an ethical perspective.

8.2 APPROACHES TO ETHICAL


DECISION-MAKING
Most questions on marketersÊ marketing activities have to be answered from an
ethical perspective. Generally, there are five ethical theories that marketers can
refer to when addressing ethical dilemmas related to their marketing activities
(Schlegelmilch, 1998). The five approaches to ethical decision-making are shown in
Figure 8.1.

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Figure 8.1: The five approaches to ethical decision-making

Now, let us discuss the five approaches one by one.

(a) Relativism
Suggests that each situation is judged according to its own merits and
universal standards cannot be applied to judge the morality of a decision.

(b) Utilitarianism
Proposes that the moral merits of a decision lie in whether it serves the
greatest number of people. Thus, they answer the question „what makes a
moral act right?‰ by emphasising the greatest happiness of all. In making a
decision using this principle, one must determine whether the harm in an
action is outweighed by the good. If an action maximises benefits, then that is
the optimum choice among other alternatives that provide less benefit.

(c) Universalism or deontology


Advocates that the ends or successful results, do not justify a decision that is
unethical – „do unto others as you would have them do unto you‰.

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(d) The justice theory


Against the utilitarian approach, this theory is sought to guide the conduct of
parties. Based on the justice theory, society would at least conform to two
rules, which are:
(i) Each person is to have an equal right to the most extensive basic
liberties compatible with similar liberties for others; and
(ii) Social and economic inequalities are to be arranged so that they are
both reasonable and open to all.

(e) The virtue theory


This theory advocates acting in the true spirit of virtuousness and going
beyond mere duty and self-interest in doing so.

Due to the ethical dilemmas of acting in the interests of various stakeholders and
the possibility of clashes between personal and organisational ethics, most
organisations are actively producing ethical statement and codes of conduct as
point of reference for employees.

SELF-CHECK 8.2

1. Explain the five approaches to ethical decision-making.


2. Discuss the differences between utilitarianism and universalism.

8.3 ETHICS AND RELATIONSHIP MARKETING


Successful RM strategy relies on two-way communication and a series of
dialogue between a customer and the suppliers to identify customer needs and
wants. Keeping of promises, generation of trust and long-term commitment by
both parties are essential in RM. Successful RM can only be operationalised on a
platform of ethical behaviour by both parties involved. Unethical behaviour
could ruin trust and the chances of developing a long-term relationship.

8.3.1 Relationship Marketing and Ethical Issues in


Communication
Advancement in technology such as smart cards, Internet-enabled
communication, web-based applications and call centres makes it possible for
companies to obtain substantial information from customers. Technology-based

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TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING  143

collection of information is a prerequisite for the application of RM to retailing


and consumer service markets (Little & Marandi, 2003).

The ethical issues in communication are shown in Figure 8.2.

Figure 8.2: The ethical issues in communication

Exchange of up-to-date information between customers and suppliers is


important. The type of information collected is strictly for maintaining the
relationship between organisations and customers. Information about the
customer can take the form of structured transactional data such as contact
history and account balances as well as unstructured information such as letters
and faxes from the customer.

The purpose of information gathering must be told to the customers, not be used
for other purposes and not to be shared with other organisations without the
consent of the customers. The success of RM depends largely on how well this
information is converted into organisation-wide knowledge and finally customer
insight. This depends on the completeness, currency, accessibility and relevance
of the information.

Most customers will provide information when they are in a long-term


relationship based on the understanding that the information will be kept safe.
The development of trust is an investment in the relationship, which delivers
long-term payoffs. When trust exists between partners, risk and doubt are
reduced. Moreover, both partners are motivated to make investments in the
relationship such as sharing of sensitive personal information.

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144  TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING

8.3.2 Relationship Marketing and the Ethics of


Keeping Promises
Trust and commitment are essential ingredients for successful, long-term RM
(Buttle, 2004). Commitment arises from trust, shared value and the belief that
partners will be difficult to replace. Evidence of commitment is found in the
investment that one party makes in the other. The investment can include time
and money. A partnerÊs trust and commitment to a relationship is directly related
with regard to the keeping of promises. The breaking of promises can lead to bad
publicity, damage of trustworthy image and can destroy a long-term
relationship.

Thus, it is vital that the promises made have clear statements regarding quality,
refunds and delivery times. Unethical behaviour of stakeholders (other than
customers) is not favourable in building relationship with customers. At the
same time, customers have to respect the time and resources invested in the
relationship by suppliers and avoid opportunistic behaviour.

8.3.3 The Legal Implications of Unethical Relationship


Marketing
The application of RM strategies in consumer markets requires the continuous
utilisation of databases for analysis of customer data, profiling of customers and
to communicate with them. There are various laws imposed to protect
consumersÊ rights. Thus, personal information such as race, health and religion
must be handled with care and need full consent from the customers. Moreover,
the information gathered must not be used for purposes other than its original
purpose. Generally, there are eight principles that govern the utilisation of the
information (see Figure 8.3).

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TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING  145

Figure 8.3: Eight principles that govern the utilisation of the information

ACTIVITY 8.1

1. Discuss the relationship of ethical considerations and RM in


communication.
2. Explain the relationship between ethics and maintaining a long-
term commitment.

 Marketers have been criticised for their marketing activities.

 There has been an increasing awareness towards consumerism, ethical


behaviour and social responsibility among citizens and government agencies
to improve the rights and power of buyers and suppliers.

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146  TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING

 Utilisation of information, keeping of promises and the achievement of


mutual objectives are vital in the creation of trust and commitment in RM.

 The kind of information gathered and how the information is used in


implementing RM programmes are crucial in maintaining the privacy of
users.

Consumerism The justice theory


Ethics The virtue theory
Relativism Universalism/Deontology
Social responsibility Utilitarianism

Buttle, F. (2004). Customer relationship management: Concepts and tools.


Oxford, England: Elsevier Butterworth-Heinemann.

Dibb, S., Ferrell, O. C., Pride, W. M., & Simkin, L. (2001). Marketing: Concepts
and strategies. Boston, MA: Houghton Mifflin.

Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of
marketing. Harlow, England: Pearson Education.

Little, E., & Marandi, E. (2003). Relationship marketing management. Hampshire,


England: South-Western Cengage Learning.

Schlegelmilch, B. (1998). Marketing ethics: An international perspective. London,


England: Thomson Business Press.

Steiner, G. A., & Steiner, J. F. (1997). Business, government and society. New
York, NY: McGraw Hill.

Copyright © Open University Malaysia (OUM)


Topic  Key Account
9 Management
(KAM)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain key account management (KAM);
2. Describe key account development cycle;
3. Identify range of criteria for key accounts;
4. Describe key decisions and activities in designing key account
management; and
5. Explain the relevance of key account management to relationship
marketing.

 INTRODUCTION
Companies do not exist in isolation; they are positioned within a chain network. It is
the performance of the network that determines whether companies can achieve
their goals. Relationships with suppliers and customers are critical to the delivery of
value to both the company and its customers. For example, Toyota only
manufactures about 20 per cent of the value of its cars. It relies on a network of
approximately 50,000 supplier relationships to create and supply the input required
for the car manufacturer. The relationships enable to deliver what Toyota wants and
at the same time, enable them to meet their customersÊ requirements.

Moreover, suppliers may have ideas for product improvements, new product
development and process improvements. For instance, Boeing co-operates with
major international airlines in developing new aircrafts. This ensures that their
product innovations meet customer requirements and create a high probability of

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148  TOPIC 9 KEY ACCOUNT MANAGEMENT

acceptance for the aircraft. Meeting customer requirements through the


improvement of relationship between suppliers and customers offer the prospect
of reduction in direct input cost (Buttle, 2004). This is characterised as a shift from
a win-lose approach to supplier management to a win-win approach. Thus, many
companies now co-operate closely with their suppliers in a number of activities
such as product development and process improvements.

In this topic, we will discuss the key account development cycle, the criteria for
key accounts and the key decisions in designing key account management. We
will also discuss the relevance of key account management to relationship
marketing.

The following are some examples of Wal-MartÊs commitments to key vendors:

(a) Wal-Mart looks for a very close relationship and strong commitment with
its key vendors like Warner-Lambert. Highly valued: trust and integrity;
(b) Wal-Mart is willing to listen to new solutions, opinions and ideas;
(c) Analytical skills are essential when dealing with Wal-Mart. We will give
you access to all kinds of data. Use the data to build a win-win relationship;
(d) Wal-Mart hungers for consumer insight. We place great value on any
information that can improve our understanding of the people who shop at
Wal-Mart stores; and
(e) Prepare to engage the management. Wal-Mart management is as keen as
anyone to hear what business partners have to say. Do not feel bound by
hierarchy or categories.

9.1 WHAT IS KEY ACCOUNT MANAGEMENT?


Key account management (KAM) is often used interchangeably with National
Account Management (NAM), Strategic Account Management (SAM) and
Account Management (AM). The following is the definition of key account
management (KAM).

Key account management (KAM) is „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 companyÊs objectives now and in the future.‰
Kempeners & Van Der Hart (1999)

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TOPIC 9 KEY ACCOUNT MANAGEMENT  149

According to Little and Marandi (2003), the following are the three characteristics
of KAM:

(a) The conscious selection of key accounts


The starting point of KAM is the identification of customers who will be
seen as potential strategic partners.

(b) The development and maintenance of long-term relationships


Having identified the key customers, the organisation must have strategies
and systems in place to build and maintain business relationships with the
customers.

(c) The establishment of cross-functional processes for servicing accounts


In order to enable the other two features of the KAM programme, the
organisational structure and system must enable multifunctional processes
based around individual accounts.

KAM can also be described by the key activities that the suppliers undertake in
building and maintaining relationships (Homburg, Workman & Jensen, 2002).
These include the following:
(a) Special pricing;
(b) Customisation of products and services;
(c) Development of special products or services;
(d) Joint coordination of workflow;
(e) Information sharing; and
(f) Taking over the customerÊs business processes.

As KAM may occur at the individual as well as the organisational level, the
benefits of KAM can be classified into supplier, mutual and buyer benefits. Table
9.1 shows the major benefits of KAM.

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150  TOPIC 9 KEY ACCOUNT MANAGEMENT

Table 9.1: Major Benefits of Key Account Management

Supplier Benefits Mutual Benefits Buyer Benefits


 Increased turnover  Risk reduction in  Fit the offer to the
due to proper introducing new requirements of the
selection and products or services customers through
development of  Shared resources such product/service
accounts of high value as sharing of customisation
customers information among  Price reduction
 Lower production and companies and through efficiency
transaction costs suppliers in developing gains between both
 Increased profitability new products, process companies.
or strategies
 Innovation and
learning about market
needs
 Social relations among
individuals in the two
companies may lead to
employeeÊs satisfaction
and motivation.

9.2 THE KEY ACCOUNT DEVELOPMENT CYCLE


The selection and maintenance of KAM relationship are vital to the long-term
profitability of a KAM programme. According to Little and Marandi (2003), key
account relationships develop over time and require different treatment at
different stages of development. Generally, there are four stages in the key
account development cycle (see Figure 9.1).

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TOPIC 9 KEY ACCOUNT MANAGEMENT  151

Figure 9.1: Four stages in the key account development cycle

Now, let us discuss the stages one by one.

(a) Pre and early KAM


McDonald, Millman and Rogers (1997) describe this stage as the „scanning
and attraction stages‰. The supplier will identify potential key accounts and
gain information to make selection. At this stage, the suppliers are willing
to make adjustments to its standard offerings and customers are of
relatively low importance to the organisation. At this stage, the need is to
build on the initial order and find ways to keep the account.

(b) Mid-KAM
At this stage, the relationship between the supplier and the customer begins
to shift to a process where trust and commitment start to develop between
both parties. Reassurance of responsiveness and flexibility are now more
important and the objective is to seek and reinforce preferred supplier
status. The supplier begins to feel the importance of offering customer the
value added services in addition to its product and price. The number of
contact points between both parties will increase and senior level of
organisation realises the importance of managing the accounts.

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152  TOPIC 9 KEY ACCOUNT MANAGEMENT

(c) Partnership and synergistic KAM (mature KAM)


At this stage, the structural and social bonds between both parties
strengthen as the boundaries breakdown. There will be a series of regular
formal and informal contacts. Sharing of sensitive information and joint
problem solving become common practice. Both parties still operate as
independent businesses, but they see it in their interests to acknowledge the
interdependency and seek economies in operations and market
developments.

(d) Uncoupling KAM


A breach of trust may lead to relationship disintegration at any stage of
relationship. However, Millman and Wilson (1999) suggest that
relationship dissolution should not necessarily be viewed as a failure, since
it may be in the interest of a party to terminate a relationship.

ACTIVITY 9.1

1. List the four stages in the key account development cycle.


2. Discuss the benefits of KAM to an organisation.

9.3 IDENTIFYING KEY ACCOUNTS


The companies that explicitly define and identify key accounts are most
successful in targeting resources and these entities show a more sophisticated
understanding of their customers (Millman & Wilson, 1999). The criteria of key
account selection are as shown in Figure 9.2.

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TOPIC 9 KEY ACCOUNT MANAGEMENT  153

Figure 9.2: The criteria of key account selection

Let us now discuss the criteria of key account selection one by one.

(a) Relationship history


Longevity of the relationship can be an indicator of the strategic importance
of an account, constituting commitment and trust between both parties.

(b) Sale volume


This particular criterion is commonly accepted by an organisation in the
selection of key account as it is easily quantified and readily accepted by
players within the organisation.

(c) Profitability
Ojasalo (2001) stresses that high sales volume does not always lead to
profitability. Total revenue must exceed its service costs within a given time
frame. The quantification of profitability needs to consider the major costs
as well as benefits.

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154  TOPIC 9 KEY ACCOUNT MANAGEMENT

(d) Status
Association with prestige and good reputation of an organisation often
helps in winning future customers. Ojasalo (2001) identifies the fact that
organisations often derive benefits from association with a reputable
partner.

(e) Strategic compatibility


The compatibility between present and intended strategic fit that includes
product and as well as market arenas should be taken into account.

(f) Resources synergies


The ability of the organisation to leverage its resources or competences
effectively will distinguish it from its competitors.

(g) Ease of replacement


Krapfel, Salmond, and Spekman (1991) recommend that by calculating the
cost of replacing an existing customer or supplier, an organisation can
obtain useful quantitative measure of the relationshipÊs value.

Similarly, McDonald et al. (1997) highlighted three factors in developing


strategic partner among companies as follows:
(i) Product quality: Includes products as well as services;
(ii) Ease of doing business: Having a reliable and skilful purchasing
officer; and
(iii) People quality: Personality and skills of key contacts in the company.

SELF-CHECK 9.1

Explain the seven criteria of key account selection.

9.4 SERVICING KEY ACCOUNTS: KAM


ACTIVITIES
After understanding the key account criteria, the company needs to identify the
means where the relationship can be developed and enhanced. Based on the
criteria of key account selection, the activities that may be employed are as
follows (see Figure 9.3).

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TOPIC 9 KEY ACCOUNT MANAGEMENT  155

Figure 9.3: Some activities for the servicing key accounts: KAM activities

Now we will discuss further the KAM activities in detail.

(a) Quality improvement


McDonald et al. (1997); Millman and Wilson (1999) believe this becomes the
fundamental element of KAM and the prerequisite of a strategic relationship.
This is vital for a company to continuously develop products in response to the
market and the buyerÊs need as well as the competitor activity.

(b) Customisation
It may derive from physical modification of the product, or tailored service
and the supplier must be able to offer products which are not offered by
competitors.

(c) Information sharing


According to Selnes (1998), sharing of information can improve the
relationship because information is a valuable resource which expedites the
buyerÊs operation plan. Sharing sensitive information is seen as an
expression of trust by the buyer.

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156  TOPIC 9 KEY ACCOUNT MANAGEMENT

(d) Conflict resolution and problem-solving


The flexibility of the supplier in accepting responsibility to resolve the
buyerÊs problems is a key determinant of a buyerÊs trust in his or her
supplier (Selnes, 1998). In addition, the supplier must be able to respond
and tackle the difficulties faced by the buyer which can lead to repeat
purchase over time (Parasuraman, Zeithaml & Berry, 1998).

(e) Resource sharing


This refers to the ability to share resources for mutual advantage whether
for a temporary joint venture or the development of a permanent system or
resources.

(f) Communication
Communication is critical to the initiation, development and maintenance
of key accounts. Schultz and Evans (2002) suggest that customers are
concerned about efficient interaction where they feel informal
communication is less cumbersome than formal channels, customers prefer
a two-way communication, customers prefer to receive the personal touch
from companies and customers respond better to communication in which
they feel important.

9.5 SERVICING KEY ACCOUNTS: DEVELOPING


A KAM INFRASTRUCTURE
According to Shapiro and Moriarty (1984), there are five major types of key
account development programme (see Figure 9.4).

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TOPIC 9 KEY ACCOUNT MANAGEMENT  157

Figure 9.4: Five major types of key account development programme


Source: Shapiro & Moriarty (1984)

However, Homburg et al. (2002) identified seven types of KAM system (see
Figure 9.5).

Figure 9.5: Seven types of KAM system


Source: Homburg et al. (2002)
Let us discuss the types one by one now.

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158  TOPIC 9 KEY ACCOUNT MANAGEMENT

(a) Top-management KAM


It will involve the top management and the activity is centralised at the
organisationÊs headquarters. Most have dedicated sales managers who are
responsible for key accounts, and fully utilise key account teams.
Collaborative activities are carried out by proactive suppliers. However,
access to the functional resources is low.

(b) Middle-management KAM


It is a highly formalised programme but with less involvement from senior
management. KAM managers tend to be locally based, and enjoy less
prominent positions in the corporate hierarchy. Access to functional
resources is low.

(c) Operating-level KAM


It is a relatively formalised programme, which involves standardised
procedures and contributes value to the key account significantly. A large
proportion of account managers are based locally. However, senior
management involvement is low and access to functional resources is also
low.

(d) Cross-functional, dominant KAM


It is the most positive programme in which access to resources is high,
processes and structures are well developed, senior management
involvement is significant and key account managersÊ role is prominent as
well as proactive. The intensity of collaboration is high.

(e) Isolated KAM


It is a system in which KAM activities are instigated by sales effort locally.
However, the support from the central business units is low. In addition to
that, the access to the functional resources is limited, selling centreÊs esprit
de corps is low and involvement from senior management is moderate.

(f) Country-club KAM


It is a system with high degree of involvement from senior management.
However, structures and processes are poorly developed with teams hardly
ever formed. In addition, special activities are not intense and proactive.

(g) No KAM
The supplier may pay lip service to KAM system. No special activities are
undertaken.

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TOPIC 9 KEY ACCOUNT MANAGEMENT  159

Based on past studies, key account managers play an important role in


determining the effectiveness of KAM programme (McDonald et al., 1997;
Millman & Wilson, 1999). Generally, we can classify the role of key account into
five functions:
(a) Maintaining the sales and profitability of key accounts;
(b) Customising the sellerÊs total offering;
(c) Facilitating inter-level or inter-functional processes that add value to the
total offering;
(d) Promoting the KAM concept within the organisation; and
(e) Promoting the interests of the account within the organisation.

Furthermore, Schultz and Evans (2002) suggest the importance of communication


skills as the key competence that is important to key account managers. In
addition, Schultz and Evans (2002) have also highlighted the use of key account
teams.

In addition, McDonald et al. (1997) mention four skills and competences to


implement KAM:
(a) Integrity;
(b) Product service knowledge;
(c) Understanding of the suppliersÊ business and the environments; and
(d) Selling and negotiation skills.

SELF-CHECK 9.2

1. Explain the seven types of KAM systems.


2. Discuss the five functions of key account.

9.6 THE RELEVANCE OF KEY ACCOUNT


MANAGEMENT TO RELATIONSHIP
MARKETING
The KAM and the RM are considered the key marketing and sales function within
the company. As both KAM and RM work hand in hand to focus on relationships,
network and interactive. Table 9.2 illustrates the important general principles of
RM in relation to the KAM.

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160  TOPIC 9 KEY ACCOUNT MANAGEMENT

Table 9.2: General Principles of Relationship Marketing (RM) In Relation To KAM

Principles Description
Active support of senior RM initiatives must be supported by influential members
management of the organisation if they are to succeed.
The need for cross- The development of KAM relationships work better when
functional coordination they are supported by teams arranged around customers
rather than functional areas.
Importance of Communication plays important roles in building and
communication maintaining relationship with key accounts.

 Key account management (KAM) is often used interchangeably with National


Account Management (NAM), Strategic Account Management (SAM) and
Account Management (AM).

 Key account management (KAM) is defined as 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
companyÊs objectives now and in the future.

 The following are the four stages in the key account development cycle:
– Pre and early KAM;
– Mid-KAM;
– Partnership and synergistic KAM (mature KAM); and
– Uncoupling KAM.

 The criteria of key account selection are as follows:


– Relationship history;
– Sales volume;
– Profitability;
– Status;
– Strategic compatibility;
– Resources synergies; and
– Ease of replacement.

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TOPIC 9 KEY ACCOUNT MANAGEMENT  161

 The following are the activities in servicing key accounts:


– Quality improvement;
– Customisation;
– Information sharing;
– Conflict resolution and problem-solving;
– Resource sharing; and
– Communication.

 The following are the five major types of key account development
programme (Shapiro & Moriarty, 1984):
– No programme;
– Part-time programme;
– Full-time programme (unit level);
– Corporate-level programme; and
– National account division.

 Homburg et al. (2002) identified the following eight types of KAM system:
– Top-management KAM;
– Middle-management KAM;
– Operating-level KAM;
– Cross-functional, dominant KAM;
– Isolated KAM;
– Country-club KAM; and
– No KAM.

 The following are the general principles of relationship marketing in relation


to KAM:
– Active support of senior management;
– The need for cross-functional coordination; and
– The importance of communication.

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162  TOPIC 9 KEY ACCOUNT MANAGEMENT

Benefits of KAM Key account management (KAM)


Customisation Key account management
infrastructure
KAM activities
Resources synergies
Key account development cycle
Strategic compatibility

Buttle, F. (2004). Customer relationship management: Concepts and tools.


Oxford, England: Elsevier Butterworth Heinemann.

Homburg, C. J., Workman. J. P., & Jensen, O. (2002). A configurational


perspective on key account management. Journal of Marketing Research,
66(2), 38-61.

Kempeners, M., & Van Der Hart, H. (1999). Designing account management
organizations. Journal of Business and Industrial Marketing, 14(4), 310-335.

Krapfel, J. R., Salmond, D., & Spekman, R. (1991). A strategic approach to


managing buyer-seller relationships. European Journal of Marketing, 25(9),
22-48.

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: Thomson Learning.

McDonald, M. (2000). Key account management: A domain review. The


Marketing Review, 1(1), 15-34.

McDonald, M., Millman, T., & Rogers, B. (1997). Key account management:
Theory, practice and challenges. Journal of Marketing Management, 13(8),
737-757.

Millman, T., & Wilson, K. (1999). Processual issues in key account management:
underpinning the customer-facing organisation. Journal of Business and
Industrial Marketing, 14(4), 328-337.

Copyright © Open University Malaysia (OUM)


TOPIC 9 KEY ACCOUNT MANAGEMENT  163

Ojasalo, J. (2001). Key account management at company and individual levels in


business-to-business relationships. Journal of Business and Industrial
Marketing, 16(3), 199-218.

Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 12-40.

Schultz, R., & Evans, K. (2002). Strategic collaborative communication by key


account representatives. Journal of Personal Selling and Sales Management,
22(1), 23-32.

Selnes, F. (1998). Antecedents and consequences of trust and satisfaction in


buyer-seller relationship. European Journal of Marketing, 32(3), 305-322.

Shapiro, B. P., & Moriarty, R. T. (Eds.). (1984). Organizing the National Account
Force. Cambridge, MA: Marketing Science Institute.

Copyright © Open University Malaysia (OUM)


Topic  Customer
10 Relationship
Management
(CRM)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define customer relationship management (CRM);
2. Discuss the myths of CRM;
3. Explain the role of CRM in customer profiling and customisation;
and
4. Discuss the factors to be considered for a successful
implementation of CRM strategy.

 INTRODUCTION
Today, with more services available, organisations can no longer expect results
from broad advertising and marketing campaigns aimed at the broad mass of
customer. As the market becomes increasingly fragmented and commoditised,
organisations are finding it difficult to use traditional mass media marketing
techniques to capture market share. Broad marketing and advertising campaigns
are simply no longer as effective as they once were. One message does not fit all.

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TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  165

10.1 DEFINITIONS OF CUSTOMER


RELATIONSHIP MANAGEMENT
A better understanding on the customer needs is vital for organisations to
succeed in the future. The marketing activities must be more finely tuned and
priority should be given to managing the relationship with the customers.
Therefore, in order to maintain their existence in the market, organisations are
moving quickly to embrace customer relationship management (CRM). Most
academics view CRM as a technology-enabled relationship marketing, while,
from the practitioner approach, CRM is viewed as an information technology (IT)
project.

In order to have a better understanding on CRM, let us go through the


definitions of CRM in Table 10.1.

Table 10.1: Definitions of Customer Relationship Management (CRM)

Source Definition
Brown (2000) CRM is the process of acquiring, retaining and growing profitable
customers. It requires a clear focus on the service attributes that
represent value to the customer and create loyalty.
Payne (2001) CRM is a management approach that seeks to create, develop and
enhance relationships with carefully targeted customers.
Buttle (2004) CRM is the core business strategy that integrates internal processes
and functions, and external networks, to create and deliver value to
targeted customers at a profit. It is grounded on high-quality
customer data and enabled by IT.
Kumar & CRM is the practice of analysing and utilising marketing database
Reinartz (2006) and leveraging communication technologies to determine corporate
practices and methods that will maximise the lifetime value of each
individual customer to the firm.

As customers are becoming increasingly difficult to woo and bargain for low
prices in return of quality products and services; and prefer efficient and
convenient personal service, these new directions have encouraged companies to
focus on customers by servicing their needs and creating pleasant customer
experience. Moreover, the advancement of technologies has also contributed to
the development of CRM.

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166  TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

10.2 THE COMMON MYTHS OF THE


APPROACH TO CRM
CRM is not just the Internet or sales representative productivity; it is an entire
discipline for interacting with customers that touches all the front office
functions. CRM helps organisation to develop a customer focus that allows the
organisation to hear the customerÊs voice. Retaining customers and establishing
customer loyalty are major objectives of CRM approaches (Zikmund, McLeod, &
Gilbert, 2003). However, many organisations that invested in CRM fail to achieve
the benefits. One of the causes of the failure is due to the lack of understanding of
CRM. Some examples of the common myths of CRM are shown in Figure 10.1.

Figure 10.1: Examples of the common myths of CRM

Now, let us discuss the common myths one by one.

(a) CRM refers to the management of customers


Often CRM implies that the customers can be managed and manipulated to
behave in certain way. This is a mistake because customers usually manage
the organisation and decide on the purchase of a product.

(b) CRM software will solve all our problems


Most early CRM implementations were seen as IT initiatives – „buy CRM
application and all your trouble will be solved‰. CRM software is certainly
a necessary enabler but it does not offer a total solution. Knowing what to
do with the information is vital. The information needs to be translated into
real customer intelligence and used for marketing purposes such as market
segmentation, targeting, customer communication, customer retention and
customer development.
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TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  167

(c) CRM application will always pay for themselves


To achieve CRM success, organisation needs to invest in an IT
infrastructure. Another significant cost in developing an effective CRM
system is the price of process change. Process change implies an alteration
in the habitual pattern for accomplishing a task. As CRM investment
decisions are often vague and not clearly measurable, the customer and the
business benefits must be defined clearly and realistically.

(d) All customers love the new technologies


Since not all customers are comfortable with technology, organisations
need to be careful with the type of technology they adopt from CRM.

(e) Our organisation speaks to its customers with one voice


Conflicting objectives and measures across the departments often cause
misunderstanding with customers. To ensure CRM is successfully
implemented, organisation systems and processes must be evaluated based
on the customer experience.

SELF-CHECK 10.1

1. Define CRM based on what you have learned.


2. Discuss the five myths surrounding CRM.

10.3 CRM TOOLS AND CUSTOMER PROFILING


The idea of CRM is that it helps businesses to use technology and human
resources in order to gain insight into the behaviour of customers and the value
of those customers. To implement CRM, an organisation first needs the
technologies and functions to make it successful. The tools to be considered in an
organisationÊs CRM are shown in Figure 10.2.

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168  TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

Figure 10.2: Tools in an organisationÊs CRM

Once the tools and technologies are ready, the organisation will be able to
understand its customer needs and wants on an individual basis. One of the aims
of CRM is to build a mutually beneficial long-term relationship with customers,
either at a segment or at an individual level. To achieve this goal, the company
has to offer products or services that meet the requirements of customers.

According to Buttle (2004), data mining can be used for market segmentation and
customer valuation purposes. For example, in Business-to-Consumer (B2C)
context such as retailing, banking and home shopping, data mining is used for
customer profiling, segmentation and identification of the greatest potential
customer for the future. Thus, customers can be segmented based on the revenue
and margin value of the purchases they make.

A central element to effective CRM is storing and leveraging knowledge on the


customers. Besides using the Internet, CRM also uses call centres as interaction or
contact centre where the staff answer telephone calls and interact with the
customers. In order to track customersÊ activities on the companyÊs website as
well as to study customersÊ behavioural pattern, most organisations have data
warehousing and data mining.

Data warehousing provides a repository of large amounts of operational,


historical and customer data that need to be converted into information, while
data mining is the creation of intelligence from large quantities of data (Buttle,
2004).

Generally, data mining can provide answers to questions that are important for
CRM strategy development and implementation (see Figure 10.3).

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TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  169

Figure 10.3: Some important questions for CRM strategy development and
implementation

Data mining helps CRM in a number of ways such as the following:


(a) Provides relevant information that is not easily located from a large
database;
(b) Allows gathering of information from different locations ă data
warehousing;
(c) Helps to find associations between data, for example, the data may reveal
that customers who buy low fat yogurt are also big buyers of herbal health
and beauty products;
(d) Makes predictions on future behaviour and customer lifetime value
through historical purchasing behaviour;
(e) Allows classifying of customers according to the value they produce for a
company;
(f) Helps to discover sequential patterns, for instance, organisations might find
a rule that „if customers buy pants, then there is a 30 per cent probability
that they will buy shoes within the next three months‰; and

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170  TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

(g) Allows clustering of customers into groups; this is to minimise the


differences between members of a cluster while maximising the differences
between clusters.

A profile of the customer can be drawn up by combining the information


collected through various CRM systems such as call centre, the web and email. A
profile produced by CRM systems includes the information in Figure 10.4..

Figure 10.4: Information in a profile produced by CRM systems

SELF-CHECK 10.2

1. Explain how data mining can be useful to CRM successful


implementation.
2. Discuss how CRM is used for profiling and customisation.

10.4 STRATEGIC APPROACH TO CRM


CRM is much more than just a capability, a new tool or an isolated project. CRM is
a portfolio of customer-focused business capabilities; companies have to identify
their business needs before they start evaluating the technologies. They have to
engage their customers in a series of dialogue and talk session with their business
people so that they can pinpoint the challenges, communicate the desired state and

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TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  171

prioritise the needs based on their success metrics. Once they have done it, they
have a roadmap to move forward. Companies will then need to talk to vendors
about how to help them develop and manage their portfolio. The long-term
planning of customer initiatives, which is based on corporate strategy and reflected
in portfolio of projects, is not only a CRM best practice; it is the future of CRM.

The goal of CRM cannot be achieved overnight. CRM usually requires significant
changes in the systems, information management practices, business processes,
and organisational and employee behaviour in order to be successful. According
to Little and Marandi (2003), there are several considerations for a successful
implementation of CRM strategy (see Figure 10.5).

Figure 10.5: Several considerations for successful implementation of CRM strategy

Let us now look into the considerations in greater detail.

(a) Top management that believes and is committed to the customer at the
centre of activity
A successful CRM strategy starts from the top of the organisation, which
requires a major cultural change within the organisation. If the top
management does not initiate the appropriate structural design and reward
systems, the results of CRM efforts could be insignificant or even negative.
Changes in attitudes as well as continuous training in all aspects of
marketing, operation as well as technology must be emphasised.

(b) Integration of channels


Companies often face the challenge of integrating data from several sources
into a coherent single view of the customer. Failure to integrate databases
may lead to inefficiency and damage customer relationships. Therefore, the
successful operation of CRM requires a seamless operation and

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172  TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

multichannel integration of the processes and the channels involved such as


e-tailing, m-tailing, call centres, sales force and communication system.
Besides that, the channel integration also allows customers to have a
method of contact with the supplier.

(c) Building of trust


Trust exists when one party has confidence that he or she can rely on the other
exchange partner. Trust means a customer believes that the marketer is reliable
and has integrity (Omar, Alam, Abd Aziz, & Nazri, 2011). Customers need to
trust not only the supplier but also the technology, which is the facilitator of
the relationship between them and the supplier. Having a reliable security
device within the CRM systems, clear communication and stringent policy of
security and privacy (in a company) concerning the customers are important.
When there is trust in a relationship, all partners believe that none will become
opportunists.

(d) Cost
CRM system requires a significant investment in the organisationÊs
information technology (IT) infrastructure such as software licenses and
updates, firewalls for security, personnel to install and maintain system,
training for system users etc. With continuous development in technology
and improvements to systems, those responsible to adopt and implement
CRM strategy must think carefully by choosing the right program from the
selected suppliers.

Organisations need to have a clear measure of the benefits of engaging in a


relationship and managing relationships with different categories of
customers. By using the software to calculate customer lifetime value and
target the right customers, CRM can help companies reap the benefits of
having loyal customers. Companies that find CRM technology too
expensive can opt to outsource the CRM service.

SELF-CHECK 10.3

1. Explain the four considerations for a successful implementation


of CRM strategy.
2. Define trust and explain its role in CRM.

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TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  173

 Therefore, in order to maintain their existence in the market, organisations


are moving quickly to embrace customer relationship management (CRM).

 The following are examples of the common myths of CRM:


– CRM refers to the management of customers;
– CRM software will solve all our problems;
– CRM application will always pay for them;
– All customers love the new technologies; and
– Our organisation speaks to its customers with one voice.

 The tools to be considered in an organisationÊs CRM are as follows:


– Call centres;
– Sales force;
– Website or e-CRM;
– Customer service and help desks;
– Point of sale terminal;
– Voice response systems;
– Mobile communication device (m-CRM);
– Service history;
– Analytical and predictive modelling; and
– Smart card.

 CRM Tools and customer profiling can be described as follows:


– Data warehousing provides a repository of large amounts of operational,
historical and customer data that need to be converted into information.
Data mining is the creation of intelligence from large quantities of data
(Buttle, 2004); and
– Data mining can be used for market segmentation and customer
valuation purposes.

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174  TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

 Data mining helps CRM in the following ways:


– Provides relevant information;
– Allows gathering of information;
– Helps to find associations between data;
– Makes predictions;
– Allows classifying of customers;
– Helps to discover sequential patterns; and
– Allows clustering of customers into groups.

 The considerations for successful implementation of CRM strategy are:


– Top management commitment to customer;
– Integration of channels;
– Building of trust; and
– Cost.

Customer relationship management Data warehousing


(CRM)
Data mining
CRM criticisms
Trust
Customer profiling
Channel integration
Customisation

Brown, S. A. (2000). Customer relationship management: A strategic imperative


in the world of e-business. NewYork, NY:Wiley.

Buttle, F. (2004). Customer relationship management: Concepts and tools.


Oxford, England: Elsevier Butterworth Heinemann.

Kumar, V., & Reinartz, W. J (2006). Customer relationship management: A


database approach. Hoboken, NJ: John Wiley and Sons.

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TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  175

Little, E., & Marandi, E. (2003). Relationship marketing management. London,


England: South-Western Cengage Learning.

Omar, N. A., Alam, S., Abd Aziz, N., & Nazri, M. A. (2011). Retail loyalty
programs in Malaysia: The relationship of equity, value, satisfaction, trust
and loyalty among cardholders. Journal of Business Economics and
Management, 12(2), 332-352.

Payne, A. (2001). Steps to a strategy: The IT report for directors and decision
makers. Conspectus, 14-16.

Zikmund, W. G., McLeod, R. Jr., & Gilbert, F. W. (2002). Customer relation


management: Integrating marketing strategy and information technology.
Hoboken, NJ: John Wiley & Sons.

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