Relationship Marketing

Table of contents

A. Introduction 2

B. Theoretical framework 3

Introduction to Relationship Marketing 3

Relationship Quality and Value 6

Customer satisfaction 8

Trust & Commitment 9

Importance of management 10

C. Discussion 11

CRM, the tool to apply relationship marketing 11

Selecting the Right Customer 14

Customer Information, a Strategic Marketing tool 16

Buyer Supplier Relationship 20

Reverse Marketing, another perspective to Relationship Marketing 23

Buyer is Marketer 24

D. Conclusion 26

E. References 27

A. Introduction

Maximizing long-term profitability comes from maximizing customer equityÐ'--firms must maximize the lifetime value of the customer, including revenues, referrals as well as costs of serving the customer. Customer acquisition and retention efforts must be guided by the worth of the customer to the firm.

Maytag provides premium service to its premium customersÐ'--those who purchase the Neptune line of laundry machines. Neptune customers get a dedicated staff, a separate toll-free number and fast response on service calls. This is an example of the common business practice where firms allocate resources by the profitability and value of the customer. They utilize the opportunity in directly interacting with individual customers to determine customer profitability and allocate assets accordingly. And what are the benefits of the practice of differentiating among your customers?

B. Theoretical framework

Introduction to Relationship Marketing

The definition for relationship marketing according to the chartered institute of marketing is "Ð'... the process of getting closer to the customer by developing a long-term relationship through careful attention to service needs and their quality delivery".

The need for relationship marketing stems from the changing dynamics of the global marketplace and the expanding requirements for competitive success (Rich 2000). Literature seems to agree that the relationship approach is an emerging perspective in marketing literature (Gummerson 1997, Moller and Halien 2000). Scott (1995) stated the progression of relationship marketing by suggesting that "Relationship selling moves the dyadic exchange associated with personal selling from a short-term transaction orientation to a life-long process where immediate closings might be postponed on the basis of more effectively meeting customer needs", as Yau et al. (1999) stated "The primary impetus behind the concept of relationship marketing is to foster a long-term relationship and thereby create repeat purchases".

Wilson and Jantrania (1996) found that although relationship marketing is a relatively new concept, the whole idea of relationship is not when stating that "The importance of creating relationships is not a new concept, but to use relationships as a strategic weapon is".

Relationship marketing originates from many stems of research therefore varying interpretations of the term arise (Gummerson 1996). According to Gronroos (1991) "Ð'...the aim of relationship marketing is to establish, maintain and enhance relationships with customers and other parties, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfillment of promises". Ravald and Gronroos (1996) took this further when suggesting "exchanges are not considered individually (transactional based) but becoming meaningful insofar as they are connected to another past or future episodes". However, Yau et al (1999) stated concern about the exchange theory stating "Ð'... It is still not clear whether the exchange theory can sufficiently explain the existence of relationships.

In conjunction with most of theorists, Morgan and Hunt (1994) defined relationship marketing as "all marketing activities directed toward establishing, developing, and maintaining successful relational exchanges".

In later work Hunt (1997) said that relationship marketing can be seen as a means of gaining competitive advantage especially through the acquisition of intangible assets. Primary findings indicate a regular positive response to literature of relationship marketing and its abilities in the business world.

Findings that relationship marketing can help introduce successful strategies were put forward by Li and Nicholls (2000) who said "For most companies, the adoption of relationship marketing approach represents a strategic choice". The need for relationship marketing was stated by Paul (1998) "As the business environment changes and customers become more demanding, firms must practice relationship marketing to compete effectively".

However, not all research supports the advantages of relationship marketing. Those outside of the marketing world find marketers less than productive for the compensation they receive. They feel marketers should eliminate their obsession with loving customers since it has become a distraction from the basics of selling and tracking the origins of sales success (Shaw 1999) and research by Moorman et al. (1992) was unable to support the hypothesized link between relational factors and client's use of marketing services. However, Smith (1991) conducted research which showed a positive correlation between relationship marketing and business performance. His research studied direct marketing in the insurance sector and found that relationship marketing will help to maximize long-term profitability.

Theorists also admit that much of what is written is untrue or substantiated; Gummerson (1996) stated that much of what is written on relationship marketing is theoryless. " ..a stack of fragmented philosophies, observations and claims which do not converge in the direction of emerging relationship marketing theory". He gives the example that relationship marketing