UNDERSTANDING THE NEW, NEGOTIATED PHASE OF RELATIONSHIP MARKETING: A PROPOSED

RESEARCH AGENDA

Don Schultz, Northwestern University, USA

Edward C Malthouse, Northwestern University, USA
Doreen Pick, Freie Universität Berlin, Germany

ABSTRACT

Marketing and marketing communications have changed dramatically over the past 50 years. This article traces the changes
through a set of models, starting with Customer Marketing (CM) then Customer Relationship Marketing (CRM) and finally
CN2, the Customer Networked/Negotiated system. Illustrative details are provided for each of the systems. Based on this
evolution, a new academic/professional research agenda is proposed.

INTRODUCTION

Marketing, and particularly marketing communication (marcom), has experienced dramatic transitions over the last 60 years.
From the dependency on mass media to the development of data-driven systems, to today’s digitally-driven, interactive
approaches, marcom has evolved based on new approaches and methodologies that were not even imagined six decades ago.
The evolution has been driven by technological developments (Achrol 1991), social and political developments (Thorson and
Moore 1996) and economic shifts occurring around the world (Vargo and Lusch 2004). In this paper, we outline, in broad
strokes, the transition that has occurred in marcom in three phases, based on observable marketplace changes (Kitchen and
Schultz 2009). We explain and illustrate why the changes occurred and the impact they have had on how marcom is
researched, developed and implemented (Schultz et al. 2007). Most of all, we use this transition as a springboard to identify a
new marcom research agenda. This agenda is unique in that it is not focused on filing the gaps in what we already know, but
attempting to set a new direction for scholarly research in a marketplace that is dynamic and continues to evolve.

THE DEVELOPMENT OF CUSTOMER-FOCUSED MARKETING

What we call “modern marketing” emerged quite rapidly following the end of World War II (Kotler 2002). Building on a
base of industrialization and manufacturing, the initial customer-focused marketing was based on producing as many
products as quickly as possible to fill the voracious consumption appetites of product-deprived consumers around the world.
Exhibit 1 below illustrates the relationship between the maker/seller and the customer during this phase. This is called the
acquired relationship phase because firms acquire relationships with customers through media and distribution channel
partners.

The most important point about this phase is that the marketer controlled the entire system, ranging from the identification of
which products were to be produced to how they would be distributed to the price that would be charged to the promotion
and brand communication of the products through mass (traditional) media and sales promotion. Tools were developed to
profitably manage customers such as marketing strategy, segmentation, product design, positioning and pricing, which all
helped the marketer control the relationship with the customer. Products were made available through marketer-dictated
distribution systems, i.e., wholesalers, distributors, retailers and the like, who followed the dictates of the manufacturer (Day
1994). Even in-store promotion was controlled by the marketing organization through the use of deals and discounts made
available to the channel partners (Day 1994). The primary tools used by the marketing organization were traditional media
such as print, broadcast, and out-of-home (Schultz et al. 2009). Thus, by controlling the information systems, the marketer
was able to dictate products and conditions to pliable customers. Since it was not easy for customers to acquire additional
information on products from non-media sources, and, since much of the product information was distributed through free
entertainment systems such as radio, television, newspapers and magazines, customers had little choice but to accept the
conditions imposed by marketers (Schultz et al. 2009).

EVOLVING TO CUSTOMER RELATIONSHIP MANAGEMENT

By controlling all the marketplace communication and distribution systems, marketers increasingly dominated the
marketplace. Success brought forth a rash of new products and innovations, all of which added to the marketer’s dominance.
Since information and information technology were responsible for much of the marketer’s success, the drive to develop even
more dominant technologies was soon on. First came computer technology, which, when connected to retail tills, gave

475
marketers insights into consumer behaviors that they had never seen before (Humby et al. 2004). Next came CRM (customer
relationship management), where the marketing organization captured various levels of customer information, most often the
customer’s actual marketplace behaviors, which they then used to build more targeted marcom models and approaches. Many
of these CRM approaches were initially developed from work done by direct marketers, and were later emulated and
extended by service organizations such as banks, airlines and hospitality organizations (Blattberg et al. 1994). Thus, the
marketer’s systems moved from mass to the individual and extended the marketer’s control over the marketplace.

Exhibit 2 below illustrates the approach. The model maintained the basics of mass marketing such as marketer-controlled
traditional media and distribution channels, but added direct marketing, first through mailing systems and later through the
telephone and eventually other electronic forms (Mehta and Sivadas 1995). These new direct marketing systems extended the
marketer’s array of resources. Concepts such as test and control mailings (Mehta and Sivadas 1995), predictive analytics and
scoring models (Malthouse 2003) and customer segmentation and personalization improved the ability to discriminate among
and between customers. Concepts such as lifetime value gave the marketer clear insights into the financial value of individual
customers and customer groups and enabled them to focus resources on best customers. Marketers added distribution
channels with call centers, fulfillment facilities, technical support and customer service. Thus, marketers knew what
customers were doing, what they were responding to and the value of those responses; customers were still mostly in the dark
about what marketers were doing and why they were doing it. This period of the late 1980s and early 1990s was likely the
high-water mark of traditional marketer-controlled marketing.

CRM was all to the benefit of the marketer. While it was termed “relationship marketing” the relationship was entirely
controlled by the marketer. The system worked quite well for marketers until the middle 1990s, and still works under certain
conditions. Things began to change when the first commercial uses of the Internet and the World Wide Web appeared (Ho
1997). These new, interactive communication systems changed traditional marketer-controlled marketing forever. Marketers
still want to control the marketing system, but when customers get information and marketplace knowledge, marketers lose
control. We believe this represents the marketplace of the 21st century.

CUSTOMER NETWORKED/NEGOTIATED RELATIONSHIPS

After the development and diffusion of new information technologies, traditional marketing and marcom changed forever. In
this Networked and Negotiated Relationship system (Exhibit 3, CN2) the marketer will continue to develop products and
services. It may continue to advertise and promote them in traditional media and with direct marketing (arrow A), and
distribute them through mass distribution channels (arrow B) as well as through internal distribution channels (arrow C). That
will be much like what has gone before. But, the marketer no longer has the nearly complete control that they have enjoyed in
the past over the messages, offers or even information about the products they are trying to vend.

Before discussing the meaning of CN2, it is important to note the role of the World Wide Web, search engines and now
mobile devices. These technologies enabled customers to sort through, evaluate and make decisions based on information
ranging from product descriptions to retail pricing to customer-generated evaluations of products and services (Nel et al.
1999). These developments have had much to do with the well-publicized “shift of marketplace power” (e.g., Deighton and
Kornfeld 2009). Mobile communication forms have allowed customers to gather marketplace information anywhere at any
time, thus breaking the tether of the broadcast signal, the cable wire and the computer cord (Krause and Magedanz 1996). In
short, the Web, search and more recently mobile devices gave customers access to information fingertips, any time and any
place they desired.

The C in CN2 indicates that it is still a customer-oriented communication system, and the N2 suggests two new elements have
been added. The first N is for networked. The system is no longer linear and direct, from marketer to customer. It is
networked where multiple voices, using multiple communication channels are all interconnected. This network model
changes the entire marcom system, which has historically been based on a “stimulus-response” model (Lavidge and Steiner
1961). The marketer sent out stimuli, in the form of messages and incentives, and consumers responded. In a network model,
there are few loci of control, which obviates many of the traditional marketing concepts and approaches. This is largely due
to social media (Scott 2007). With the rise of electronic systems such as Facebook, YouTube, Twitter and the like, customers
can now talk back to marketers, ask questions, challenge claims and the like. Historically, marketers spoke and customers
were supposed to listen and respond. Now customers can communicate with other, like-minded customers all over the world.
That is, customers can create their own brand contacts, either positive or negative, and share them with others, or indeed, the
world. It is a system marketers can’t control. More loss for the marketer, more gains for the customer.

476