Asal usul pemasaran boleh dikesan melalui revolusi Industri sekitar tahun 1750an , bila manusia menemui proses pengeluaran secara massa- Consumer Marketing.
Perkembangan sejarah manusia memberi impak terhadap teori dan amalan pemasaran. Antaranya isu persekitaran yang melahirkan Pemasaran hijau, revolusi maklumat melahirkan pemasaran digital atau maya.
Philip Kotler (2000) mentakrifkan pemasaran sebagai satu proses sosial dan pengurusan oleh individu atau kumpulan untuk memperolehi sesuatu melalui pertukaran antara satu dengan yang lain.
Manakala Persatuan Pemasaran Amerika pula mentakrifkan seperti berikut :
” Pemasaran ialah satu proses, aktiviti dan kemahiran sosial oleh individu atau kumpulan untuk mencapai matlamat melaui rekaan, ciptaan, pembentukan dan pertukaran barangan , perkhidmatan, idea atau sesuatu yang bernilai dalam sebuah masyarakat.
Pemasaran adalah satu cabang daripada bidang sains sosial atau sains kemasyarakatan , bermakna pemasaran wujud di tengah-tengah masyarakat. Apabila ada sesuatu kelompok manusia yang hidup bermasyarakat , maka akan wujud aktiviti pemasaran. Manusia yang hidup bermasyakat saling bergantungan antara satu sama lain. Ianya banyak berkait dengan dunia perniagaan dan syarikat-syarikat besar. Kini, pemasaran digunapakai oleh institusi yang bukan berorientasi keuntungan seperti badan amal kelab , kelab sukan dan jabatan kerajaan.
Masih terdapat kekeliruan tentang pemasaran. Pemasaran bukan jualan . Jualan terjadi bila peniaga tanpa memikirkan apa yang di perukan oleh pengguna. Manakala konsep pemasaran pula di hasilkan bermula sebelum produk atau perkhidmatan di pasaran , syarikat akan berusaha mengenal pasti apa yang dikehendaki oleh pelanggannya. Usaha pemasaran bermula dengan pelanggan.
Dalam membincangan konsep dan keperluan adalan asas dalam pemasaran. Keperluan merupakan konsep yang paling asas dan merujuk kepada sesuatu yang mesti didapati oleh seseorang individu atau kumpulan manusia, sebagai contoh , makanan , tempat tinggal dan pakaian. Keperluan berlaku apabila seseorang berasa kekurangan secara fisiologi, barangan asas . Manakala kehendak merupakan keinginan manusia yang dicorakkan oleh budaya, persekitaran dan personaliti individu itu .Bila lapar inginkan makan sesuatu.
Pemasaran tidak berhenti setakat itu sahaja, Pemasaran bersifat dinamik dan selalu mengalami perubahan. Perubahan ini seharusnya berlaku untuk menyesuaikan dengan kemajuan zaman. Pada hari ini kemahiran pemasaran semakin diperlukan oleh setiap organisasi. Ini kerana pemasaran adalah satu proses , aktiviti dan kemahiran sosial . Ia juga satu cabang Sains Kemasyarakatan.
Pemasaran Hubungan
Kini , strategi kebanyaka syarikat telah beralih daripada pemasaran massa kepada pemasaran hubungan. Pada masa lalu , kebanyakan syarikat lebih memberi tumpuan mencari pelanggan baru untuk menjual barangan atau servis. Pemasaran hubungan sebagai ramuan pengerak kepada syarikat yang mendatar.
Konsep Pemasaran hubungan secara umumnya adalah strategi mengekalkan pelanggan yang sedia ada dan memberikan servis dengan membina hubungan yang berpanjangan.
Hubungan pelanggan tidak sekadar hubungan rasional sahaja, tetapi susah jauh memasuki dalam emosi pelangan. Ianya bukan stakat” Market share” tetapi telah menjadi ” Mind and Heart share”
Kunci kepada usaha membina hubungan yang berkekalan ialah membentuk nilai dan kepuasan pelanggan. Kepuasan pelanggan akan menghasilkan kepercayaan dan hubungan jangka panjang yang berterusan . Maka terciptalah kesetiaan pelanggan.. Pelanggan yang berpuashati akan membuat pembelian yang berulang-ulang dan mereka akan memberitahu pengguna lain tentang pengalaman mereka menggunakan barangan dan servis . perkara pokok disini ialah memadankan jangkaan pelanggan ( Expectation ) dengan prestasi perkhidmatan .
Kepuasan pelanggan adalah perkara yang utama. Pertimbangan yang di buat oleh pelanggan adalah berdasarkan pada pengalaman-pengalaman masa lalu atau sebelumnya dan kualiti keseluruhannya dibandingkan dengan perkhidmatan yang sebenarnya. Bila pengalaman sebelumnya melampaui harapan maka kepuasan berkemungkinan akan tinggi. Manakala pengalaman yang mengecewakan mengurangkan hubungan perniagaan.
Globalisasi memberi pengaruh cukup besar bagi pemasaran masa kini. Walau bagaimanapun ianya tidak lari dari tiga komponen utama iaitu pelanggan , pesaing dan perusahaan.
Strategi mengekalkan pelanggan semasa dan membina hubungan jangka masa yang panjang dan berterusan dan ini menguntungkan kedua –dua pihak.
Pelanggan membentuk jangkaan mengenai nilai terhadap tawaran yang dibuat dan terus membuat keputusan berdasarkan jangkaan ini. Pelanggan yng berpuashati banyak memberi faedah kepada syarikat. Mereka kurang sensitif kepada harga , bercakap positif tentang syarikat dan setia untuk jangka masa yang panjang kepada syarikat.
Banyak syarikat membentuk program kesetiaan dan mengekalkan pelanggan. Mereka memberi nilai dan kepuasan dengan menggunakan alat pemasaran untuk membina hubungan yang kukuh dengan pelanggan.
Saturday, February 28, 2009
RM & CRM -EXAMPLE of AN ASSIGNMENT
Relationship marketing and CRM
1. Introduction
Marketing is all about satisfying customer’s needs and wants by delivering suitable products or services. Relationship marketing is developing and nurturing strong customer relationships overtime. Marketing is facing a new paradigm, relationship marketing (Gronroos, 1994) The focus is shifting from the activity of attracting customers to activities which concern having customers and taking care of them. The core of relationship marketing is relations, maintenance of relations between the company and the actors in its microenvironment, i.e supplier, market intermediaries, and the public and of course customers as the most important actor.
Customer relationship management (CRM) has generally been assumed to create a
competitive edge for an organization, as well as to have a positive impact on organizational performance. However, there is still much debate over exactly what constitutes CRM.
In fact, many scholars have claimed that the precise meaning of CRM is not always clear in the literature (Nevin, 1995; Parvatiyar and Sheth, 2001). Furthermore, Nevin (1995) notes that the term has become a buzzword, with the concept being used to reflect a number of differing themes or perspectives. For example, at a tactical level, CRM may mean database marketing (Peppers and Rogers,1995) or electronic marketing (Blattberg and Deighton, 1991). At a strategic level, CRM may mean customer retention or customer partnering (Peppers and Rogers, 1993; Vavra, 1992). At a theoretical level, CRM may mean an emerging research paradigm in marketing (Parvatiyar and Sheth, 2001).
Thus, a clarification and conceptualization of this construct is needed to ensure that our knowledge of CRM grows in a “cumulative” way. Moreover, while we observe that there has been an increase in the attention paid to CRM by practitioners and academics, to date no systematic attempt has been made to develop a valid measure of it, or to assess its influence on business performance.
2. Relationship marketing and CRM
The relationship marketing (RM) literature is a theoretically, ideologically and empirically rich documentation of marketing practice beyond the mass-market focus of the mainstream marketing literature. Originating in the late 1970s on the edges of marketing practice (i.e. services, business-to-business, channel management), by the end of the 1980s RM was being proposed as a solution to some of the problems faced by mass marketers (see Dwyer et al., 1987). The 1990s represented the golden years for RM, as evidenced by the increasing academic and practitioner attention afforded to it.
Indeed, it might be argued that mass marketers attempted to obtain ownership of RM from their colleagues in services, industrial and channel contexts through the formulation and propagation of customer relationship management (CRM) as a mass marketing strategy or tactic.
While, in principle at least, CRM is influenced by the richness of RM, its almost exclusive focus on managing relationships with the end customer (as opposed to relationships with suppliers, competitors, intermediaries, etc.) may be somewhat counterproductive. We say counterproductive because most of the interaction that occurs with respect to a product or service in the mass-market happens within the channel and, as such, CRM deployments fail to influence many relevant exchanges within the network. Moreover, the management of supposed relationship outcomes,rather than relationship processes, must make it difficult to achieve those outcomes.
Perhaps not coincidentally, despite the extensive time, money and technology devoted
to CRM, results have been disappointing (Johnson, 2004; Kale, 2004) and many
managers are now sceptical or hostile to CRM deployments (Patron, 2002; see
commentary in McNulty et al., 2003).
To address this general issue in more detail, we undertake the following. First, we review briefly the rationale behind RM. Second, we outline the nature of CRM and critique its partial appropriation of the ideology and concepts of RM. Third, we identify and explore some problematic issues in the narrow treatment of CRM by focusing on the failure within CRM to understand that consumers are parts of complex, dynamic systems. Fourth, we argue that, in consumer markets, marketers need to re-engage with the RM ideal to prevent its ideological and conceptual richness being lost. In doing this, we clearly share the view of others (e.g. Fournier et al., 1998) that CRM, as it is currently envisaged and enacted, risks a premature death.
As such, we advocate an increased focus of the processes of engagement, which are themselves the desired outcomes of relationships and not instruments for achieving something else as CRM deployments typically presume. We also acknowledge that in many cases consumers do not want relationships with particular firms or that firms do not have the
relationship experience and expertise to enact successful RM programmes. In such
cases, improved execution of mix management programmes would seem to be most
appropriate (e.g. O’Malley and Mitussis, 2002).
The ideological appeal of RM has rarely been questioned and has regularly been appropriated in various “calls to arms” to instigate paradigm shifts in the theory and practice of marketing (e.g., McKenna, 1991; Blattberg and Deighton, 1991; Shani and Chalasani, 1992; Gro¨nroos, 1994; Ha°kansson, 1982; Morgan and Hunt, 1994). Traditional marketing, it has been argued, has failed in that (despite the extensive rhetoric) customers have been put last, not first (Brownlie and Saren, 1992; Desmond, 1997; O’Malley and Patterson, 1998). This inherent lack of customer focus on behalf of organisations led many consumers to conclude that organisations generally over-promise and under-deliver (Sisodia and Wolfe, 2000; O’Malley and Prothero, 2004).
This has earned marketing and associated public relations activities a much-maligned image as instruments of corporate manipulation (Fitchett and McDonagh, 2000). RM was positioned in such a way as to address this poor image directly by instigating a fundamental transformation in the practice of marketing. It heralded a distinct move away from customer manipulation and toward genuine customer involvement becoming, in the process, a champion of corporate credibility (McKenna, 1991).
Moreover, such a transformation would also increase both the efficiency and effectiveness of marketing by bringing the customer into a cooperative partnership with the organisation (Sheth and Parvatiyar, 1995; Gordon, 2000). Rather than competing on economies of scale, as had been the norm, organisations could leverage these relationships and compete on economies of scope (Gordon, 2000).
Although past studies have made significant progress toward understanding the importance of cooperative and collaborative relationships between buyers and sellers (e.g. Berry, 1983, 1995, 2002; Crosby et al., 1990; Dwyer et al., 1987; Hart and Johnson, 1999; Morgan and Hunt, 1994; Palmer, 2000; Sheth and Parvatiyar, 1995), two questions remain unanswered:
(1) What precisely is CRM?
(2) How can it be implemented properly in a business organization?
In the marketing literature, the terms CRM and relationship marketing are used almost
interchangeably (Parvatiyar and Sheth, 2000). For example, Berry (1983) defines
relationship marketing as “attracting, maintaining and enhancing customer relationships.”
Harker (1999) proposes the following definition: “An organization engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers (partners) over time is engaged in relationship marketing.” Recently, by broadening the scope of relationship marketing and viewing it in a comprehensive management and social context, Gummesson (2002b) defines it as “marketing based on relationships, networks and interaction,recognizing that marketing is embedded in the total management of the networks of the selling organization, the market and society. It is directed to long term win-win relationships with individual customers, and value is jointly created between the
parties involved.”
On the other hand, Jackson (1985) suggests CRM to mean “marketing oriented toward strong, lasting relationships with individual accounts.” Payne (2000) asserts that CRM is concerned with “the creation, development and enhancement of individualized customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value.” Recently, Kotler and Armstrong (2004) define CRM as “the overall process of building and maintaining profitable customer relationships by delivering superior customer value andsatisfaction.”
Although the above definitions differ somewhat, they all indicate that the core theme of CRM and relationship marketing perspectives revolves around its focus on individual buyer-seller relationships, that these relationships are longitudinal in nature, and that both parties benefit in the relationship established. In short, from a firm’s perspective, both the CRM and relationship marketing concept can be viewed as a distinct organizational culture/value that puts the buyer-seller relationship at the center of the firm’s strategic or operational thinking.
In spite of the commonalities described above, some important differences between CRM and relationship marketing do exist: first, relationship marketing is relatively more strategic in nature, whilst CRM is used in a more tactical sense (Ryals and Payne,2001; Zablah et al., 2004). Second, relationship marketing is relatively more emotional and behavioral, centering on such variables as bonding, empathy, reciprocity, and trust (Yau et al., 2000).
On the other hand, CRM is more managerial per se, focusing on how management can make concerted efforts in attracting, maintaining, and enhancing customer relationships. Third, relationship marketing embraces not just the supplier-customer dyad (Gummesson, 2002b) but encompasses the building of relationships with stakeholders, such as suppliers, internal employees, customers, and even government as well (Morgan and Hunt, 1994), but CRM is more dedicated to building relationships with key customers (Tuominen et al., 2004).
Disappointedly, despite its increasingly acknowledged importance, little research has focused on the proper implementation of the CRM concept. Scattered research efforts have been observed in the realm of maintaining a deep customer focus (e.g. Vandermerwe, 2004), reengineering the organizational structure (e.g. Ryals and Knox, 2001), and managing knowledge by leveraging the use of information technology (e.g. Stefanou et al., 2003). There is no theoretical, integrative framework to delineate how the CRM concept can be properly translated into a comprehensive set of concrete organizational activities conducive to CRM success. Furthermore, very little has been done in terms of creating a valid measurement scale and testing the concept empirically. Thus, it is the goal of this paper to propose a conceptualization of the basic dimensions of CRM, as well as to develop a reliable and valid measurement scale for these dimensions. In this study, we define CRM as “a comprehensive strategy and process that enables an organization to identify, acquire, retain, and nurture profitable customers by building and maintaining long-term relationships with them.”
3. The components of CRM
Based on past related literature (Crosby and Johnson, 2001; Day, 2003; Fox and Stead,
2001; Kalustian et al., 2002; O’Halloran and Wagner, 2001; Paracha and Bulusu, 2002;
Ryals and Knox, 2001; Tiwana, 2001) and indepth interviews with CRM managers,
we hypothesize that CRM is a multi-dimensional construct consisting of four broad
behavioral components: key customer focus, CRM organization, knowledge
management, and technology-based CRM (see Figure 1). This is in accord with the
notion that successful CRM is predicated on addressing four key areas: strategy;
people; technology; and processes (Fox and Stead, 2001), and that only when all these
four work in concert can a superior customer-relating capability emerge (Day, 2003).
For a business to maximize its long-term performance in such aspects as customer
satisfaction, trust, return on sales, and return on investment, it must build, maintain,
and enhance long-term and mutually beneficial relationships with its target buyers. We
will discuss each component and then describe our research methodology along with
the findings from our analysis.
4. Key customer focus and lifetime value identification
Key customer focus involves an overwhelming customer-centric focus (Sheth et al.,
2000; Vandermerwe, 2004), and continuously delivering superior and added value to
selected key customers through personalized/customized offerings. Key facets of this
dimension include customer-centric marketing, key customer lifetime value identification, personalization, and interactive cocreation marketing.
Customer-centric marketing, which has been gaining momentum as we enter the new millennium, is the endeavor to understand and satisfy the needs, wants, and resources of selected individual consumers (Sheth et al., 2000).
CRM stresses the deliberate selection of key customers who are of strategic significance, as not all customers are equally desirable (Ryals and Knox, 2001) and profitable (Thomas et al., 2004). This can be illustrated by the hotly discussed Pareto 80/20 rule: 80 percent of a firm’s profit comes from 20 percent of its customers (Hoffman and Kashmeri, 2000; Ryals and Knox, 2001). Having meticulously selected key customers, a CRM-oriented company should make every effort to understand their needs and wants, which is crucial to developing strong relationships with them.
Customer lifetime value is defined by Jain and Singh (2002) as “the net of the revenues obtained from that customer over the lifetime of transactions with that customer minus the cost of attracting, selling, and servicing that customer, taking into account the time value of money.”
In CRM,marketers assess the lifetime value of each customer individually to decide whether to
build a relationship with him/her and provide customized offerings. This decision should enhance company profit by focusing on profitable customers via more customized offerings, and reducing the subsidization of unprofitable customers.
5. Personalization.
Personalization is defined as the practice of one-to-one marketing through the use of mass customization (Dyche´, 2002; Hart, 1995), allowing customers to seek unique solutions to their specific needs. The great diversity in the needs, wants,and resources of customers makes customer behavior less predictable and forecasting less accurate. In this environment, mass marketing is rendered obsolete. Successful companies must rapidly adjust their supply to meet demand by relationship-based marketing, which strives to tailor marketing to individual customers.
Interactive cocreation marketing. The ongoing two-way communication between exchange partners in cocreation marketing, where both marketers and customers interact in aspects of product design and production, is considered critical for establishing and maintaining strong relationships (Berry, 1995; Day and Montgomery,1999; Fox and Stead, 2001; Morgan and Hunt, 1994; Narayandas and Rangan, 2004).
The key to cocreation marketing is collaboration, cooperation, and communication.
Through this, firms can work with individual customers to offer customized solutions,
create relationship value, enhance customer loyalty, and reduce the cost of doing
business.
6. CRM organization
CRM essentially means fundamental changes in the way that firms are organized
(Ryals and Knox, 2001) and business processes are conducted (Hoffman and Kashmeri,
2000). Firms should pay heightened attention to the organizational challenges inherent
in any CRM initiative (Agarwal et al., 2004). The key considerations to successfully
organize the whole firm around CRM include organizational structure,
organization-wide commitment of resources, and human resources management.
Organizational structure. CRM requires that the entire organization work towards
the common goal of forging and nurturing strong customer relationships. As such, the
organizational structural designs that most effectively optimize customer relationships
include the establishment of process teams, customer-focused teams (Sheth and
Sisodia, 2002), cross-discipline segment teams, and cross-functional teams (Ryals and
Knox, 2001). All these structural designs demand strong interfunctional coordination
(Sheth et al., 2000) and interfunctional integration.
Organization-wide commitment of resources should follow after crafting the design of organizational structure and integrating properly those involved components. In particular, sales and marketing resources, technical expertise, as well as resources promoting service excellence should all be in place. The success of customer acquisition, development, retention, and reactivation all hinges on the company’s commitment of time and resources towards
identifying and satisfying key customer needs (Nykamp, 2001).
Human resources management. Strategy, people, technology, and processes are all vitally important to CRM, but it is the individual employees who are the building blocks of customer relationships (Brown, 2000, p. xvii; Horne, 2003; McGovern and Panaro, 2004; Ryals and Knox, 2001). According to Krauss (2002), “[t]he hardest part of becoming CRM-oriented isn’t the technology, it’s the people.” Internal marketing, where human resources and marketing interface, instills in employees the utmost importance of service-mindedness and customer orientation (e.g. Gro˝nroos, 1990). The four significant internal marketing processes include market training and education, internal communication, reward systems, and employee involvement.
7. Technology-based CRM
Accurate customer data is essential to successful CRM performance (Abbott et al.,2001) and, consequently, technology plays an important role in CRM in adding to firm intelligence (Boyle, 2004). In fact, the startling advances in IT equip enterprises with the capability to collect, store, analyze, and share customer information in ways that greatly enhance their ability to respond to the needs of individual customers and thus to attract and retain customers (Butler, 2000).
The promise of one-to-one relationships, customer-value analysis, and mass customization (Hart, 1995) are now brought to reality by unprecedented advances in IT, transforming the traditional approach to CRM to an integrated, web-enabled approach, featured by tools like customerinformation systems, automation of customer support processes, and call centers (Ghodeswar, 2001).
CRM calls for “information-intensive strategies” which utilize computer technologies in building relationships, leveraging existing technology and rigorously linking technology deployment to targeted business initiatives (Harding et al. 2004). Computer technologies such as computer-aided design/manufacturing,flexible manufacturing systems, just-in-time production databases, data warehouses,data mining, and CRM software systems enable firms to provide greater customization with better quality at lower cost. It also helps staff at all contact points serve customers better. Many customer-centric activities would be impossible without appropriate
technology.
The ability to develop successful customer relationships lies in an organisation’s ability to understand its customers, their individual preferences, expectations and changing needs. In other words, organisations need to understand “real customers on an individual basis” (Sisodia and Wolfe, 2000, p. 551, original emphasis) and communicate with them appropriately. The complexity of contemporary markets renders such customer intimacy difficult (Di Tienne and Thompson, 1996). As a consequence, the collection, analysis and use of information to identify, understand and meet customers’ needs is crucial to the successful implementation of RM in mass markets. As a result, technology, initially in the form of the database, is widely
regarded as the core of CRM with data used “to build a long-term connection between
the company and consumer” (Copulsky and Wolf, 1990, p. 17). As such, CRM can be
regarded as a “business strategy that uses information technology to provide an
enterprise with a comprehensive, reliable, and integrated view of its customer base so
that all processes and customer interactions help maintain and expand mutually
beneficial relationships” (Zikmund et al., 2002, p. 3).
8. Conclusion
CRM, as an emerging paradigm in marketing, will remain underdeveloped until its key dimensions have been identified and operationalized. In fact, Gummesson (2002a) comments that CRM, as an emerging discipline, is in need of further theoretical development. The identification of the key dimensions of CRM is therefore very important. It is no longer sufficient to advise practitioners or researchers that the key to successful marketing is through CRM without providing information on what dimensions actually constitute relationships upon which CRM can be considered to exist. There are also lessons to be learnt beyond CRM. In particular, although new concepts may be intuitively appealing, practitioners must be cautioned about embracing them without a full understanding of how those concepts will be used, and how their success will be measured.
References:
USE -APA Format
1. Introduction
Marketing is all about satisfying customer’s needs and wants by delivering suitable products or services. Relationship marketing is developing and nurturing strong customer relationships overtime. Marketing is facing a new paradigm, relationship marketing (Gronroos, 1994) The focus is shifting from the activity of attracting customers to activities which concern having customers and taking care of them. The core of relationship marketing is relations, maintenance of relations between the company and the actors in its microenvironment, i.e supplier, market intermediaries, and the public and of course customers as the most important actor.
Customer relationship management (CRM) has generally been assumed to create a
competitive edge for an organization, as well as to have a positive impact on organizational performance. However, there is still much debate over exactly what constitutes CRM.
In fact, many scholars have claimed that the precise meaning of CRM is not always clear in the literature (Nevin, 1995; Parvatiyar and Sheth, 2001). Furthermore, Nevin (1995) notes that the term has become a buzzword, with the concept being used to reflect a number of differing themes or perspectives. For example, at a tactical level, CRM may mean database marketing (Peppers and Rogers,1995) or electronic marketing (Blattberg and Deighton, 1991). At a strategic level, CRM may mean customer retention or customer partnering (Peppers and Rogers, 1993; Vavra, 1992). At a theoretical level, CRM may mean an emerging research paradigm in marketing (Parvatiyar and Sheth, 2001).
Thus, a clarification and conceptualization of this construct is needed to ensure that our knowledge of CRM grows in a “cumulative” way. Moreover, while we observe that there has been an increase in the attention paid to CRM by practitioners and academics, to date no systematic attempt has been made to develop a valid measure of it, or to assess its influence on business performance.
2. Relationship marketing and CRM
The relationship marketing (RM) literature is a theoretically, ideologically and empirically rich documentation of marketing practice beyond the mass-market focus of the mainstream marketing literature. Originating in the late 1970s on the edges of marketing practice (i.e. services, business-to-business, channel management), by the end of the 1980s RM was being proposed as a solution to some of the problems faced by mass marketers (see Dwyer et al., 1987). The 1990s represented the golden years for RM, as evidenced by the increasing academic and practitioner attention afforded to it.
Indeed, it might be argued that mass marketers attempted to obtain ownership of RM from their colleagues in services, industrial and channel contexts through the formulation and propagation of customer relationship management (CRM) as a mass marketing strategy or tactic.
While, in principle at least, CRM is influenced by the richness of RM, its almost exclusive focus on managing relationships with the end customer (as opposed to relationships with suppliers, competitors, intermediaries, etc.) may be somewhat counterproductive. We say counterproductive because most of the interaction that occurs with respect to a product or service in the mass-market happens within the channel and, as such, CRM deployments fail to influence many relevant exchanges within the network. Moreover, the management of supposed relationship outcomes,rather than relationship processes, must make it difficult to achieve those outcomes.
Perhaps not coincidentally, despite the extensive time, money and technology devoted
to CRM, results have been disappointing (Johnson, 2004; Kale, 2004) and many
managers are now sceptical or hostile to CRM deployments (Patron, 2002; see
commentary in McNulty et al., 2003).
To address this general issue in more detail, we undertake the following. First, we review briefly the rationale behind RM. Second, we outline the nature of CRM and critique its partial appropriation of the ideology and concepts of RM. Third, we identify and explore some problematic issues in the narrow treatment of CRM by focusing on the failure within CRM to understand that consumers are parts of complex, dynamic systems. Fourth, we argue that, in consumer markets, marketers need to re-engage with the RM ideal to prevent its ideological and conceptual richness being lost. In doing this, we clearly share the view of others (e.g. Fournier et al., 1998) that CRM, as it is currently envisaged and enacted, risks a premature death.
As such, we advocate an increased focus of the processes of engagement, which are themselves the desired outcomes of relationships and not instruments for achieving something else as CRM deployments typically presume. We also acknowledge that in many cases consumers do not want relationships with particular firms or that firms do not have the
relationship experience and expertise to enact successful RM programmes. In such
cases, improved execution of mix management programmes would seem to be most
appropriate (e.g. O’Malley and Mitussis, 2002).
The ideological appeal of RM has rarely been questioned and has regularly been appropriated in various “calls to arms” to instigate paradigm shifts in the theory and practice of marketing (e.g., McKenna, 1991; Blattberg and Deighton, 1991; Shani and Chalasani, 1992; Gro¨nroos, 1994; Ha°kansson, 1982; Morgan and Hunt, 1994). Traditional marketing, it has been argued, has failed in that (despite the extensive rhetoric) customers have been put last, not first (Brownlie and Saren, 1992; Desmond, 1997; O’Malley and Patterson, 1998). This inherent lack of customer focus on behalf of organisations led many consumers to conclude that organisations generally over-promise and under-deliver (Sisodia and Wolfe, 2000; O’Malley and Prothero, 2004).
This has earned marketing and associated public relations activities a much-maligned image as instruments of corporate manipulation (Fitchett and McDonagh, 2000). RM was positioned in such a way as to address this poor image directly by instigating a fundamental transformation in the practice of marketing. It heralded a distinct move away from customer manipulation and toward genuine customer involvement becoming, in the process, a champion of corporate credibility (McKenna, 1991).
Moreover, such a transformation would also increase both the efficiency and effectiveness of marketing by bringing the customer into a cooperative partnership with the organisation (Sheth and Parvatiyar, 1995; Gordon, 2000). Rather than competing on economies of scale, as had been the norm, organisations could leverage these relationships and compete on economies of scope (Gordon, 2000).
Although past studies have made significant progress toward understanding the importance of cooperative and collaborative relationships between buyers and sellers (e.g. Berry, 1983, 1995, 2002; Crosby et al., 1990; Dwyer et al., 1987; Hart and Johnson, 1999; Morgan and Hunt, 1994; Palmer, 2000; Sheth and Parvatiyar, 1995), two questions remain unanswered:
(1) What precisely is CRM?
(2) How can it be implemented properly in a business organization?
In the marketing literature, the terms CRM and relationship marketing are used almost
interchangeably (Parvatiyar and Sheth, 2000). For example, Berry (1983) defines
relationship marketing as “attracting, maintaining and enhancing customer relationships.”
Harker (1999) proposes the following definition: “An organization engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers (partners) over time is engaged in relationship marketing.” Recently, by broadening the scope of relationship marketing and viewing it in a comprehensive management and social context, Gummesson (2002b) defines it as “marketing based on relationships, networks and interaction,recognizing that marketing is embedded in the total management of the networks of the selling organization, the market and society. It is directed to long term win-win relationships with individual customers, and value is jointly created between the
parties involved.”
On the other hand, Jackson (1985) suggests CRM to mean “marketing oriented toward strong, lasting relationships with individual accounts.” Payne (2000) asserts that CRM is concerned with “the creation, development and enhancement of individualized customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value.” Recently, Kotler and Armstrong (2004) define CRM as “the overall process of building and maintaining profitable customer relationships by delivering superior customer value andsatisfaction.”
Although the above definitions differ somewhat, they all indicate that the core theme of CRM and relationship marketing perspectives revolves around its focus on individual buyer-seller relationships, that these relationships are longitudinal in nature, and that both parties benefit in the relationship established. In short, from a firm’s perspective, both the CRM and relationship marketing concept can be viewed as a distinct organizational culture/value that puts the buyer-seller relationship at the center of the firm’s strategic or operational thinking.
In spite of the commonalities described above, some important differences between CRM and relationship marketing do exist: first, relationship marketing is relatively more strategic in nature, whilst CRM is used in a more tactical sense (Ryals and Payne,2001; Zablah et al., 2004). Second, relationship marketing is relatively more emotional and behavioral, centering on such variables as bonding, empathy, reciprocity, and trust (Yau et al., 2000).
On the other hand, CRM is more managerial per se, focusing on how management can make concerted efforts in attracting, maintaining, and enhancing customer relationships. Third, relationship marketing embraces not just the supplier-customer dyad (Gummesson, 2002b) but encompasses the building of relationships with stakeholders, such as suppliers, internal employees, customers, and even government as well (Morgan and Hunt, 1994), but CRM is more dedicated to building relationships with key customers (Tuominen et al., 2004).
Disappointedly, despite its increasingly acknowledged importance, little research has focused on the proper implementation of the CRM concept. Scattered research efforts have been observed in the realm of maintaining a deep customer focus (e.g. Vandermerwe, 2004), reengineering the organizational structure (e.g. Ryals and Knox, 2001), and managing knowledge by leveraging the use of information technology (e.g. Stefanou et al., 2003). There is no theoretical, integrative framework to delineate how the CRM concept can be properly translated into a comprehensive set of concrete organizational activities conducive to CRM success. Furthermore, very little has been done in terms of creating a valid measurement scale and testing the concept empirically. Thus, it is the goal of this paper to propose a conceptualization of the basic dimensions of CRM, as well as to develop a reliable and valid measurement scale for these dimensions. In this study, we define CRM as “a comprehensive strategy and process that enables an organization to identify, acquire, retain, and nurture profitable customers by building and maintaining long-term relationships with them.”
3. The components of CRM
Based on past related literature (Crosby and Johnson, 2001; Day, 2003; Fox and Stead,
2001; Kalustian et al., 2002; O’Halloran and Wagner, 2001; Paracha and Bulusu, 2002;
Ryals and Knox, 2001; Tiwana, 2001) and indepth interviews with CRM managers,
we hypothesize that CRM is a multi-dimensional construct consisting of four broad
behavioral components: key customer focus, CRM organization, knowledge
management, and technology-based CRM (see Figure 1). This is in accord with the
notion that successful CRM is predicated on addressing four key areas: strategy;
people; technology; and processes (Fox and Stead, 2001), and that only when all these
four work in concert can a superior customer-relating capability emerge (Day, 2003).
For a business to maximize its long-term performance in such aspects as customer
satisfaction, trust, return on sales, and return on investment, it must build, maintain,
and enhance long-term and mutually beneficial relationships with its target buyers. We
will discuss each component and then describe our research methodology along with
the findings from our analysis.
4. Key customer focus and lifetime value identification
Key customer focus involves an overwhelming customer-centric focus (Sheth et al.,
2000; Vandermerwe, 2004), and continuously delivering superior and added value to
selected key customers through personalized/customized offerings. Key facets of this
dimension include customer-centric marketing, key customer lifetime value identification, personalization, and interactive cocreation marketing.
Customer-centric marketing, which has been gaining momentum as we enter the new millennium, is the endeavor to understand and satisfy the needs, wants, and resources of selected individual consumers (Sheth et al., 2000).
CRM stresses the deliberate selection of key customers who are of strategic significance, as not all customers are equally desirable (Ryals and Knox, 2001) and profitable (Thomas et al., 2004). This can be illustrated by the hotly discussed Pareto 80/20 rule: 80 percent of a firm’s profit comes from 20 percent of its customers (Hoffman and Kashmeri, 2000; Ryals and Knox, 2001). Having meticulously selected key customers, a CRM-oriented company should make every effort to understand their needs and wants, which is crucial to developing strong relationships with them.
Customer lifetime value is defined by Jain and Singh (2002) as “the net of the revenues obtained from that customer over the lifetime of transactions with that customer minus the cost of attracting, selling, and servicing that customer, taking into account the time value of money.”
In CRM,marketers assess the lifetime value of each customer individually to decide whether to
build a relationship with him/her and provide customized offerings. This decision should enhance company profit by focusing on profitable customers via more customized offerings, and reducing the subsidization of unprofitable customers.
5. Personalization.
Personalization is defined as the practice of one-to-one marketing through the use of mass customization (Dyche´, 2002; Hart, 1995), allowing customers to seek unique solutions to their specific needs. The great diversity in the needs, wants,and resources of customers makes customer behavior less predictable and forecasting less accurate. In this environment, mass marketing is rendered obsolete. Successful companies must rapidly adjust their supply to meet demand by relationship-based marketing, which strives to tailor marketing to individual customers.
Interactive cocreation marketing. The ongoing two-way communication between exchange partners in cocreation marketing, where both marketers and customers interact in aspects of product design and production, is considered critical for establishing and maintaining strong relationships (Berry, 1995; Day and Montgomery,1999; Fox and Stead, 2001; Morgan and Hunt, 1994; Narayandas and Rangan, 2004).
The key to cocreation marketing is collaboration, cooperation, and communication.
Through this, firms can work with individual customers to offer customized solutions,
create relationship value, enhance customer loyalty, and reduce the cost of doing
business.
6. CRM organization
CRM essentially means fundamental changes in the way that firms are organized
(Ryals and Knox, 2001) and business processes are conducted (Hoffman and Kashmeri,
2000). Firms should pay heightened attention to the organizational challenges inherent
in any CRM initiative (Agarwal et al., 2004). The key considerations to successfully
organize the whole firm around CRM include organizational structure,
organization-wide commitment of resources, and human resources management.
Organizational structure. CRM requires that the entire organization work towards
the common goal of forging and nurturing strong customer relationships. As such, the
organizational structural designs that most effectively optimize customer relationships
include the establishment of process teams, customer-focused teams (Sheth and
Sisodia, 2002), cross-discipline segment teams, and cross-functional teams (Ryals and
Knox, 2001). All these structural designs demand strong interfunctional coordination
(Sheth et al., 2000) and interfunctional integration.
Organization-wide commitment of resources should follow after crafting the design of organizational structure and integrating properly those involved components. In particular, sales and marketing resources, technical expertise, as well as resources promoting service excellence should all be in place. The success of customer acquisition, development, retention, and reactivation all hinges on the company’s commitment of time and resources towards
identifying and satisfying key customer needs (Nykamp, 2001).
Human resources management. Strategy, people, technology, and processes are all vitally important to CRM, but it is the individual employees who are the building blocks of customer relationships (Brown, 2000, p. xvii; Horne, 2003; McGovern and Panaro, 2004; Ryals and Knox, 2001). According to Krauss (2002), “[t]he hardest part of becoming CRM-oriented isn’t the technology, it’s the people.” Internal marketing, where human resources and marketing interface, instills in employees the utmost importance of service-mindedness and customer orientation (e.g. Gro˝nroos, 1990). The four significant internal marketing processes include market training and education, internal communication, reward systems, and employee involvement.
7. Technology-based CRM
Accurate customer data is essential to successful CRM performance (Abbott et al.,2001) and, consequently, technology plays an important role in CRM in adding to firm intelligence (Boyle, 2004). In fact, the startling advances in IT equip enterprises with the capability to collect, store, analyze, and share customer information in ways that greatly enhance their ability to respond to the needs of individual customers and thus to attract and retain customers (Butler, 2000).
The promise of one-to-one relationships, customer-value analysis, and mass customization (Hart, 1995) are now brought to reality by unprecedented advances in IT, transforming the traditional approach to CRM to an integrated, web-enabled approach, featured by tools like customerinformation systems, automation of customer support processes, and call centers (Ghodeswar, 2001).
CRM calls for “information-intensive strategies” which utilize computer technologies in building relationships, leveraging existing technology and rigorously linking technology deployment to targeted business initiatives (Harding et al. 2004). Computer technologies such as computer-aided design/manufacturing,flexible manufacturing systems, just-in-time production databases, data warehouses,data mining, and CRM software systems enable firms to provide greater customization with better quality at lower cost. It also helps staff at all contact points serve customers better. Many customer-centric activities would be impossible without appropriate
technology.
The ability to develop successful customer relationships lies in an organisation’s ability to understand its customers, their individual preferences, expectations and changing needs. In other words, organisations need to understand “real customers on an individual basis” (Sisodia and Wolfe, 2000, p. 551, original emphasis) and communicate with them appropriately. The complexity of contemporary markets renders such customer intimacy difficult (Di Tienne and Thompson, 1996). As a consequence, the collection, analysis and use of information to identify, understand and meet customers’ needs is crucial to the successful implementation of RM in mass markets. As a result, technology, initially in the form of the database, is widely
regarded as the core of CRM with data used “to build a long-term connection between
the company and consumer” (Copulsky and Wolf, 1990, p. 17). As such, CRM can be
regarded as a “business strategy that uses information technology to provide an
enterprise with a comprehensive, reliable, and integrated view of its customer base so
that all processes and customer interactions help maintain and expand mutually
beneficial relationships” (Zikmund et al., 2002, p. 3).
8. Conclusion
CRM, as an emerging paradigm in marketing, will remain underdeveloped until its key dimensions have been identified and operationalized. In fact, Gummesson (2002a) comments that CRM, as an emerging discipline, is in need of further theoretical development. The identification of the key dimensions of CRM is therefore very important. It is no longer sufficient to advise practitioners or researchers that the key to successful marketing is through CRM without providing information on what dimensions actually constitute relationships upon which CRM can be considered to exist. There are also lessons to be learnt beyond CRM. In particular, although new concepts may be intuitively appealing, practitioners must be cautioned about embracing them without a full understanding of how those concepts will be used, and how their success will be measured.
References:
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THE EVOLUTION OF AN IDEA: AN ENVIRONMENTAL EXPLANATION OF RELATIONSHIP MARKETING
THE EVOLUTION OF AN IDEA: AN ENVIRONMENTAL EXPLANATION OF RELATIONSHIP MARKETING
Adrian Palmer
Gloucestershire Business School
Based on forthcominmg article in Journal of Relationship Marketing
ABSTRACT
The principles and practices of relationship marketing date back many centuries, yet as a topic of academic and applied interest, it has achieved pre-eminence as a paradigm only during the past two decades. Some may dismiss relationship marketing as merely an old idea with new language. However, this paper argues that recent development of relationship marketing has been based on significant changes in the business environment of organizations. An environmental audit analysis is used to explain the recent growth of relationship marketing, and more importantly, to identify future challenges for relationship marketing as the business environment evolves.
INTRODUCTION
A search through most publications databases would reveal very few, if any, references to “relationship marketing” prior to 1980. However, since the early 1990s the number of times the term is mentioned in the title or as a keyword in articles has appeared to grow exponentially. This might seem curious as the whole notion of buyer-seller relationships, which lies at the heart of relationship marketing, can be traced back several centuries. Numerous writers and historians of Victorian England, for example have described activities which amount to modern day relationship marketing (Clegg 1956). The question then arises of the theoretical and practical underpinnings of this "new idea". Is relationship marketing merely another "big new idea" which has risen on an opportunistic wave, only to follow previous big ideas such as Total Quality Management and Management by Objectives into obscurity when critics realized that there was really nothing new? Or does the development of relationship marketing reflect fundamental shifts in the business environment, which will continue to provide a place for the concept?
One view is that when the underlying principles of relationship marketing are examined, they are quite indistinguishable from the fundamental principles of marketing. Viewed as a philosophy, relationship marketing shares with traditional definitions of marketing a concern for satisfying customers effectively and profitably. The Chartered Institute of Marketing's definition of marketing as being "The management process which identifies, anticipates and supplies customer requirements efficiently and profitably" could be equally applied to relationship marketing when applied at the level of a guiding philosophy (Berry 1995 ). By this view, relationship marketing will mature until it becomes essentially a basic of principle of marketing, and the distinguishing title of "Relationship" will become less relevant.
An alternative view is that relationship marketing emerged in the 1990s in response to changes which were occurring in the business environment. As environmental change continues, relationship marketing will evolve by fragmenting into numerous specialist interest subjects. Academics and practitioners will need to keep hold of a "big idea", which will gradually mutate. Part of this mutation may be represented by subtle changes in language which have appeared in published material and training courses, for example “customer relationship management”, "database marketing", "direct marketing" and "customer loyalty".
There have been many studies of how ideas grow to become mainstream and the critical factors involved in this process. Chaos theory and the study of mimetics has offered an explanation of how, through random events, a small local idea can develop into a global paradigm. A recent analysis by Gladwell has discussed how reaching a critical point is facilitated by the existence of “connectors”, “mavens” and the “stickiness” of an idea (Gladwell 2000). If it can be shown that relationship marketing rose in prominence as a result of the factors described by Gladwell, it may be expected that another idea developed by a “maven” may come along with similar levels of “stickiness” and promulgated by a new set of "connectors".
So is relationship marketing a passing "big idea", or a paradigm which is fundamentally rooted in its environment? The aim of this paper is to explain the rise of relationship marketing as a dominant paradigm during the 1990s. If the basic principles were not new, why did it suddenly become so popular? This paper uses an environmental audit analysis to seek an explanation. More significantly, what can a study of the marketing environment say about likely future development of relationship marketing? Is the evolution of the paradigm simply a shift in semantics or are there underlying forces in the environment which explain its growth and will continue to sustain the paradigm?
This paper is primarily concerned with the rapid development of relationship marketing in the business to consumer domain. Contemporary origins of relationship marketing are rooted in relationships between organizations, but the paradigm has subsequently been stretched to situations in which there are a few sellers and possibly millions of buyers. In such situations, the existence of power imbalances is common and consumers may not seek a relationship at an attitudinal level which is often implied by business to business models of buyer seller relationships. Nevertheless, relationship marketing has featured prominently in the marketing strategies of many consumer goods and services companies during the 1990s.
Defining Relationship Marketing
The term relationship marketing has been used generically to cover various activities, with distinction made between its philosophical, strategic and operational dimensions (Berry 1995). Gronroos (1994) provided a general definition of the domain of relationship marketing when he described it as being about mutually beneficial exchanges and fulfillment of promises by both parties in a series of interactions over the lifetime of their relationship. A number of recurrent themes have helped to define the domain of relationship marketing, especially trust, commitment, a long-term orientation and co-operation (Morgan and Hunt 1994; Bagozzi 1995; Gronroos 1994; Christopher, Payne and Ballantyne 1991. It has been noted that relationship marketing at the level of business to business exchange requires very different principles and techniques compared with relationship marketing between a company and numerous low value personal customers (Gummesson 1999).
Critics of the relationship marketing concept are numerous, both at an academic level among those who criticize the absence of theoretical positioning to the concept; among practitioners who may fail to see tangible benefits from implementing relationship marketing programs; and from consumers for whom attempts to develop relationships may be viewed with cynicism (Tzokas and Saren 1997; O'Brien and Jones 1995; O'Malley 1998). Reports of declining levels of loyalty by customers to organizations may be seen as evidence of the futility of relationship marketing programs, or may serve to emphasize the need for a more focused attempt at retaining customers. There is a view that in consumer markets, loyalty and ongoing relationships are illusory, and recently launched brands have been observed to have as much loyalty as longer established ones (Ehrenberg and Goodhart 2000).
The fragmentation of interest in relationship marketing into specialist subjects of study, including customer loyalty and database management may be symbolic of a need to keep hold of a "big new idea", or it may reflect the rapidly changing environment in which relationship marketing mutates and becomes stronger by changing its focus. Relationship marketing is probably best understood as an umbrella concept which stresses the need to see exchanges from a long-term perspective rather than short-term. The implementation of this philosophy is influenced by situational factors.
It is evident that there has been some semantic drift in the development of relationship marketing and the term relationship has itself often been used metaphorically to describe associations between two parties which are asymmetric in terms of power, knowledge and resources and which would probably not be described as a relationship in a social context.
The purpose of this paper is not to seek to understand semantic shifts in discussion of relationship marketing, but to identify the macro-environmental changes which impact on the development of relationship marketing. As a broad umbrella topic, relationship marketing emerged rapidly during the 1980s and 1990s. While part of this growth may have been partly semantic and based on a rediscovery of old principles, there were nevertheless powerful drivers in the macro-environment. If macro-environmental factors can explain the rise of relationship marketing, what does a reading of this environment suggest may be the future course of relationship marketing?
Macro-environmental explanations of the growth of relationship marketing
How can we explain the rapid rise in discussion of relationship marketing during the 1990s? The volume of literature on the subject would suggest the existence of some underpinnings of a "big new idea". This paper takes a normative approach to the study of the business macro-environment facing organizations that sell consumer goods and services. An environmental audit approach is adopted and four elements of the marketing environment analyzed under the overlapping headings of technological, social, economic and political/legal. A retrospective analysis is undertaken to try and understand the reasons that might explain the rise of relationship marketing during the 1990s. Following this, current and projected future environmental trends are examined and an assessment made of their likely impact on the future development of relationship marketing.
The technological environment
Many authors have attributed the development of relationship marketing to the ease with which technology can now allow large organizations to communicate with thousands, or even millions of individual consumers of their products (Zineldin 2000). It has been noted that computers have allowed corporations to recreate the personal relationships that SMEs had previously enjoyed ( Peppers and Rogers 1999).
In 1991, Ikujiro Nonaka began an article in the Harvard Business Review with a simple statement: "In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge" (Nonaka 1991). Knowledge was accessible to the owner of a small business who may have known each customer individually and able to assess their needs and credit worthiness without recourse to complex information systems. The link between business and customer was weakened in the era of industrialization and mass marketing when the management and owners of businesses became remote from their customers, with poor a infrastructure available for keeping in touch with customers. IT developments during the 1980s and 1990s effectively allowed companies to catch up with the pattern of relationships that had slipped away during the period of industrialization.
The loyalty program emerged as a relatively inexpensive means by which an organization can collect information about its customers (Hamilton and Howcroft, 1995). It has been noted that customer-specific loyalty programs are particularly valuable in situations where an organization has had little opportunity to gather in-depth information about each of its customers (O’Brien and Jones, 1995). Marketers have traditionally based their value propositions on information gained from small samples of customers, but during the past two decades, have increasingly been able to base decision making on analyses of their entire customer database. Many organizations have created data warehouses from which they can "mine" potentially useful information.
Although information technology has had the potential to add to a company's relationship advantage, this is dependent upon two principal factors: whether the company needs large volumes of information about its customers; and whether a relationship based program will provide information that the company did not previously have. It is also crucial that marketing mangers have the skills with which to handle large volumes of customer information. It has been noted that IT skills among senior marketing managers remain weak and many prefer to rely on instinct rather than data which is available from data warehouses (Morten et al 1999).
Trends for the future:
In business to consumer markets, an information imbalance has developed in which technology has been used by sellers manipulate an essentially passive audience of buyers. More recently, the proliferation of technology to households creates new opportunities for private consumers to become active managers of information about existing and potential sellers. Search engines, comparative web sites and intelligent buying agents have the potential to reduce the information imbalance between buyer and seller. It has been noted that consumers increasingly recognize that personal data has a value and are typically becoming more instrumental in the manner in which personal information is divulged (Marketing 1999). This represents a new challenge for relationship marketing in consumer markets, and may require a change in the attitude of some consumer marketers that relationship marketing is something that companies "do" to customers.
There is a further argument that over-reliance on information technology can lead to a proliferation of "me-too" solutions. In a changing environment, it is the quality of interpretation of data that gives a firm a competitive advantage in its use of information. If relationship marketing becomes formalized as a data-gathering exercise, the "feel" for customers which the SME owner traditionally enjoyed in their relationship with customers may never be achieved. It is a challenge for technology to create relationships which are regarded as sincere by all parties. To adapt a quotation of Graucho Marx, an organization which is able to fake and mass produce sincerity is likely to win out. While there has been much recent interest in “virtual” relationships and communities which are led by technology, there is a view emerging that technology cannot replicate holistic relationships based on social and physical contact.
There is also a view that technology will reduce the cost of acquiring new customers, thereby reducing the power of the argument that it costs typically 5 to 10 times as much to retain an existing customer compared to recruiting a new one. The Internet has the capability of reducing the cost of targeting potential customers and automated systems can reduce the cost of processing new customers. This may give added credence to the argument of the Ehrenberg school of thought that the most effective method of building customer loyalty is simply to build large volume (Ehrenberg and Goodhart 2000).
The social environment
A number of social phenomena may explain the rise of co-operative buyer-seller relationships in place of traditional confrontational, transactional exchange.
One steam of thought is that individuals' attitudes to co-operative business relationships may be the result of a much broader set of attitudes towards co-operation in general. It has been observed that the post 2nd world war period has seen one of the longest periods of sustained world peace in modern history, and the co-operative values associated with peace have permeated throughout society (Earley and Gibson 1998 ). Commentators have observed that following a prolonged period of world peace, traditional marketing strategy analogies based on confrontation no longer seemed appropriate (Gronroos 1994). The underlying relevance of innate co-operation to the development of commercial relationships has been seen as essential by some (e.g. Henderson 1989; Kante 1994) who stress the recognition by all parties of the gains which result from co-operative rather than competitive strategies. However, Darwinian theories may suggest that co-operation is not an innate human phenomenon, but individualism and competition may be crucial in creating a dynamic tension which moves a relationship forward (Palmer 2000).
It might seem interesting that individuals' relationships with commercial sellers have become more significant while their other relationships would appear to be in decline. During recent years, a number of commentators have noted the weakening of relationships which individuals in western cultures have with a number of institutions, especially the church and family. In the UK, regular church attendance has declined to below 5% while families have become more fragmented, demonstrated in the extreme case by a rising proportion of single person households, and by the “cellular” family in which each member functions with much greater autonomy (The European 1998).
How does relationship marketing fit this observed phenomenon? Based on the evidence of family and church life, cynics may argue that relationships per se are less sought as Darwinian theories of self-preservation take hold. But an alternative explanation may be that individuals’ networks of relationships have shifted, away from traditional networks based on the church and family, towards commercially oriented organizations. From a practical perspective, such sources provide an increasing range of services (e.g. care for children and the elderly) which were previously undertaken by family and church. The number of associates of an individual has been noted to be stable across cultures (Ridley, 1996) and relationships with companies provide new opportunities for individuals to gain identity and a position within society, replacing church and family as a source of identity.
A further intriguing social reason for the development of relationship marketing was the increasing role of women in buying and selling during the 1980s and 1990s. Numerous studies have pointed to the growing role of women, both as significant buyers of consumers products, and as managers responsible for company-customer encounters. There is an extensive body of literature on differences in personality traits which exist between males and females. One important area of difference is in the way that males and females develop relationships with others, with masculine gender traits being characterized as aggressive and instrumental, while feminine traits are more commonly associated with showing empathy and resolving conflicts through reconciliation (e.g., Keys, 1985; Riger & Gilligan, 1980; Statham, 1987; Palmer and Bejou 1995). Recent moves from warfare approaches to business exchange toward collaborative approaches may appear novel when judged by the stereo-typical value systems of males, but may be considered normal by the value system of females. Although there is the possibility of role conflict, women as buyers and sellers are likely to bring values to commercial exchanges which are more relational than transactional.
Finally, the need for greater social responsibility has encouraged the development of business-consumer relationships in some sectors. Legislation and voluntary codes of conduct have recognized that it is unethical to sell many types of services without the seller first entering into some form of relationship with the seller to establish their needs. In the UK, the Financial Services Act 1986 effectively made some form of relationship compulsory for companies selling various long-life, high risk financial services. The absence of such relationships and an over-emphasis on transactional exchanges has led to many financial services providers being fined by regulatory bodies for failing to establish the true needs of their clients.
Trends for the future
The notion that we are living in a new era of peace in which co-operation rather than confrontation is the norm is open to challenge. Even the idea that we live in an era of world peace is ambiguous, for it has been noted that the last twenty years of the twentieth century witnessed more local wars than the first half of the century (Sardar,1999). An increasing willingness of consumers to challenge authority and, as consumers to complain about poor service may weaken the case for an increasingly co-operative society (Caudron 1994).
It has been suggested that consumers are increasingly seeking instant gratification, evidenced by the popularity of instant delivery of goods and services through the medium of the Internet. How do ongoing relationships fit into a scenario where consumers make short-term evaluations of a transaction? A presumption of relationship marketing is that through co-operation, each party invests in a relationship in the expectation that they will receive a payback at some time in the future. For the customer, this may take the form of a loyalty reward, or an augmented standard of service. For the seller, the payback may be a long and profitable series of sales.
Finally, consumers have raising expectations of the ethical and social welfare standards of commercial organizations. There are now many well documented cases of companies who have acted in an unethical or anti-social manner and incurred bad publicity. Buyer-seller relationships have the potential for a wide range of unethical practices, for example football teams who exploit their supporters’ relationship with the team by changing their strip each year (or more frequently) and expecting their loyal fans to invest in the new one. If the quality of relationships is to continue to be a source of competitive advantage, the ethical standards by which relationships are conducted are likely to become increasingly important to consumers.
The economic environment
Two important economic arguments have been advanced to explain the development of relationship marketing in the 1980s and 1990s. Firstly, there is the familiar argument that it is more cost effective to retain existing customers than to continually recruit new customers to replace lapsed one. This argument was of course nothing new, but information technology has allowed for more precise tracking of customers and the development of personalized retention strategies. Secondly, the quality of buyer-seller relationships emerged as a point of sustainable competitive advantage. A previous pre-occupation with tangible design properties in the 1960s was followed by a pre-occupation with augmented services (e.g. financing, warranty and maintenance services) but this itself was replaced in the 1990s by competition on the basis of superior ongoing relationships.
Relationship marketing also arose at a time when the choice available to consumers within most product categories increased markedly. Buyer behavior models are essentially concerned with understanding how buyers simplify their choice processes in order to reduce the psychological cost of a decision and it has been noted that buyers' motivation to enter into a relationship with a seller is essentially based on a desire to reduce their choice set and simplify their choice process (Sheth and Parvatiyar 1995).
Future trends
It was noted earlier that one of the underlying principles of relationship marketing is the cost effectiveness of retaining existing customers rather than continually recruiting new ones. During a period of media inflation, the cost of communicating with new and potential customers may have given some basis to this argument, although empirical evidence remains limited. With the falling cost of Internet media, this assumption may be challenged. The futility of pursuing customer loyalty where no relationship is sought may be strengthened by evidence from Ehrenberg that consumers are typically fickle and that distribution of relationship length is broadly similar for new brands as for long established brands (Ehrenberg and Goodhart 2000).
Other phenomena, often enabled by new technology pose challenges for relationship marketing. The emergence of “auction” websites such as QXL.com place much more of the onus of relationship management on the consumer. In such an environment, what becomes of marketers’ models of relationship pricing? The mass enabling of consumers to initiate and guide relationships with suppliers has potential to redress the power imbalances which have so far been typical of business to consumer relationships. Far from being the end of relationship marketing as we know it, this enabling of consumers opens up new challenges and possibilities for the marketer. Power may be of little relevance to consumers if it does not bring goods and services which consumers value.
Business to consumer relationships may also be challenged by an apparent increase in consumers’ confidence. This may be borne out of rising education levels; legislation which increasingly protects the rights of consumers and the growing variety of television programs which champion consumers’ rights. These have helped to reduce the power imbalance between consumers and sellers.
Finally, it was noted that markets have evolved from a primary focus on tangible product features, to a focus on augmented services and finally to a focus on relationship quality. Advance to the next stage has occurred where saturation had been reached at the previous stage and firms were no longer able to use that positioning as a source of competitive advantage. But what happens if relationships reach a similar stage of equalization between the main players? What next will be the basis for differentiation?
The political / legal environment
The political environment of many western economies during the 1990s emphasized a desire to dismember state monopolies and to develop competitive markets. The outsourcing of many functions traditionally carried out by government organizations (and by large private sector firms) created the need for close co-operation between autonomous units in place of previous unified command and control structures. In Williamson's terminology, outsourcing of peripheral functions through networks of supplier's leads to a transition from hierarchies to markets, with hybrid organizations being the end result.
Simultaneously, governments of many western countries have sought to outsource many services provided to consumers (e.g. many health and pension services) and encouraged the development of ongoing relationships between the two parties. Sometimes this has been enshrined in legislation, as in the case of private pension provisions where the existence of some form of relationship is a prerequisite to advice being given by a pension provider.
Future trends
The political environment may have given support for the development of relationship marketing, but more recent reading of the environment may suggest greater caution. Attitudes towards freely competitive markets with minimal state involvement appear to have been toned down, in Britain at least. From the extreme views of the Thatcher era, a more pragmatic attitude towards workable competition and a role for state enterprise has been increasingly recognized (Weatherill 1996).
There is also increasing concern that co-operation which is favourable to the participants may have harmful consequences for public welfare (Staber, 1998; The Economist, 1998). While legislation to curb anti-competitive business practices has traditionally been aimed at horizontal relationships within a distribution channel, there is mounting evidence of regulators' involvement in vertical supply relationships. As examples, the EU Commission has in recent years held British Airway's favored relationships with selected travel agents to be against the public interest while the UK Monopolies and Mergers Commission has held the exclusive freezer supply relationships operated by the Walls company to be a restrictive practice in the UK impulse ice cream market ( Mortishead 1999 ; Gray 1998).
Political ideology may have contributed to the development of relationship marketing, but growing recognition of the negative impact of buyer-seller relationships may act as an increasing constraint.
There is an another dimension in which the political environment can be seen to have influenced the development of relationship marketing. The mounting level of consumer protection legislation in most western countries raises the issue of whether an ongoing relationship with a supplier continues to reduce buyers' level of perceived risk, when legislation may have a similar effect of reducing such risk. In the financial services sector for example, it is becoming increasingly difficult for consumers to lose money as a result of bad advice. Knowing that compensation is likely to be available for the results of bad advice may reduce the value of a trusted relationship.
CONCLUSION / MANAGEMENT IMPLICATIONS
Relationship marketing as it has developed during the past two decades is firmly based on change in the business environment of organizations. It is too simplistic to say that it is nothing new or simply a big idea spun out of long standing practice. There are many factors in the business environment which explain why the concept became a dominant idea of the 1990s. Many of the changes which gave rise to Relationship Marketing will still have effect in future decades, so the concept will still be with us. However, the challenge of relationship marketing is to recognize the subtle changes in the business environment and to adapt to them. The reduction in power imbalances between consumers and commercial organizations through the development of consumer focused technology will call for a reinvigoration of consumer relationships. The desire for sincerity in relationships in some sectors may put pressure on companies to improve qualitative aspects of their relationships with customers. The use of customer ties is likely to be increasingly challenged by regulatory authorities as being anti-competitive.
It has been widely accepted that relationship marketing at the philosophical level differs very little from general definitions of marketing, and this is likely to continue to be the case. However, in its evolution, new strands of specialization are likely to emerge. The emergent technology has spurned new areas of study in the form of database marketing, for example. Inevitably some semantic drift will occur as big new ideas are promoted to highlight specific areas. The concepts of data mining, for example may not be entirely new to statisticians but as a subset of relationship marketing is likely to be received by an eager audience seeking to get more out of its databases.
Relationship marketing is not new and it is not a passing fad. There are sound reasons to explain its emergence and that it will need to adapt to change in the environment if it is to remain an important paradigm.
REFERENCES
Bagozzi, R. P. (1995), ‘Reflections on relationship marketing in consumer markets’, Journal of the Academy of Marketing Science, Vol. 23 No. 4, pp. 272-77.
Berry, L.L. (1995), On Great Service, The Free Press, New York, NY. Caudron, S. (1994), ‘The Myth of the European Consumer’, Industry Week, 243, 4, pp. 28-33.
Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing, Heinemann, London.
Clegg, P. (1956), A Social and Economic History of Britain 1760-1955, Harrap, London.
Earley, P.C and Gibson, C.B. (1998), ‘Taking stock in our progress on individualism-collectivism: 100 years of solidarity and community’, Journal of Management, Vol. 24 No. 3, pp. 265-304.
Economist (1998), ‘Watch Dog-fight!’ 348, August 22, pp. 16.
Ehrenberg, A. and Goodhart, G. (2000), ‘New Brands: Near Instant Loyalty’, Journal of Marketing Management, Vol. 16 (6), pp. 607-618.
Gladwell, M. (2000), The Tipping Point : How Little Things Can Make a Big Difference, New York, Little Brown and Co.
Gray, R. (1998), ‘A place of their own’, Marketing, Sept 3, pp. 21-24.
Gronroos, C. (1994), ‘From marketing mix to relationship marketing’, Management Decision, Vol. 32 No.1, pp. 4-20.
Gummesson, E. (1999) Total Relationship Marketing, London: Butterworth-Heinemann.
Hamilton, R. and B. Howcroft, 1995, ‘A Practical Approach to Maximising Customer Retention in the Credit Card Industry’, Journal of Marketing Management,
Vol. 11.1-3, pp.151-163.
Henderson, B.D. (1989), ‘The origin of strategy’, Harvard Business Review, November/December, pp. 139-143.
Kanter, R.M. (1994), ‘Collaborative Advantage’, Harvard Business Review 72, July-August, pp. 96-108.
Keys, D. (1985). ‘Gender, sex role, and career decision making of certified management accountants’. Sex Roles, 13, pp. 33-46.
Marketing (1999), ‘Data Firms React to Survey Fatigue’, 29th April, pp. 29-30.
Morgan, R.M. and Hunt, S.D. (1994), ‘The commitment-trust theory of relationship marketing’, Journal of Marketing, Vol. 58, July, pp. 20-38.
Morten T., Hansen, M.T., N Nohria and T Tierney (1999), ‘What's your strategy for managing knowledge?’ , Harvard Business Review, March-April 1999 vol. 77 (2) p106.
Mortished, C. (1999), ‘BA Fined £4m Over Illegal Sweeteners’, The Times, 15th July, p. 2.
Nonaka, I (1991) ‘The Knowledge-Creating Company,’ Harvard Business Review Vol. 69.6, pp 96-104.
O'Brien, L. and Jones, C. (1995), ‘Do rewards really create loyalty?’, Harvard Business Review, May-June, pp. 75-82.
O'Malley, L. (1998), ‘Can loyalty schemes really build loyalty?’, Marketing Intelligence and Planning, Vol. 6 No. 1, pp. 47-56.
Palmer, A. (2000), ‘Co-operation and competition: A Darwinian Synthesis of Relationship Marketing’, European Journal of Marketing, 34 (6), pp 687-704.
Palmer, A. and D.Bejou, ‘The Role of Gender in the Development of Buyer-Seller Relationships’, International Journal of Bank Marketing, Vol. 13 (3), 1995, pp 18-27.
Peppers, D. and M. Rogers (1999), Enterprise one-to-one: Tools for competing in the interactive age, New York, Doubleday.
Ridley, M. (1996), The Origins of Virtue, Harmondsworth, Penguin.
Riger, S., & Gilligan, P. (1980). ‘Women in management: An exploration of competing paradigms’. American Psychologist, 35, pp. 902-910.
Sardar, Z. (1999), ‘The Future is Ours to Change’, New Statesman, 129, 4428, pp. 25-28.
Sheth, J. N. and Parvatiyar, A. (1995), ‘Relationship marketing in consumer markets: antecedents and consequences’, Journal of the Academy of Marketing Science, Vol. 23 No.4, pp. 255-71.
Staber, U. (1998), ‘Inter-firm Co-operation and Competition on Industrial Districts’, Organization Studies,19, 4, pp. 701-23.
Statham, A. (1987). ‘The gender model revisited: Differences in the management styles of men and women’. Sex Roles, 16, pp. 409-429.
The European (1998), ‘Fond Farewell to two Parents and 2.4 Children’, August 10, pp. 54-5.
Tzokas, N. and Saren, M. J. (1997), ‘Some Dangerous Axioms Of Relationship Marketing’, Journal Of Strategic Marketing 6, 3, pp. 187-96.
Weatherill, S. (1996), Cases and Materials on EC Law, 3rd edition, London, Blackstone Press Ltd.
Zineldin, Mosad (2000) ‘Beyond relationship marketing: technological marketing’, Marketing Intelligence and Planning, vol 18 (1), pp 9-23.
Adrian Palmer
Gloucestershire Business School
Based on forthcominmg article in Journal of Relationship Marketing
ABSTRACT
The principles and practices of relationship marketing date back many centuries, yet as a topic of academic and applied interest, it has achieved pre-eminence as a paradigm only during the past two decades. Some may dismiss relationship marketing as merely an old idea with new language. However, this paper argues that recent development of relationship marketing has been based on significant changes in the business environment of organizations. An environmental audit analysis is used to explain the recent growth of relationship marketing, and more importantly, to identify future challenges for relationship marketing as the business environment evolves.
INTRODUCTION
A search through most publications databases would reveal very few, if any, references to “relationship marketing” prior to 1980. However, since the early 1990s the number of times the term is mentioned in the title or as a keyword in articles has appeared to grow exponentially. This might seem curious as the whole notion of buyer-seller relationships, which lies at the heart of relationship marketing, can be traced back several centuries. Numerous writers and historians of Victorian England, for example have described activities which amount to modern day relationship marketing (Clegg 1956). The question then arises of the theoretical and practical underpinnings of this "new idea". Is relationship marketing merely another "big new idea" which has risen on an opportunistic wave, only to follow previous big ideas such as Total Quality Management and Management by Objectives into obscurity when critics realized that there was really nothing new? Or does the development of relationship marketing reflect fundamental shifts in the business environment, which will continue to provide a place for the concept?
One view is that when the underlying principles of relationship marketing are examined, they are quite indistinguishable from the fundamental principles of marketing. Viewed as a philosophy, relationship marketing shares with traditional definitions of marketing a concern for satisfying customers effectively and profitably. The Chartered Institute of Marketing's definition of marketing as being "The management process which identifies, anticipates and supplies customer requirements efficiently and profitably" could be equally applied to relationship marketing when applied at the level of a guiding philosophy (Berry 1995 ). By this view, relationship marketing will mature until it becomes essentially a basic of principle of marketing, and the distinguishing title of "Relationship" will become less relevant.
An alternative view is that relationship marketing emerged in the 1990s in response to changes which were occurring in the business environment. As environmental change continues, relationship marketing will evolve by fragmenting into numerous specialist interest subjects. Academics and practitioners will need to keep hold of a "big idea", which will gradually mutate. Part of this mutation may be represented by subtle changes in language which have appeared in published material and training courses, for example “customer relationship management”, "database marketing", "direct marketing" and "customer loyalty".
There have been many studies of how ideas grow to become mainstream and the critical factors involved in this process. Chaos theory and the study of mimetics has offered an explanation of how, through random events, a small local idea can develop into a global paradigm. A recent analysis by Gladwell has discussed how reaching a critical point is facilitated by the existence of “connectors”, “mavens” and the “stickiness” of an idea (Gladwell 2000). If it can be shown that relationship marketing rose in prominence as a result of the factors described by Gladwell, it may be expected that another idea developed by a “maven” may come along with similar levels of “stickiness” and promulgated by a new set of "connectors".
So is relationship marketing a passing "big idea", or a paradigm which is fundamentally rooted in its environment? The aim of this paper is to explain the rise of relationship marketing as a dominant paradigm during the 1990s. If the basic principles were not new, why did it suddenly become so popular? This paper uses an environmental audit analysis to seek an explanation. More significantly, what can a study of the marketing environment say about likely future development of relationship marketing? Is the evolution of the paradigm simply a shift in semantics or are there underlying forces in the environment which explain its growth and will continue to sustain the paradigm?
This paper is primarily concerned with the rapid development of relationship marketing in the business to consumer domain. Contemporary origins of relationship marketing are rooted in relationships between organizations, but the paradigm has subsequently been stretched to situations in which there are a few sellers and possibly millions of buyers. In such situations, the existence of power imbalances is common and consumers may not seek a relationship at an attitudinal level which is often implied by business to business models of buyer seller relationships. Nevertheless, relationship marketing has featured prominently in the marketing strategies of many consumer goods and services companies during the 1990s.
Defining Relationship Marketing
The term relationship marketing has been used generically to cover various activities, with distinction made between its philosophical, strategic and operational dimensions (Berry 1995). Gronroos (1994) provided a general definition of the domain of relationship marketing when he described it as being about mutually beneficial exchanges and fulfillment of promises by both parties in a series of interactions over the lifetime of their relationship. A number of recurrent themes have helped to define the domain of relationship marketing, especially trust, commitment, a long-term orientation and co-operation (Morgan and Hunt 1994; Bagozzi 1995; Gronroos 1994; Christopher, Payne and Ballantyne 1991. It has been noted that relationship marketing at the level of business to business exchange requires very different principles and techniques compared with relationship marketing between a company and numerous low value personal customers (Gummesson 1999).
Critics of the relationship marketing concept are numerous, both at an academic level among those who criticize the absence of theoretical positioning to the concept; among practitioners who may fail to see tangible benefits from implementing relationship marketing programs; and from consumers for whom attempts to develop relationships may be viewed with cynicism (Tzokas and Saren 1997; O'Brien and Jones 1995; O'Malley 1998). Reports of declining levels of loyalty by customers to organizations may be seen as evidence of the futility of relationship marketing programs, or may serve to emphasize the need for a more focused attempt at retaining customers. There is a view that in consumer markets, loyalty and ongoing relationships are illusory, and recently launched brands have been observed to have as much loyalty as longer established ones (Ehrenberg and Goodhart 2000).
The fragmentation of interest in relationship marketing into specialist subjects of study, including customer loyalty and database management may be symbolic of a need to keep hold of a "big new idea", or it may reflect the rapidly changing environment in which relationship marketing mutates and becomes stronger by changing its focus. Relationship marketing is probably best understood as an umbrella concept which stresses the need to see exchanges from a long-term perspective rather than short-term. The implementation of this philosophy is influenced by situational factors.
It is evident that there has been some semantic drift in the development of relationship marketing and the term relationship has itself often been used metaphorically to describe associations between two parties which are asymmetric in terms of power, knowledge and resources and which would probably not be described as a relationship in a social context.
The purpose of this paper is not to seek to understand semantic shifts in discussion of relationship marketing, but to identify the macro-environmental changes which impact on the development of relationship marketing. As a broad umbrella topic, relationship marketing emerged rapidly during the 1980s and 1990s. While part of this growth may have been partly semantic and based on a rediscovery of old principles, there were nevertheless powerful drivers in the macro-environment. If macro-environmental factors can explain the rise of relationship marketing, what does a reading of this environment suggest may be the future course of relationship marketing?
Macro-environmental explanations of the growth of relationship marketing
How can we explain the rapid rise in discussion of relationship marketing during the 1990s? The volume of literature on the subject would suggest the existence of some underpinnings of a "big new idea". This paper takes a normative approach to the study of the business macro-environment facing organizations that sell consumer goods and services. An environmental audit approach is adopted and four elements of the marketing environment analyzed under the overlapping headings of technological, social, economic and political/legal. A retrospective analysis is undertaken to try and understand the reasons that might explain the rise of relationship marketing during the 1990s. Following this, current and projected future environmental trends are examined and an assessment made of their likely impact on the future development of relationship marketing.
The technological environment
Many authors have attributed the development of relationship marketing to the ease with which technology can now allow large organizations to communicate with thousands, or even millions of individual consumers of their products (Zineldin 2000). It has been noted that computers have allowed corporations to recreate the personal relationships that SMEs had previously enjoyed ( Peppers and Rogers 1999).
In 1991, Ikujiro Nonaka began an article in the Harvard Business Review with a simple statement: "In an economy where the only certainty is uncertainty, the one sure source of lasting competitive advantage is knowledge" (Nonaka 1991). Knowledge was accessible to the owner of a small business who may have known each customer individually and able to assess their needs and credit worthiness without recourse to complex information systems. The link between business and customer was weakened in the era of industrialization and mass marketing when the management and owners of businesses became remote from their customers, with poor a infrastructure available for keeping in touch with customers. IT developments during the 1980s and 1990s effectively allowed companies to catch up with the pattern of relationships that had slipped away during the period of industrialization.
The loyalty program emerged as a relatively inexpensive means by which an organization can collect information about its customers (Hamilton and Howcroft, 1995). It has been noted that customer-specific loyalty programs are particularly valuable in situations where an organization has had little opportunity to gather in-depth information about each of its customers (O’Brien and Jones, 1995). Marketers have traditionally based their value propositions on information gained from small samples of customers, but during the past two decades, have increasingly been able to base decision making on analyses of their entire customer database. Many organizations have created data warehouses from which they can "mine" potentially useful information.
Although information technology has had the potential to add to a company's relationship advantage, this is dependent upon two principal factors: whether the company needs large volumes of information about its customers; and whether a relationship based program will provide information that the company did not previously have. It is also crucial that marketing mangers have the skills with which to handle large volumes of customer information. It has been noted that IT skills among senior marketing managers remain weak and many prefer to rely on instinct rather than data which is available from data warehouses (Morten et al 1999).
Trends for the future:
In business to consumer markets, an information imbalance has developed in which technology has been used by sellers manipulate an essentially passive audience of buyers. More recently, the proliferation of technology to households creates new opportunities for private consumers to become active managers of information about existing and potential sellers. Search engines, comparative web sites and intelligent buying agents have the potential to reduce the information imbalance between buyer and seller. It has been noted that consumers increasingly recognize that personal data has a value and are typically becoming more instrumental in the manner in which personal information is divulged (Marketing 1999). This represents a new challenge for relationship marketing in consumer markets, and may require a change in the attitude of some consumer marketers that relationship marketing is something that companies "do" to customers.
There is a further argument that over-reliance on information technology can lead to a proliferation of "me-too" solutions. In a changing environment, it is the quality of interpretation of data that gives a firm a competitive advantage in its use of information. If relationship marketing becomes formalized as a data-gathering exercise, the "feel" for customers which the SME owner traditionally enjoyed in their relationship with customers may never be achieved. It is a challenge for technology to create relationships which are regarded as sincere by all parties. To adapt a quotation of Graucho Marx, an organization which is able to fake and mass produce sincerity is likely to win out. While there has been much recent interest in “virtual” relationships and communities which are led by technology, there is a view emerging that technology cannot replicate holistic relationships based on social and physical contact.
There is also a view that technology will reduce the cost of acquiring new customers, thereby reducing the power of the argument that it costs typically 5 to 10 times as much to retain an existing customer compared to recruiting a new one. The Internet has the capability of reducing the cost of targeting potential customers and automated systems can reduce the cost of processing new customers. This may give added credence to the argument of the Ehrenberg school of thought that the most effective method of building customer loyalty is simply to build large volume (Ehrenberg and Goodhart 2000).
The social environment
A number of social phenomena may explain the rise of co-operative buyer-seller relationships in place of traditional confrontational, transactional exchange.
One steam of thought is that individuals' attitudes to co-operative business relationships may be the result of a much broader set of attitudes towards co-operation in general. It has been observed that the post 2nd world war period has seen one of the longest periods of sustained world peace in modern history, and the co-operative values associated with peace have permeated throughout society (Earley and Gibson 1998 ). Commentators have observed that following a prolonged period of world peace, traditional marketing strategy analogies based on confrontation no longer seemed appropriate (Gronroos 1994). The underlying relevance of innate co-operation to the development of commercial relationships has been seen as essential by some (e.g. Henderson 1989; Kante 1994) who stress the recognition by all parties of the gains which result from co-operative rather than competitive strategies. However, Darwinian theories may suggest that co-operation is not an innate human phenomenon, but individualism and competition may be crucial in creating a dynamic tension which moves a relationship forward (Palmer 2000).
It might seem interesting that individuals' relationships with commercial sellers have become more significant while their other relationships would appear to be in decline. During recent years, a number of commentators have noted the weakening of relationships which individuals in western cultures have with a number of institutions, especially the church and family. In the UK, regular church attendance has declined to below 5% while families have become more fragmented, demonstrated in the extreme case by a rising proportion of single person households, and by the “cellular” family in which each member functions with much greater autonomy (The European 1998).
How does relationship marketing fit this observed phenomenon? Based on the evidence of family and church life, cynics may argue that relationships per se are less sought as Darwinian theories of self-preservation take hold. But an alternative explanation may be that individuals’ networks of relationships have shifted, away from traditional networks based on the church and family, towards commercially oriented organizations. From a practical perspective, such sources provide an increasing range of services (e.g. care for children and the elderly) which were previously undertaken by family and church. The number of associates of an individual has been noted to be stable across cultures (Ridley, 1996) and relationships with companies provide new opportunities for individuals to gain identity and a position within society, replacing church and family as a source of identity.
A further intriguing social reason for the development of relationship marketing was the increasing role of women in buying and selling during the 1980s and 1990s. Numerous studies have pointed to the growing role of women, both as significant buyers of consumers products, and as managers responsible for company-customer encounters. There is an extensive body of literature on differences in personality traits which exist between males and females. One important area of difference is in the way that males and females develop relationships with others, with masculine gender traits being characterized as aggressive and instrumental, while feminine traits are more commonly associated with showing empathy and resolving conflicts through reconciliation (e.g., Keys, 1985; Riger & Gilligan, 1980; Statham, 1987; Palmer and Bejou 1995). Recent moves from warfare approaches to business exchange toward collaborative approaches may appear novel when judged by the stereo-typical value systems of males, but may be considered normal by the value system of females. Although there is the possibility of role conflict, women as buyers and sellers are likely to bring values to commercial exchanges which are more relational than transactional.
Finally, the need for greater social responsibility has encouraged the development of business-consumer relationships in some sectors. Legislation and voluntary codes of conduct have recognized that it is unethical to sell many types of services without the seller first entering into some form of relationship with the seller to establish their needs. In the UK, the Financial Services Act 1986 effectively made some form of relationship compulsory for companies selling various long-life, high risk financial services. The absence of such relationships and an over-emphasis on transactional exchanges has led to many financial services providers being fined by regulatory bodies for failing to establish the true needs of their clients.
Trends for the future
The notion that we are living in a new era of peace in which co-operation rather than confrontation is the norm is open to challenge. Even the idea that we live in an era of world peace is ambiguous, for it has been noted that the last twenty years of the twentieth century witnessed more local wars than the first half of the century (Sardar,1999). An increasing willingness of consumers to challenge authority and, as consumers to complain about poor service may weaken the case for an increasingly co-operative society (Caudron 1994).
It has been suggested that consumers are increasingly seeking instant gratification, evidenced by the popularity of instant delivery of goods and services through the medium of the Internet. How do ongoing relationships fit into a scenario where consumers make short-term evaluations of a transaction? A presumption of relationship marketing is that through co-operation, each party invests in a relationship in the expectation that they will receive a payback at some time in the future. For the customer, this may take the form of a loyalty reward, or an augmented standard of service. For the seller, the payback may be a long and profitable series of sales.
Finally, consumers have raising expectations of the ethical and social welfare standards of commercial organizations. There are now many well documented cases of companies who have acted in an unethical or anti-social manner and incurred bad publicity. Buyer-seller relationships have the potential for a wide range of unethical practices, for example football teams who exploit their supporters’ relationship with the team by changing their strip each year (or more frequently) and expecting their loyal fans to invest in the new one. If the quality of relationships is to continue to be a source of competitive advantage, the ethical standards by which relationships are conducted are likely to become increasingly important to consumers.
The economic environment
Two important economic arguments have been advanced to explain the development of relationship marketing in the 1980s and 1990s. Firstly, there is the familiar argument that it is more cost effective to retain existing customers than to continually recruit new customers to replace lapsed one. This argument was of course nothing new, but information technology has allowed for more precise tracking of customers and the development of personalized retention strategies. Secondly, the quality of buyer-seller relationships emerged as a point of sustainable competitive advantage. A previous pre-occupation with tangible design properties in the 1960s was followed by a pre-occupation with augmented services (e.g. financing, warranty and maintenance services) but this itself was replaced in the 1990s by competition on the basis of superior ongoing relationships.
Relationship marketing also arose at a time when the choice available to consumers within most product categories increased markedly. Buyer behavior models are essentially concerned with understanding how buyers simplify their choice processes in order to reduce the psychological cost of a decision and it has been noted that buyers' motivation to enter into a relationship with a seller is essentially based on a desire to reduce their choice set and simplify their choice process (Sheth and Parvatiyar 1995).
Future trends
It was noted earlier that one of the underlying principles of relationship marketing is the cost effectiveness of retaining existing customers rather than continually recruiting new ones. During a period of media inflation, the cost of communicating with new and potential customers may have given some basis to this argument, although empirical evidence remains limited. With the falling cost of Internet media, this assumption may be challenged. The futility of pursuing customer loyalty where no relationship is sought may be strengthened by evidence from Ehrenberg that consumers are typically fickle and that distribution of relationship length is broadly similar for new brands as for long established brands (Ehrenberg and Goodhart 2000).
Other phenomena, often enabled by new technology pose challenges for relationship marketing. The emergence of “auction” websites such as QXL.com place much more of the onus of relationship management on the consumer. In such an environment, what becomes of marketers’ models of relationship pricing? The mass enabling of consumers to initiate and guide relationships with suppliers has potential to redress the power imbalances which have so far been typical of business to consumer relationships. Far from being the end of relationship marketing as we know it, this enabling of consumers opens up new challenges and possibilities for the marketer. Power may be of little relevance to consumers if it does not bring goods and services which consumers value.
Business to consumer relationships may also be challenged by an apparent increase in consumers’ confidence. This may be borne out of rising education levels; legislation which increasingly protects the rights of consumers and the growing variety of television programs which champion consumers’ rights. These have helped to reduce the power imbalance between consumers and sellers.
Finally, it was noted that markets have evolved from a primary focus on tangible product features, to a focus on augmented services and finally to a focus on relationship quality. Advance to the next stage has occurred where saturation had been reached at the previous stage and firms were no longer able to use that positioning as a source of competitive advantage. But what happens if relationships reach a similar stage of equalization between the main players? What next will be the basis for differentiation?
The political / legal environment
The political environment of many western economies during the 1990s emphasized a desire to dismember state monopolies and to develop competitive markets. The outsourcing of many functions traditionally carried out by government organizations (and by large private sector firms) created the need for close co-operation between autonomous units in place of previous unified command and control structures. In Williamson's terminology, outsourcing of peripheral functions through networks of supplier's leads to a transition from hierarchies to markets, with hybrid organizations being the end result.
Simultaneously, governments of many western countries have sought to outsource many services provided to consumers (e.g. many health and pension services) and encouraged the development of ongoing relationships between the two parties. Sometimes this has been enshrined in legislation, as in the case of private pension provisions where the existence of some form of relationship is a prerequisite to advice being given by a pension provider.
Future trends
The political environment may have given support for the development of relationship marketing, but more recent reading of the environment may suggest greater caution. Attitudes towards freely competitive markets with minimal state involvement appear to have been toned down, in Britain at least. From the extreme views of the Thatcher era, a more pragmatic attitude towards workable competition and a role for state enterprise has been increasingly recognized (Weatherill 1996).
There is also increasing concern that co-operation which is favourable to the participants may have harmful consequences for public welfare (Staber, 1998; The Economist, 1998). While legislation to curb anti-competitive business practices has traditionally been aimed at horizontal relationships within a distribution channel, there is mounting evidence of regulators' involvement in vertical supply relationships. As examples, the EU Commission has in recent years held British Airway's favored relationships with selected travel agents to be against the public interest while the UK Monopolies and Mergers Commission has held the exclusive freezer supply relationships operated by the Walls company to be a restrictive practice in the UK impulse ice cream market ( Mortishead 1999 ; Gray 1998).
Political ideology may have contributed to the development of relationship marketing, but growing recognition of the negative impact of buyer-seller relationships may act as an increasing constraint.
There is an another dimension in which the political environment can be seen to have influenced the development of relationship marketing. The mounting level of consumer protection legislation in most western countries raises the issue of whether an ongoing relationship with a supplier continues to reduce buyers' level of perceived risk, when legislation may have a similar effect of reducing such risk. In the financial services sector for example, it is becoming increasingly difficult for consumers to lose money as a result of bad advice. Knowing that compensation is likely to be available for the results of bad advice may reduce the value of a trusted relationship.
CONCLUSION / MANAGEMENT IMPLICATIONS
Relationship marketing as it has developed during the past two decades is firmly based on change in the business environment of organizations. It is too simplistic to say that it is nothing new or simply a big idea spun out of long standing practice. There are many factors in the business environment which explain why the concept became a dominant idea of the 1990s. Many of the changes which gave rise to Relationship Marketing will still have effect in future decades, so the concept will still be with us. However, the challenge of relationship marketing is to recognize the subtle changes in the business environment and to adapt to them. The reduction in power imbalances between consumers and commercial organizations through the development of consumer focused technology will call for a reinvigoration of consumer relationships. The desire for sincerity in relationships in some sectors may put pressure on companies to improve qualitative aspects of their relationships with customers. The use of customer ties is likely to be increasingly challenged by regulatory authorities as being anti-competitive.
It has been widely accepted that relationship marketing at the philosophical level differs very little from general definitions of marketing, and this is likely to continue to be the case. However, in its evolution, new strands of specialization are likely to emerge. The emergent technology has spurned new areas of study in the form of database marketing, for example. Inevitably some semantic drift will occur as big new ideas are promoted to highlight specific areas. The concepts of data mining, for example may not be entirely new to statisticians but as a subset of relationship marketing is likely to be received by an eager audience seeking to get more out of its databases.
Relationship marketing is not new and it is not a passing fad. There are sound reasons to explain its emergence and that it will need to adapt to change in the environment if it is to remain an important paradigm.
REFERENCES
Bagozzi, R. P. (1995), ‘Reflections on relationship marketing in consumer markets’, Journal of the Academy of Marketing Science, Vol. 23 No. 4, pp. 272-77.
Berry, L.L. (1995), On Great Service, The Free Press, New York, NY. Caudron, S. (1994), ‘The Myth of the European Consumer’, Industry Week, 243, 4, pp. 28-33.
Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing, Heinemann, London.
Clegg, P. (1956), A Social and Economic History of Britain 1760-1955, Harrap, London.
Earley, P.C and Gibson, C.B. (1998), ‘Taking stock in our progress on individualism-collectivism: 100 years of solidarity and community’, Journal of Management, Vol. 24 No. 3, pp. 265-304.
Economist (1998), ‘Watch Dog-fight!’ 348, August 22, pp. 16.
Ehrenberg, A. and Goodhart, G. (2000), ‘New Brands: Near Instant Loyalty’, Journal of Marketing Management, Vol. 16 (6), pp. 607-618.
Gladwell, M. (2000), The Tipping Point : How Little Things Can Make a Big Difference, New York, Little Brown and Co.
Gray, R. (1998), ‘A place of their own’, Marketing, Sept 3, pp. 21-24.
Gronroos, C. (1994), ‘From marketing mix to relationship marketing’, Management Decision, Vol. 32 No.1, pp. 4-20.
Gummesson, E. (1999) Total Relationship Marketing, London: Butterworth-Heinemann.
Hamilton, R. and B. Howcroft, 1995, ‘A Practical Approach to Maximising Customer Retention in the Credit Card Industry’, Journal of Marketing Management,
Vol. 11.1-3, pp.151-163.
Henderson, B.D. (1989), ‘The origin of strategy’, Harvard Business Review, November/December, pp. 139-143.
Kanter, R.M. (1994), ‘Collaborative Advantage’, Harvard Business Review 72, July-August, pp. 96-108.
Keys, D. (1985). ‘Gender, sex role, and career decision making of certified management accountants’. Sex Roles, 13, pp. 33-46.
Marketing (1999), ‘Data Firms React to Survey Fatigue’, 29th April, pp. 29-30.
Morgan, R.M. and Hunt, S.D. (1994), ‘The commitment-trust theory of relationship marketing’, Journal of Marketing, Vol. 58, July, pp. 20-38.
Morten T., Hansen, M.T., N Nohria and T Tierney (1999), ‘What's your strategy for managing knowledge?’ , Harvard Business Review, March-April 1999 vol. 77 (2) p106.
Mortished, C. (1999), ‘BA Fined £4m Over Illegal Sweeteners’, The Times, 15th July, p. 2.
Nonaka, I (1991) ‘The Knowledge-Creating Company,’ Harvard Business Review Vol. 69.6, pp 96-104.
O'Brien, L. and Jones, C. (1995), ‘Do rewards really create loyalty?’, Harvard Business Review, May-June, pp. 75-82.
O'Malley, L. (1998), ‘Can loyalty schemes really build loyalty?’, Marketing Intelligence and Planning, Vol. 6 No. 1, pp. 47-56.
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Peppers, D. and M. Rogers (1999), Enterprise one-to-one: Tools for competing in the interactive age, New York, Doubleday.
Ridley, M. (1996), The Origins of Virtue, Harmondsworth, Penguin.
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Tzokas, N. and Saren, M. J. (1997), ‘Some Dangerous Axioms Of Relationship Marketing’, Journal Of Strategic Marketing 6, 3, pp. 187-96.
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Zineldin, Mosad (2000) ‘Beyond relationship marketing: technological marketing’, Marketing Intelligence and Planning, vol 18 (1), pp 9-23.
CUSTOMER RELATIONSHIP MANAGEMENT: A BRIEF HISTORY, AND A BIG MYSTERY
CUSTOMER RELATIONSHIP MANAGEMENT: A BRIEF HISTORY, AND A BIG MYSTERY
James R. Rosenfield
February 2002
Customers count, information about customers counts, and managing that information counts. Relationships matter. What no-brainers! Intellectually and intuitively, no one who can fog a mirror would disagree.
And yet Customer Relationship Management remains an elusive will o' the wisp for most companies, and a bitter, discredited experience for many others.
What's the problem? Well, first a brief history of unkept promises:
1980s: Database Marketing. The promise of database marketing? To speak individually to countless customers. The reality: It's too costly, too difficult, and doesn't pay out on the bottom line, except in the case of business-to-business key account marketing. The compromise: A little database marketing goes a long way, which is very good news for everyone except technology vendors. You can do quite well simply by knowing how recently and frequently customers purchase; how much they spend; what they purchase; and an iota of demographics. Almost everything else is fluff and gloss.
1990s: Relationship Marketing. Major phenomenon: Loyalty programs. Major promise: Loyalty! Major result: Companies such as airlines now have an enormous incremental layer of expenses, without much to show for it. It's the familiar promotional conundrum: If your competition promotes, you have to promote equally, which eventuates in everyone making less money. But if you unilaterally withdraw from such competition, market share collapses. And, alas, no one, at least on the consumer and small business end of things, can tell the differences between loyalty, bribery, or inertia.
Early 2000's: Customer Relationship Management (CRM). Major phenomenon: Great promise. Major reality: Promise unattained.
What's the problem? What's the big mystery?
WHY CRM AND CONVENTIONAL CORPORATE CULTURE ARE AT ODDS
CRM does not mesh well with conventional corporate culture (with the exception, again, of business-to-business key account management). Its most significant and dramatic successes are likely to be found in non-public companies, many of whom are not eager to trumpet their successes in the business press or at trade shows.
There are three prevalent corporate inhibitors to making CRM work:
1) Cultural
Most companies, alarming as this might sound, don't really care about their customers. If they did, customers wouldn't be frustrated, abused, stifled, stymied, and mistreated the way they are. Based on my experiences as a customer in the U.S. in 2002, I can safely say that things have never been worse. Airlines, banks, telecoms, Internet providers are universal customer abusers, where rude service people and ignorant technical help are the order of the day. The University of Michigan each year does a study of customer satisfaction in the U.S., and it's steadily declined since 1994! Customer satisfaction, in fact, is now at just about an all time low in numerous categories. One of America's biggest banks just came in at 60%, which is way, way below sea level. Customers will normally award you 75% customer satisfaction just for showing up!
2) Economic
CRM requires investment spending, which means that increased profits will not be visible until some time in the future. For publicly traded companies, anything beyond next quarter is too far out even to contemplate. When you layer on top of this the current worldwide recession, the appetite for infrastructure investment spending disappears entirely.
The corollary of this is that any company wise and rich enough to make the investment now might in the future have a great and sustainable advantage over its competitors.
3) Linguistic
Customer Relationship Management is fraught with so much jargon and so many acronyms - beginning with the tiresome "CRM" itself - that senior management's eyes glaze over. I personally have watched several Chief Executive Officers quietly pray for death as yet another series of impenetrable terms were flung their way by managers and vendors unwilling or unable to speak plain English.
OLAP, Data Warehousing, ERP, P-CRM, drilling down, WAP, ADRI, on and on until the head droops and the mind craves anything, anything at all, that sounds like normal people talking to normal people.
WHAT CAN CRM PRACTITIONERS DO?
CRM believers can't undo the business cycle, which takes solutions to #2 above out of their hands. But they certainly can be in-house apostles for the importance of customers, and the more metrics they can attach to customer segmentation and retention, the better. And they can surely clean up - nay, they must clean up! - their linguistic act.
They might also establish and keep 10 Commandments of 21st Century Marketing and Customer Relationship Management:
1) Respect the customer.2) Abandon ethical neutrality, and only promote products that -at the very least - do no harm.3) Understand that the medium is the message, and use media appropriately.4) Know the differences between bribery and loyalty.5) Be skeptical of marketing "scientism," including most forms of so-called market research.6) Be a critical client and completely scrupulous vendor of all CRM-related products and services.7) Become a privacy advocate, since invading your customers' privacy will put you out of business. 8) Let go of intrusive and obnoxious ways of contacting consumers, such as junk e-mail, outbound telemarketing, and viral marketing.9) Learn that "brand" in the 21st Century is a stress-reduction strategy on the part of the consumer, not some ad agency hocus-pocus.10) Know that we don't control technology - technology controls us.
THE ELEVENTH COMMANDMENT
There's an eleventh commandment: Fall out of love with CRM. Fall out of love with your products and services. Assuredly you must fall out of love with yourself. But fall in love, deeply in love, with your customers, the only thing in the business world worthy of such affection.
http://www.jrosenfield.com/articles/CRM-History.htm
© 2006, James R. Rosenfield. All rights reserved. Use by permission only.
James R. Rosenfield
February 2002
Customers count, information about customers counts, and managing that information counts. Relationships matter. What no-brainers! Intellectually and intuitively, no one who can fog a mirror would disagree.
And yet Customer Relationship Management remains an elusive will o' the wisp for most companies, and a bitter, discredited experience for many others.
What's the problem? Well, first a brief history of unkept promises:
1980s: Database Marketing. The promise of database marketing? To speak individually to countless customers. The reality: It's too costly, too difficult, and doesn't pay out on the bottom line, except in the case of business-to-business key account marketing. The compromise: A little database marketing goes a long way, which is very good news for everyone except technology vendors. You can do quite well simply by knowing how recently and frequently customers purchase; how much they spend; what they purchase; and an iota of demographics. Almost everything else is fluff and gloss.
1990s: Relationship Marketing. Major phenomenon: Loyalty programs. Major promise: Loyalty! Major result: Companies such as airlines now have an enormous incremental layer of expenses, without much to show for it. It's the familiar promotional conundrum: If your competition promotes, you have to promote equally, which eventuates in everyone making less money. But if you unilaterally withdraw from such competition, market share collapses. And, alas, no one, at least on the consumer and small business end of things, can tell the differences between loyalty, bribery, or inertia.
Early 2000's: Customer Relationship Management (CRM). Major phenomenon: Great promise. Major reality: Promise unattained.
What's the problem? What's the big mystery?
WHY CRM AND CONVENTIONAL CORPORATE CULTURE ARE AT ODDS
CRM does not mesh well with conventional corporate culture (with the exception, again, of business-to-business key account management). Its most significant and dramatic successes are likely to be found in non-public companies, many of whom are not eager to trumpet their successes in the business press or at trade shows.
There are three prevalent corporate inhibitors to making CRM work:
1) Cultural
Most companies, alarming as this might sound, don't really care about their customers. If they did, customers wouldn't be frustrated, abused, stifled, stymied, and mistreated the way they are. Based on my experiences as a customer in the U.S. in 2002, I can safely say that things have never been worse. Airlines, banks, telecoms, Internet providers are universal customer abusers, where rude service people and ignorant technical help are the order of the day. The University of Michigan each year does a study of customer satisfaction in the U.S., and it's steadily declined since 1994! Customer satisfaction, in fact, is now at just about an all time low in numerous categories. One of America's biggest banks just came in at 60%, which is way, way below sea level. Customers will normally award you 75% customer satisfaction just for showing up!
2) Economic
CRM requires investment spending, which means that increased profits will not be visible until some time in the future. For publicly traded companies, anything beyond next quarter is too far out even to contemplate. When you layer on top of this the current worldwide recession, the appetite for infrastructure investment spending disappears entirely.
The corollary of this is that any company wise and rich enough to make the investment now might in the future have a great and sustainable advantage over its competitors.
3) Linguistic
Customer Relationship Management is fraught with so much jargon and so many acronyms - beginning with the tiresome "CRM" itself - that senior management's eyes glaze over. I personally have watched several Chief Executive Officers quietly pray for death as yet another series of impenetrable terms were flung their way by managers and vendors unwilling or unable to speak plain English.
OLAP, Data Warehousing, ERP, P-CRM, drilling down, WAP, ADRI, on and on until the head droops and the mind craves anything, anything at all, that sounds like normal people talking to normal people.
WHAT CAN CRM PRACTITIONERS DO?
CRM believers can't undo the business cycle, which takes solutions to #2 above out of their hands. But they certainly can be in-house apostles for the importance of customers, and the more metrics they can attach to customer segmentation and retention, the better. And they can surely clean up - nay, they must clean up! - their linguistic act.
They might also establish and keep 10 Commandments of 21st Century Marketing and Customer Relationship Management:
1) Respect the customer.2) Abandon ethical neutrality, and only promote products that -at the very least - do no harm.3) Understand that the medium is the message, and use media appropriately.4) Know the differences between bribery and loyalty.5) Be skeptical of marketing "scientism," including most forms of so-called market research.6) Be a critical client and completely scrupulous vendor of all CRM-related products and services.7) Become a privacy advocate, since invading your customers' privacy will put you out of business. 8) Let go of intrusive and obnoxious ways of contacting consumers, such as junk e-mail, outbound telemarketing, and viral marketing.9) Learn that "brand" in the 21st Century is a stress-reduction strategy on the part of the consumer, not some ad agency hocus-pocus.10) Know that we don't control technology - technology controls us.
THE ELEVENTH COMMANDMENT
There's an eleventh commandment: Fall out of love with CRM. Fall out of love with your products and services. Assuredly you must fall out of love with yourself. But fall in love, deeply in love, with your customers, the only thing in the business world worthy of such affection.
http://www.jrosenfield.com/articles/CRM-History.htm
© 2006, James R. Rosenfield. All rights reserved. Use by permission only.
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER RELATIONSHIP MANAGEMENT
by
Professor Adrian Payne,
Director Centre for Relationship Marketing, Cranfield University
Introduction
Customer Relationship Management (CRM) is developing into a major element of corporate strategy for many organisations. CRM, also known by other terms such as relationship marketing and customer management, is concerned with the creation, development and enhancement of individualised customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value.
Industry leaders are now addressing how to transform their approach to customer management. Narrow functionally-based traditional marketing is being replaced by a new form of cross functional marketing - CRM. The traditional approach to marketing has been increasingly questioned in recent years. This approach emphasised management of the key marketing mix elements such as product, price, promotion and place within the functional context of the marketing department.
The new CRM approach, whilst recognising these key elements still need to be addressed, reflects the need to create an integrated cross-functional focus on marketing - one which emphasises keeping as well as winning customers. Thus the focus is shifting from customer acquisition to customer retention and ensuring the appropriate amounts of time, money and managerial resources are directed at both of these key tasks. The new CRM paradigm reflects a change from traditional marketing to what is now being described as ‘customer management’.
The adoption of CRM is being fuelled by a recognition that long-term relationships with customers are one of the most important assets of an organisation and that information-enabled systems must be developed that will give them 'customer ownership'. Successful customer ownership will create competitive advantage and result in improved customer retention and profitability for the company.
In many companies there is still confusion as to what CRM is all about. To some it is about a loyalty scheme, to some it is about a help desk. To others it is about a relational data base for key account management and for others it is about mass profiling the customer base without undertaking detailed segmentation. Relatively few organisations have implemented an integrated approach, which addresses all the key strategic elements of CRM. Only a small number of businesses have a clear idea what should be done with information technology in order to successfully implement CRM.
This paper addresses: why traditional marketing is longer enough; the role of information technology in CRM including understanding the economics of customer acquisition and retention; developing appropriate metrics; and CRM implementation issues.
Traditional marketing is no longer enough
The amount an organisation spends on marketing is not necessarily related to its marketing effectiveness. Some organisations undertake relatively little marketing activity and as a result have a fragmented customer base, poor market positioning and low levels of marketing effectiveness.
Other organisations have been successful with relatively little expenditure on marketing. For companies such as Virgin Atlantic, The Body Shop and First Direct, public relations and word-of-mouth marketing have been very important to them, so that despite fairly low levels of advertising spend they are highly effective in their marketing.
Many organisations, despite heavy investment in marketing departments and marketing activities, have achieved poor results from their marketing effects; quite a number of financial services companies fall into this category. We call this “marketing trappings” marketing.
Relatively few organisations have adopted relationship marketing and CRM approaches to effectively harness the tools of marketing to deliver real increased customer value and, with the help of technology, developing appropriate long-term relationships with customers.
To achieve success, businesses need to have the appropiate measurement systems and marketing metrics in place to ensure their are effective in terms of their use of customer-focused resources. Over the past two decades businesses have developed sophisticated approaches to measurement in other functional activities within their business - in Operations, Finance, IT and Human Resources. However, the Marketing function may be the last bastion of inadequate and inappropriate metrics. Lord Leaverhume is reputed to have said, “ Half the money I spend on advertising is wasted - the trouble is I never know which half it is.” This approach to marketing is not acceptable. Organisations would not tolerate an HR manager who recruited two people due to lack of knowledge of which one would work out; or an operations director who built two plants because he was not sure which one would operate effectively!
Traditional marketing activities which emphasise customer acquisition are no longer sufficient. CRM recognises that marketing starts after the sale is over, not when the sale is completed.
In future marketing will need to create much stronger metrics so that strategies can be evaluated rigorously.
The role of information technology in CRM
In considering how CRM should be implemented, information technology has a pivotal role to play in enabling companies to maximize profitability through more precise targeting of market segments and the micro segments within them. We are now in a new era of technology-enabled marketing which involves leveraging relationships through the use of technology. Powerful new technological approaches involving the use of data bases, data marts, data warehouses, data mining and one-to-one marketing are now assisting organisations to increase customer value and their own profitability.
Technology can greatly assist in managing the data required to understand customers so that appropriate CRM strategies can be adopted. In addition, the use of IT can enable the necessary data to be collected to determine the economics of customer acquisition, retention and life-time value.
Research shows that a 5% points increase in customer retention yields a profit, in net present value terms, of between 20% and 125%. Although many managers are now familiar with these findings, our research shows that few managers know the profit impact of retention in their own business. Some managers may know the their customer retention rate but they struggle to understand how changes in this impact their profitability. Few companies segment their customer base by life-time value. A result, they may not adopt appropriate retention and acquistion strategies.
Given the dramatic effect that improved customer retention can have on business profitability, organisations need an approach that leads to greater customer loyalty, enhanced retention and profitability. To improve customer retention; three steps are needed: measurement of customer retention, identification of root causes of defection and related key service issues; and the development of corrective action to improve retention.
Measurement of existing customer retention rates is the first critical step in the task of improving loyalty. This involves measuring retention rates and profitability analysis by segment. We have developed a detailed methodology, the Retentiongram Model, which enables informed choices to made about the relative marketing emphasis to be placed on strategies for different customer segments. The model allows managers to determine the impact on profitability of various factors related to customer retention and acquistion. These include changes in: the cost of acquisition, the number of new customers acquired, the profitability of retained customers, and the retention rate.
Regardless of the approach taken to modelling the economics of acquisition and retention, life-time value will need to be identified by market segment and needs to address how to improve it. Clearly improving retention can have a huge impact on life-time profitability. The business will also need to consider how they will get the greatest benefit from their acquisition activities. To facilitate improved acquisition, retention and life-time value, companies need to utilise the appropriate technology tools to assist this process.
In the business-to-business context an example of this would be sales force automation - creating an information empowered sales force which increases the sophistication of customer management. This can dramatically improve sales force productivity and significantly enhance the bonds with the customer.
In business-consumer organisations who are dealing with a large number of customers, a critical issue will be increasing the quality of customer contact through tools such as sophisticated call centers and electronics commerce .
Organisations will need to determine the appropriate customer management strategy and then develop the appropriate information technology platform to suit their requirements, now and in the future. This may involve a creative blending of a range of information technology infrastructures starting with databases and then progressively moving towards data marts, enterprise data warehouse and integrated CRM solutions using electronic commerce. It may also involve using approaches such as data-mining, event-driven marketing and channel optimisation. The ultimate objective of this will be to identify opportunities for increased profitability through enhanced customer acquisition, improved customer retention and targeted cross-selling.
Developing appropriate metrics
Central to achieving success will be the development of new metrics to measure performance in CRM across the business. It is increasingly being recognised that there are linkages between employees satisfaction, employee retention, customer satisfaction, customer retention, sales and profitability. A number of academics and consultants have developed models based on these linkages. The best known is the “service profit chain”, a research methodology developed by faculty at the Harvard Business School. This methodology describes the linkages between employee attitude, customer retention and loyalty and profitability.
One of the most outstanding exemplas of use of the service profit chain approach is Sears, Roebuck and Company, the leading US department Store. Sears, one of the great turnaround successes of the 1990s, has undergone a radical transformation in the last 5 years. Much of its success is due to rigorous measurement systems which track employee attitudes and their impact on customer satisfaction and profitability. Critically, management alignment has been created around the metrics and there is widespread understanding throughout Sears as to how this model works. (For a description of their approach, see the box below).
Sears, Roebuck and Company: Developing “best-in-class” metrics
In 1992, the company reported massive losses of $3.9 billion on sales of $52.3 billion. Arthur Martinez was appointed to head the merchandise group and he undertook a streamlining of the business - he closed 113 stores and terminated the 101 year old Sears catalog, which was a household institution within the US. He also set about changing the service strategy, focusing on women who were the most important buying decision makers. As a result in 1993 the company reported a net income of $752 million - a dramatic reversal of fortunes for a mature company such as Sears.
Martinez set up five task forces (customers, employees, financial performance, innovation and values) to define world class status in each specific area, identify obstacles and define metrics for measuring progress. The task forces spent months listening to customers and employees, observing best practice in other organisations and establishing measures against objectives. Gradually it became apparent that what was needed was a model to show direct causation from employee attitudes, through customer satisfaction to profits. The company needed to know how management action, such as investment in sales force training, would directly translate into improved customer satisfaction, retention and higher revenues. What was needed was an operationalisation of the employee-customer profit model.
Sears defined a set of measures based on its objectives. These were broken down into three objectives which focused on making Sears - ‘a compelling place to work, to shop at and to invest in. Relationships between changes in key metrics were identified using causal pathway modeling.
The results were impressive - direct links were identified between employee measures, customer measures and revenues so total profit indicators for the company could be established. Employee attitude towards the job and company were found to be critical to employee loyalty and behaviour towards customers, whilst customer impression directly affected customer retention and the likelihood of recommendations. After further refinement, the model is now used as a predictor of revenue growth: 5 unit increase in employee attitude drives 1.3 unit increase in customer impression, 0.5 increase in revenue growth and a quantifiable increase in store profitability.
To successfully implement the service profit chain model it was necessary for Sears to change the behaviour of leadership to take responsibility for the company’s culture and understand how this impacted on revenues. In addition, employee rewards needed to be aligned to the model for financial and non-financial measures. A further change has been the streamlining of IT - from 18 separate databases to a single, integrated system. The results have been impressive - employee satisfaction at Sears has risen by 4% and customer satisfaction by almost 4%. More than $200 million additional revenues have been achieved through this value creation process.
CRM implementation issues
This paper has argued that whilst Customer Relationship Marketing is being increasingly viewed as a major element of corporate strategy, there is confusion about what it means in practice. Further, many organisations are adopting CRM practices on a fragmented basis through a range of activities such as direct mail, help desks, call centres and loyalty cards. These activities are often not properly integrated.
Where CRM is well understood as a concept, many board-level managers are still unclear as to how a particular CRM approach should be cost-effectively implemented and what technology options should be adopted.
The starting point for introducing or further developing CRM must be determined from a strategic review of the organisation’s current position. Companies need to address four broad issues: what is our core business and how will this evolve in the future; what form of CRM is appropriate for our business now and in the future; what IT infrastructure do we have and what do we need to support the future organisation needs; and what vendors and partners do we need to choose?
An organisation should first examine its core business and consider how will it evolve in the future. It then needs to consider the form of CRM that is appropriate for their business now and in the future and what organisation resources does it have to support the business now and in the future.
Having identified the present and future focus of CRM, the organisation then needs to address the appropriate information architecture to enable their CRM strategy to be implemented. Stated simply the task is how can we exploit technology for improved CRM.
As organisations increase their sophistication they will need to creativity integrate these technologies. “Planned evolution” is a good way of summarising the technology approach to building the backbone to support the relevant CRM strategy that has been mapped out for the business.
An essential element of achieving successful implementation is to ensure that their strategy is underpinned by viable and appropriate technology architecture. This involves the selection of vendors and partners based on issues of customisation capability and other appropriate commercial factors including both technological and commercial criteria.
The new millennium, Customer Relationship Management will have advanced considerably and we will have reached much more sophisticated level of one-to-one marketing and data mining. There is now an enormous opportunity for organisations to improve their ‘customer ownership’ by building a co-ordinated and integrated set of activities which address all the key strategic elements of CRM. Ultimately, however, organisations’ success in CRM will involve creating an appropriate strategic vision for the future, making the appropriate choice of applications, creatively using appropriate analytical techniques to exploit the data, and choosing the right vendor for supply of the technology solution.
Professor Adrian Payne is Director, Centre for Relationship Marketing at Cranfield School of Management and a Principal of CRM Associates. He can be contacted on 01234 751122 or emailed at a.payne@cranfield.ac.uk.
This article is based on the Key Note address to the Inaugural Meeting of the Customer Management Foundation, London
http://www.ittoolbox.com/peer/AP_website.htm
by
Professor Adrian Payne,
Director Centre for Relationship Marketing, Cranfield University
Introduction
Customer Relationship Management (CRM) is developing into a major element of corporate strategy for many organisations. CRM, also known by other terms such as relationship marketing and customer management, is concerned with the creation, development and enhancement of individualised customer relationships with carefully targeted customers and customer groups resulting in maximizing their total customer life-time value.
Industry leaders are now addressing how to transform their approach to customer management. Narrow functionally-based traditional marketing is being replaced by a new form of cross functional marketing - CRM. The traditional approach to marketing has been increasingly questioned in recent years. This approach emphasised management of the key marketing mix elements such as product, price, promotion and place within the functional context of the marketing department.
The new CRM approach, whilst recognising these key elements still need to be addressed, reflects the need to create an integrated cross-functional focus on marketing - one which emphasises keeping as well as winning customers. Thus the focus is shifting from customer acquisition to customer retention and ensuring the appropriate amounts of time, money and managerial resources are directed at both of these key tasks. The new CRM paradigm reflects a change from traditional marketing to what is now being described as ‘customer management’.
The adoption of CRM is being fuelled by a recognition that long-term relationships with customers are one of the most important assets of an organisation and that information-enabled systems must be developed that will give them 'customer ownership'. Successful customer ownership will create competitive advantage and result in improved customer retention and profitability for the company.
In many companies there is still confusion as to what CRM is all about. To some it is about a loyalty scheme, to some it is about a help desk. To others it is about a relational data base for key account management and for others it is about mass profiling the customer base without undertaking detailed segmentation. Relatively few organisations have implemented an integrated approach, which addresses all the key strategic elements of CRM. Only a small number of businesses have a clear idea what should be done with information technology in order to successfully implement CRM.
This paper addresses: why traditional marketing is longer enough; the role of information technology in CRM including understanding the economics of customer acquisition and retention; developing appropriate metrics; and CRM implementation issues.
Traditional marketing is no longer enough
The amount an organisation spends on marketing is not necessarily related to its marketing effectiveness. Some organisations undertake relatively little marketing activity and as a result have a fragmented customer base, poor market positioning and low levels of marketing effectiveness.
Other organisations have been successful with relatively little expenditure on marketing. For companies such as Virgin Atlantic, The Body Shop and First Direct, public relations and word-of-mouth marketing have been very important to them, so that despite fairly low levels of advertising spend they are highly effective in their marketing.
Many organisations, despite heavy investment in marketing departments and marketing activities, have achieved poor results from their marketing effects; quite a number of financial services companies fall into this category. We call this “marketing trappings” marketing.
Relatively few organisations have adopted relationship marketing and CRM approaches to effectively harness the tools of marketing to deliver real increased customer value and, with the help of technology, developing appropriate long-term relationships with customers.
To achieve success, businesses need to have the appropiate measurement systems and marketing metrics in place to ensure their are effective in terms of their use of customer-focused resources. Over the past two decades businesses have developed sophisticated approaches to measurement in other functional activities within their business - in Operations, Finance, IT and Human Resources. However, the Marketing function may be the last bastion of inadequate and inappropriate metrics. Lord Leaverhume is reputed to have said, “ Half the money I spend on advertising is wasted - the trouble is I never know which half it is.” This approach to marketing is not acceptable. Organisations would not tolerate an HR manager who recruited two people due to lack of knowledge of which one would work out; or an operations director who built two plants because he was not sure which one would operate effectively!
Traditional marketing activities which emphasise customer acquisition are no longer sufficient. CRM recognises that marketing starts after the sale is over, not when the sale is completed.
In future marketing will need to create much stronger metrics so that strategies can be evaluated rigorously.
The role of information technology in CRM
In considering how CRM should be implemented, information technology has a pivotal role to play in enabling companies to maximize profitability through more precise targeting of market segments and the micro segments within them. We are now in a new era of technology-enabled marketing which involves leveraging relationships through the use of technology. Powerful new technological approaches involving the use of data bases, data marts, data warehouses, data mining and one-to-one marketing are now assisting organisations to increase customer value and their own profitability.
Technology can greatly assist in managing the data required to understand customers so that appropriate CRM strategies can be adopted. In addition, the use of IT can enable the necessary data to be collected to determine the economics of customer acquisition, retention and life-time value.
Research shows that a 5% points increase in customer retention yields a profit, in net present value terms, of between 20% and 125%. Although many managers are now familiar with these findings, our research shows that few managers know the profit impact of retention in their own business. Some managers may know the their customer retention rate but they struggle to understand how changes in this impact their profitability. Few companies segment their customer base by life-time value. A result, they may not adopt appropriate retention and acquistion strategies.
Given the dramatic effect that improved customer retention can have on business profitability, organisations need an approach that leads to greater customer loyalty, enhanced retention and profitability. To improve customer retention; three steps are needed: measurement of customer retention, identification of root causes of defection and related key service issues; and the development of corrective action to improve retention.
Measurement of existing customer retention rates is the first critical step in the task of improving loyalty. This involves measuring retention rates and profitability analysis by segment. We have developed a detailed methodology, the Retentiongram Model, which enables informed choices to made about the relative marketing emphasis to be placed on strategies for different customer segments. The model allows managers to determine the impact on profitability of various factors related to customer retention and acquistion. These include changes in: the cost of acquisition, the number of new customers acquired, the profitability of retained customers, and the retention rate.
Regardless of the approach taken to modelling the economics of acquisition and retention, life-time value will need to be identified by market segment and needs to address how to improve it. Clearly improving retention can have a huge impact on life-time profitability. The business will also need to consider how they will get the greatest benefit from their acquisition activities. To facilitate improved acquisition, retention and life-time value, companies need to utilise the appropriate technology tools to assist this process.
In the business-to-business context an example of this would be sales force automation - creating an information empowered sales force which increases the sophistication of customer management. This can dramatically improve sales force productivity and significantly enhance the bonds with the customer.
In business-consumer organisations who are dealing with a large number of customers, a critical issue will be increasing the quality of customer contact through tools such as sophisticated call centers and electronics commerce .
Organisations will need to determine the appropriate customer management strategy and then develop the appropriate information technology platform to suit their requirements, now and in the future. This may involve a creative blending of a range of information technology infrastructures starting with databases and then progressively moving towards data marts, enterprise data warehouse and integrated CRM solutions using electronic commerce. It may also involve using approaches such as data-mining, event-driven marketing and channel optimisation. The ultimate objective of this will be to identify opportunities for increased profitability through enhanced customer acquisition, improved customer retention and targeted cross-selling.
Developing appropriate metrics
Central to achieving success will be the development of new metrics to measure performance in CRM across the business. It is increasingly being recognised that there are linkages between employees satisfaction, employee retention, customer satisfaction, customer retention, sales and profitability. A number of academics and consultants have developed models based on these linkages. The best known is the “service profit chain”, a research methodology developed by faculty at the Harvard Business School. This methodology describes the linkages between employee attitude, customer retention and loyalty and profitability.
One of the most outstanding exemplas of use of the service profit chain approach is Sears, Roebuck and Company, the leading US department Store. Sears, one of the great turnaround successes of the 1990s, has undergone a radical transformation in the last 5 years. Much of its success is due to rigorous measurement systems which track employee attitudes and their impact on customer satisfaction and profitability. Critically, management alignment has been created around the metrics and there is widespread understanding throughout Sears as to how this model works. (For a description of their approach, see the box below).
Sears, Roebuck and Company: Developing “best-in-class” metrics
In 1992, the company reported massive losses of $3.9 billion on sales of $52.3 billion. Arthur Martinez was appointed to head the merchandise group and he undertook a streamlining of the business - he closed 113 stores and terminated the 101 year old Sears catalog, which was a household institution within the US. He also set about changing the service strategy, focusing on women who were the most important buying decision makers. As a result in 1993 the company reported a net income of $752 million - a dramatic reversal of fortunes for a mature company such as Sears.
Martinez set up five task forces (customers, employees, financial performance, innovation and values) to define world class status in each specific area, identify obstacles and define metrics for measuring progress. The task forces spent months listening to customers and employees, observing best practice in other organisations and establishing measures against objectives. Gradually it became apparent that what was needed was a model to show direct causation from employee attitudes, through customer satisfaction to profits. The company needed to know how management action, such as investment in sales force training, would directly translate into improved customer satisfaction, retention and higher revenues. What was needed was an operationalisation of the employee-customer profit model.
Sears defined a set of measures based on its objectives. These were broken down into three objectives which focused on making Sears - ‘a compelling place to work, to shop at and to invest in. Relationships between changes in key metrics were identified using causal pathway modeling.
The results were impressive - direct links were identified between employee measures, customer measures and revenues so total profit indicators for the company could be established. Employee attitude towards the job and company were found to be critical to employee loyalty and behaviour towards customers, whilst customer impression directly affected customer retention and the likelihood of recommendations. After further refinement, the model is now used as a predictor of revenue growth: 5 unit increase in employee attitude drives 1.3 unit increase in customer impression, 0.5 increase in revenue growth and a quantifiable increase in store profitability.
To successfully implement the service profit chain model it was necessary for Sears to change the behaviour of leadership to take responsibility for the company’s culture and understand how this impacted on revenues. In addition, employee rewards needed to be aligned to the model for financial and non-financial measures. A further change has been the streamlining of IT - from 18 separate databases to a single, integrated system. The results have been impressive - employee satisfaction at Sears has risen by 4% and customer satisfaction by almost 4%. More than $200 million additional revenues have been achieved through this value creation process.
CRM implementation issues
This paper has argued that whilst Customer Relationship Marketing is being increasingly viewed as a major element of corporate strategy, there is confusion about what it means in practice. Further, many organisations are adopting CRM practices on a fragmented basis through a range of activities such as direct mail, help desks, call centres and loyalty cards. These activities are often not properly integrated.
Where CRM is well understood as a concept, many board-level managers are still unclear as to how a particular CRM approach should be cost-effectively implemented and what technology options should be adopted.
The starting point for introducing or further developing CRM must be determined from a strategic review of the organisation’s current position. Companies need to address four broad issues: what is our core business and how will this evolve in the future; what form of CRM is appropriate for our business now and in the future; what IT infrastructure do we have and what do we need to support the future organisation needs; and what vendors and partners do we need to choose?
An organisation should first examine its core business and consider how will it evolve in the future. It then needs to consider the form of CRM that is appropriate for their business now and in the future and what organisation resources does it have to support the business now and in the future.
Having identified the present and future focus of CRM, the organisation then needs to address the appropriate information architecture to enable their CRM strategy to be implemented. Stated simply the task is how can we exploit technology for improved CRM.
As organisations increase their sophistication they will need to creativity integrate these technologies. “Planned evolution” is a good way of summarising the technology approach to building the backbone to support the relevant CRM strategy that has been mapped out for the business.
An essential element of achieving successful implementation is to ensure that their strategy is underpinned by viable and appropriate technology architecture. This involves the selection of vendors and partners based on issues of customisation capability and other appropriate commercial factors including both technological and commercial criteria.
The new millennium, Customer Relationship Management will have advanced considerably and we will have reached much more sophisticated level of one-to-one marketing and data mining. There is now an enormous opportunity for organisations to improve their ‘customer ownership’ by building a co-ordinated and integrated set of activities which address all the key strategic elements of CRM. Ultimately, however, organisations’ success in CRM will involve creating an appropriate strategic vision for the future, making the appropriate choice of applications, creatively using appropriate analytical techniques to exploit the data, and choosing the right vendor for supply of the technology solution.
Professor Adrian Payne is Director, Centre for Relationship Marketing at Cranfield School of Management and a Principal of CRM Associates. He can be contacted on 01234 751122 or emailed at a.payne@cranfield.ac.uk.
This article is based on the Key Note address to the Inaugural Meeting of the Customer Management Foundation, London
http://www.ittoolbox.com/peer/AP_website.htm
CUSTOMER RELATIONSHIP MANAGEMENT
Customer Relationship Management
Prof. G. Shainesh
Indian Institute of Management Bangalore
The primary purpose of any business is to win and keep customers. Its competitors also seek to do the same. Most successful firms have developed capabilities for attracting customers through their marketing programs. But they have shown mixed results when it comes to retaining these customers. Customer Relationship Management helps businesses in successfully implementing strategies aimed at winning and retaining customers profitably. It is also helping businesses shift from a short-term transaction based mode of operation in their interactions with customers to a long-term relationship mode.
Prof. G. Shainesh
Indian Institute of Management Bangalore
The primary purpose of any business is to win and keep customers. Its competitors also seek to do the same. Most successful firms have developed capabilities for attracting customers through their marketing programs. But they have shown mixed results when it comes to retaining these customers. Customer Relationship Management helps businesses in successfully implementing strategies aimed at winning and retaining customers profitably. It is also helping businesses shift from a short-term transaction based mode of operation in their interactions with customers to a long-term relationship mode.
The Rice Bowl of Relationship Marketing
Tracing the 'Sui-Generis' (origin) of Relationship Marketing
“Every living practitioner is a prisoner of the ideas of a dead theorist”. This saying is proved by the fact that marketing management has remained unchanged since it was introduced in the 1960s. Things are changing now, thanks to increasing globalisation and importance of ‘customer retention’ and ‘market economics’. Relationship marketing is one such approach that has been established in most developed countries where a paradigm shift in marketing fundamentals has taken place.
Relationship Marketing: The Definition
It is a process of establishing, maintaining and enhancing long-term, trusting, win–win relationships with customers, distributors, dealers and suppliers at a profit, so that objectives of all parties involved are met.
The Birth of Relationship Marketing
Many years ago in China, Ming Hua, a young rice merchant sat long hours waiting for customers who never came. When he finally got around to wondering why he was so unsuccessful, he decided to maintain a record of his potential customers’ eating habits. He collected the following information:
· The members in a family.
· The amount of rice consumed per day.
Then he offered every customer the following:
· To replenish the rice jar of a household at regular intervals
· Free home delivery.
For example, in a household of four persons, on an average, a person would consume two bowls of rice per day and therefore, the household would need eight bowls of rice. He observed that the rice jar of that particular household would last for 15 days. Consequently, he offered to deliver a bag of rice every 15 days to that household. By establishing these records and developing new services, Ming Hua managed to create deeper relationships with his old customers, and then with potential customers through the old ones.
Ming Hua unknowingly discovered a concept, which we now call relationship marketing. He changed his role from being just a transaction-oriented businessman to a value-enhancing relationship manager.
His strategy included three typical elements of a relationship marketing:
· Seeking direct contacts with customers and other stakeholders.
· Building a database covering necessary information about customers and others.
· Developing a customer-oriented service system.
Today, Customer Relationship Management has become the key to long-term growth and success. Relationship marketing is the biggest change marketing theory and practice has witnessed during the last fifty years, all thanks to Ming Hua and the rice bowls!
Further Reading:
1. Relationship Marketing - A Theory and Practice Christian R. Gronroos European Journal of Marketing.
2. Marketing Channels Lou Pelton, James Lumpkin
“Every living practitioner is a prisoner of the ideas of a dead theorist”. This saying is proved by the fact that marketing management has remained unchanged since it was introduced in the 1960s. Things are changing now, thanks to increasing globalisation and importance of ‘customer retention’ and ‘market economics’. Relationship marketing is one such approach that has been established in most developed countries where a paradigm shift in marketing fundamentals has taken place.
Relationship Marketing: The Definition
It is a process of establishing, maintaining and enhancing long-term, trusting, win–win relationships with customers, distributors, dealers and suppliers at a profit, so that objectives of all parties involved are met.
The Birth of Relationship Marketing
Many years ago in China, Ming Hua, a young rice merchant sat long hours waiting for customers who never came. When he finally got around to wondering why he was so unsuccessful, he decided to maintain a record of his potential customers’ eating habits. He collected the following information:
· The members in a family.
· The amount of rice consumed per day.
Then he offered every customer the following:
· To replenish the rice jar of a household at regular intervals
· Free home delivery.
For example, in a household of four persons, on an average, a person would consume two bowls of rice per day and therefore, the household would need eight bowls of rice. He observed that the rice jar of that particular household would last for 15 days. Consequently, he offered to deliver a bag of rice every 15 days to that household. By establishing these records and developing new services, Ming Hua managed to create deeper relationships with his old customers, and then with potential customers through the old ones.
Ming Hua unknowingly discovered a concept, which we now call relationship marketing. He changed his role from being just a transaction-oriented businessman to a value-enhancing relationship manager.
His strategy included three typical elements of a relationship marketing:
· Seeking direct contacts with customers and other stakeholders.
· Building a database covering necessary information about customers and others.
· Developing a customer-oriented service system.
Today, Customer Relationship Management has become the key to long-term growth and success. Relationship marketing is the biggest change marketing theory and practice has witnessed during the last fifty years, all thanks to Ming Hua and the rice bowls!
Further Reading:
1. Relationship Marketing - A Theory and Practice Christian R. Gronroos European Journal of Marketing.
2. Marketing Channels Lou Pelton, James Lumpkin
WHAT IS PRODUCT?
WHAT IS PRODUCT?
Needs satisfying offering by an organization.
TYPES OF PRODUCT
- Goods
Services
GENERATING OF NEW PRODUCT
- Economic change
- Sociological and Demographic change
- Technological change
- Political and legal change
CONSUMER AND CONSUMPTION - COPYRIGHT, 1933, BY HART, SCBAFFNKB AND MASS
A THEORY OF CONSUMPTION- BY HAZEL KYRK, PH.D.
THE NATURE AND SCOPE OF A STUDY OF CONSUMPTION
WHAT is to be understood by the words which are so often on our lips, "consumer" and "consumption"? What activities and what problems are suggested thereby? How can we differentiate the group we call "consumers" from other classes of the economic order, and the phase of human behavior which we call "consumption" from other activities of the economic process? These questions are not raised merely in an attempt to secure precision in formal definition. A brief consideration of the meaning of these concepts will, it is believed, have another value. It will project, and, at the same time, delimit the course of the future discussion; it will establish its metes and bounds, and indicate its possible breadth and scope. Who, then, is the consumer and what is his status and function in the economic order? In the first place, it is obvious there is no separate class we may call consumers; they do not constitute a group who can be differentiated and isolated from their fellows. For consumers are all of us; consumers are simply the general public. In consumers we are dealing with a group which does not close its ranks short of the whole community. Yet this all- embracing group, the general consuming public, is for many practical purposes a most elusive and kaleidoscopic body. The daily and weekly press is always urging this body to assert itself; some one is always saying that it really ought to organize and take action upon this matter or upon that. Such appeals are futile in the majority of cases. Every one is a consumer, but each individual has a most disconcerting way of suddenly ceasing to function in that r61e and appearing in another with exactly contrary interests and problems. Try to lay your hands upon the general public and it has disappeared or is non-existent. The consumer from being every one seems to be no one.
Economically speaking, we all of us lead double lives. The fact that there is no consuming class or group which can be isolated or organized, and set over against another class, need not, however, make our concept of the consumer
any less clear-cut and well defined. The interests of individuals as consumers are definite, distinct realities, which may be differentiated from the interests of individuals in their other capacities. It is this common interest which identifies the consumer; it is the pursuit and realization of these common interests which mark groups of consumers. The word consumer, in short, is to be understood as an elliptical expression for individuals as consumers. Understood in this way, there should be no doubt about the meaning of the expression; nor need it lack definiteness or reality.
Nothing is clearer, however, than that the term "consumer” like many others suggests quite different things to different people. The popular mind, for example, by frequent association has come to identify the consumer as the person with a grievance. He is one who suffers long and is patient. In current literature he usually plays the part of victim with a producer of one kind or another, preferably a monopolist, as villain. Editors, magazine writers, and politicians work out plans for his rescue and future protection. During the war there was an interim in which the consumer appeared in a new role. He became the hero whose frugality and thrift would win the war. He was taught the philosophy of the clean plate and the empty garbage pail; he was urged to use corn meal and barley flour, and to forego sweets and motoring. Then the nation called him powerful, and either besought him to use his power wisely or, distrusting him, tied his hands. After the armistice was signed, however, all this seemed to be forgotten. Again he appeared in the daily cartoons as a meek and humble individual, cowering before the profiteer and the high cost of living. The popular interpretation of the consumer's place in the industrial order seems clear. In normal peace times his
interests are sadly neglected. Then the question is, Why does the industrial order serve the consumer so ill? But there are times — war times, for example — when the situation is reversed: from being the man with a grievance he becomes the man with power. The question becomes, What is the consumer doing with national resources and labor power? What use is he making of them? Are social welfare and the national interests being served thereby?
Concern for the consumer's welfare changes to fear of a misuse of his power. Students of economics too have their quite definite but quite different associations with the words "consumer" and "consumption." It is surprising to note how varied are their ideas of what a study of consumption involves. To one, a specialist in "theory," a study of the consumer and the consuming process means a study in the familiar field of price theory; to another, interested primarily in commercial organization, it means a study of demand, of the market from the standpoint of the business man, the salesman,' or the advertiser; to still another, interested in how the other half lives, it is a study of household budgets, of
the proportion of the income absorbed by various expenditures, for the purpose of estimating the adequacy of the income to maintain efficiency or to provide a tolerable life
Source from :A THEORY OF CONSUMPTION- BY HAZEL KYRK, PH.D.
THE NATURE AND SCOPE OF A STUDY OF CONSUMPTION
WHAT is to be understood by the words which are so often on our lips, "consumer" and "consumption"? What activities and what problems are suggested thereby? How can we differentiate the group we call "consumers" from other classes of the economic order, and the phase of human behavior which we call "consumption" from other activities of the economic process? These questions are not raised merely in an attempt to secure precision in formal definition. A brief consideration of the meaning of these concepts will, it is believed, have another value. It will project, and, at the same time, delimit the course of the future discussion; it will establish its metes and bounds, and indicate its possible breadth and scope. Who, then, is the consumer and what is his status and function in the economic order? In the first place, it is obvious there is no separate class we may call consumers; they do not constitute a group who can be differentiated and isolated from their fellows. For consumers are all of us; consumers are simply the general public. In consumers we are dealing with a group which does not close its ranks short of the whole community. Yet this all- embracing group, the general consuming public, is for many practical purposes a most elusive and kaleidoscopic body. The daily and weekly press is always urging this body to assert itself; some one is always saying that it really ought to organize and take action upon this matter or upon that. Such appeals are futile in the majority of cases. Every one is a consumer, but each individual has a most disconcerting way of suddenly ceasing to function in that r61e and appearing in another with exactly contrary interests and problems. Try to lay your hands upon the general public and it has disappeared or is non-existent. The consumer from being every one seems to be no one.
Economically speaking, we all of us lead double lives. The fact that there is no consuming class or group which can be isolated or organized, and set over against another class, need not, however, make our concept of the consumer
any less clear-cut and well defined. The interests of individuals as consumers are definite, distinct realities, which may be differentiated from the interests of individuals in their other capacities. It is this common interest which identifies the consumer; it is the pursuit and realization of these common interests which mark groups of consumers. The word consumer, in short, is to be understood as an elliptical expression for individuals as consumers. Understood in this way, there should be no doubt about the meaning of the expression; nor need it lack definiteness or reality.
Nothing is clearer, however, than that the term "consumer” like many others suggests quite different things to different people. The popular mind, for example, by frequent association has come to identify the consumer as the person with a grievance. He is one who suffers long and is patient. In current literature he usually plays the part of victim with a producer of one kind or another, preferably a monopolist, as villain. Editors, magazine writers, and politicians work out plans for his rescue and future protection. During the war there was an interim in which the consumer appeared in a new role. He became the hero whose frugality and thrift would win the war. He was taught the philosophy of the clean plate and the empty garbage pail; he was urged to use corn meal and barley flour, and to forego sweets and motoring. Then the nation called him powerful, and either besought him to use his power wisely or, distrusting him, tied his hands. After the armistice was signed, however, all this seemed to be forgotten. Again he appeared in the daily cartoons as a meek and humble individual, cowering before the profiteer and the high cost of living. The popular interpretation of the consumer's place in the industrial order seems clear. In normal peace times his
interests are sadly neglected. Then the question is, Why does the industrial order serve the consumer so ill? But there are times — war times, for example — when the situation is reversed: from being the man with a grievance he becomes the man with power. The question becomes, What is the consumer doing with national resources and labor power? What use is he making of them? Are social welfare and the national interests being served thereby?
Concern for the consumer's welfare changes to fear of a misuse of his power. Students of economics too have their quite definite but quite different associations with the words "consumer" and "consumption." It is surprising to note how varied are their ideas of what a study of consumption involves. To one, a specialist in "theory," a study of the consumer and the consuming process means a study in the familiar field of price theory; to another, interested primarily in commercial organization, it means a study of demand, of the market from the standpoint of the business man, the salesman,' or the advertiser; to still another, interested in how the other half lives, it is a study of household budgets, of
the proportion of the income absorbed by various expenditures, for the purpose of estimating the adequacy of the income to maintain efficiency or to provide a tolerable life
Source from :A THEORY OF CONSUMPTION- BY HAZEL KYRK, PH.D.
Friday, February 27, 2009
Apa jadi bila tiada PEMASARAN?
Tiada barangan dalam dunia ini, akan berjaya tanpa adanya aktiviti yang berkaitan dengan PEMASARAN yang cukup (sufficient). Samada ianya berbentuk bualbicara (Word of mouth communication) atau kempen pemasaran yang besar-besaran, pengiklanan, tektik promosi atau jenama yang mantap- barangan atau perkhidmatan tidak akan terjual dengan baik dan laku jika sekiranya tiada sebarang aktiviti PEMASARAN dilaksanakan.
Tiada siapa yang akan mengetahui adanya barangan pengeluar yang baik, elok, dan sesuai wujud dalam pasaran atau tahu akan ujudnya barangan tersebut tetapi tidak mengetahui dimana ianya boleh diperolehi lantas mana mungkin berlakunya proses seterusnya penjualan.
Tiada perniagaan boleh berjaya hanya dengan membuka kedai dan mengharap pelanggan secara magik datang berduyun-duyun . Peniaga mesti “Reach out and Grab”. Jika tidak tentu peniaga lain akan menggapai dan merentap mereka terlebih dahulu.
Ada yang memikirkan bahawa PEMASARAN ialah “Apa yang boleh peniaga buat atau lakukan” untuk mempertingkatkan jualan. Antara bentuk-bentuk alat pemasaran / jenis pengiklanan ialah:
• Suratkhabar / Yellow pages
• TV / Radio – komersial
• Lama sesawang / Blog.
• Publisiti / Sidang Akhbar.
• Banner / Flyer
• Direct mail.
Sebaliknya PEMASARAN perlu dilihat juga melalui persoalan “ Apa saja yang mengurangkan jualan atau menyusutkan penggunaan barangan dan perkhidmatan kita”
Ini termasuk:
1. Tempat kita berniaga
2. Sikap Pekerja / kakitangan
3. Nama syarikat / jenama barangan
4. Harga barangan dan perkhidmatan
5. Polisi dan Personaliti…..
Senarai ini akan lebih panjang jika kita terus cuba mencari jawapan “ Apa saja yang mengurangkan jualan atau penggunaan barangan dan perkhidmatan kita”
Teruslah mencari jawapan – anda akan terus memberi lebih nilai dan makna kepada PEMASARAN
Tiada siapa yang akan mengetahui adanya barangan pengeluar yang baik, elok, dan sesuai wujud dalam pasaran atau tahu akan ujudnya barangan tersebut tetapi tidak mengetahui dimana ianya boleh diperolehi lantas mana mungkin berlakunya proses seterusnya penjualan.
Tiada perniagaan boleh berjaya hanya dengan membuka kedai dan mengharap pelanggan secara magik datang berduyun-duyun . Peniaga mesti “Reach out and Grab”. Jika tidak tentu peniaga lain akan menggapai dan merentap mereka terlebih dahulu.
Ada yang memikirkan bahawa PEMASARAN ialah “Apa yang boleh peniaga buat atau lakukan” untuk mempertingkatkan jualan. Antara bentuk-bentuk alat pemasaran / jenis pengiklanan ialah:
• Suratkhabar / Yellow pages
• TV / Radio – komersial
• Lama sesawang / Blog.
• Publisiti / Sidang Akhbar.
• Banner / Flyer
• Direct mail.
Sebaliknya PEMASARAN perlu dilihat juga melalui persoalan “ Apa saja yang mengurangkan jualan atau menyusutkan penggunaan barangan dan perkhidmatan kita”
Ini termasuk:
1. Tempat kita berniaga
2. Sikap Pekerja / kakitangan
3. Nama syarikat / jenama barangan
4. Harga barangan dan perkhidmatan
5. Polisi dan Personaliti…..
Senarai ini akan lebih panjang jika kita terus cuba mencari jawapan “ Apa saja yang mengurangkan jualan atau penggunaan barangan dan perkhidmatan kita”
Teruslah mencari jawapan – anda akan terus memberi lebih nilai dan makna kepada PEMASARAN
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