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BBMR4103 Relationship Marketing - Vapr20
BBMR4103 Relationship Marketing - Vapr20
Relationship Marketing
Summary 155
Key Terms 156
References 157
INTRODUCTION
BBMR4103 Relationship Marketing is one of the courses offered at Open
University Malaysia (OUM). This course is worth 3 credit hours and should be
covered over 8 to 15 weeks.
COURSE AUDIENCE
This course is offered to all learners of the Bachelor of Business Administration
(BBA) programme. This module aims to impart the relationship marketing
perspective especially for those majoring in Marketing. Learners should be able to
form a strong understanding on the importance to impart relationship marketing
views or perspectives in all marketing activities throughout the organisation.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 4
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 15
Revision 16
Assignment(s), test(s) and examination(s) 15
TOTAL STUDY HOURS ACCUMULATED 120
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented as
follows:
Topic 2 examines the characteristics of relationship marketing and the three main
levels of relationship continuum, which will bring benefits to the company and the
customer.
Topic 5 addresses issues relating to the strategy, structure and systems involved
in implementing relationship marketing programmes in the company.
Topic 6 describes the concept of internal marketing and internal service quality in
relationship marketing. The level of training process and the sources of evaluating
a training programme are also covered in this topic.
Topic 9 describes key account management (KAM) and key account development
cycle, key decisions and activities, including criteria for key account selection. The
relevance of KAM to relationship marketing is also discussed.
Topic 10 deals with the criticisms, role and common myths of customer
relationship management (CRM). Aspects discussed include the role of CRM in
customer profiling and customisation. Factors to be considered for a successful
implementation of CRM strategy are also discussed in this topic.
Learning Outcomes: This section refers to what you should achieve after you have
completely covered a topic. As you go through each topic, you should frequently
refer to these learning outcomes. By doing this, you can continuously gauge your
understanding of the topic.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the Summary, you should be
able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
References: The References section is where a list of relevant and useful textbooks,
journals, articles, electronic contents or sources can be found. The list can appear
in a few locations such as in the Course Guide (at the References section), at the
end of every topic or at the back of the module. You are encouraged to read or
refer to the suggested sources to obtain the additional information needed and to
enhance your overall understanding of the course.
PRIOR KNOWLEDGE
Learners of this course are required to pass BBSG4103 Marketing Management and
Strategy course.
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
Ahmed, P. K., & Rafiq, M. (2002). Internal marketing: Tools and concepts for
customer-focused management. New York, NY: Butterworth-Heinemann.
Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of marketing.
Harlow, England: Pearson Education.
Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 12–40.
Rabb, G., Ajami, R. A., Gargeya, V. B., & Goddard, G. J (2008). Customer
relationship management: A global perspective. Hampshire, England:
Gower Publishing Limited.
Reichheld, F., Markey Jr, R., & Hopton, C (2000). The loyalty effect-the relationship
between loyalty and profits. European Business Journal, 12(3), 449–463.
INTRODUCTION
Do you have your favourite brand for certain products that you use? Why do you
kept coming back to a certain business or product? Of course, people do business
with those whom they know, like and trust.
(c) Reduce risk by dealing with trustworthy companies, services and products;
(d) Acquire solutions that are tailored for specific needs and budgets; or
(e) Realise social and other value-added benefits such as simplifying the choice
process.
Figure 1.1: Four assumptions that define the features of corporate relationship building
ACTIVITY 1.1
Level Description
Basic marketing The salesperson sells the product.
Reactive marketing The salesperson sells the product and encourages the
customer to call if he has questions, comments or complaints.
Accountable The salesperson calls the customer to check whether the
marketing product meets the expectations of the customer and asks for
any product or service improvement suggestions and specific
disappointments.
Proactive marketing The salesperson contacts the customer from time to time with
suggestions about improved product uses or new products.
Partnership The company works continuously with its customers to help
marketing improve their performance.
Based on Table 1.1, there is no relationship building between the company and the
customer at the basic marketing level. At the reactive marketing level, the
company waits for the customerÊs reaction after purchasing the product or service.
At the accountable marketing level, the company bears responsibility for the
product or service provided. Companies that conduct proactive marketing would
always try to improve their products and services by getting their customersÊ
feedback as well as contacting the customers from time to time to offer information
about improved product or new product uses. Meanwhile, partnership marketing
is the highest level of relationship marketing. At this level, the company tries to
ensure that the customers and the company work together to achieve a state of
continuous benefit, whereby both the parties gain from the relationship.
SELF-CHECK 1.1
ACTIVITY 1.2
(b) If yes, until which level of relationship has TNB reached thus far?
Source Definition
Berry (1983) Attracting, maintaining and in multi-service organisations,
enhancing customer relationships.
Berry and Attracting, developing and retaining customer relationships.
Parasuraman (1991)
Gronroos (1994) Relationship marketing identifies and establishes, maintains
and enhances relationships with customers and the
stakeholders or profit so that the objectives of all parties
involved are met. This is done by mutual exchange and
fulfilment of promises.
Sheth and Parvatiyar Relationship marketing involves and integrates customers,
(1995) suppliers and other infrastructural partners into a companyÊs
developmental and marketing activities.
Gummesson (1995; Relationship marketing is about interaction, network and
2008) relationship. It is based within the intricate system of business
and customer relationship. The quality of the interaction will
dominate the outcome of the companyÊs operation.
Sheth, Pavartiyar Relationship marketing is the ongoing process of engaging in
and Sinha (2015) collaborative activities and programmes with immediate and
end-user customers to create or enhance mutual economic,
social and psychological value, profitably.
SELF-CHECK 1.2
The emphasis has moved from transaction focus to relationship focus (Christopher
et al., 1991; Boone & Kurtz, 2006). Competitive advantage and market share
became its primary indicator of performance (Ambler, 2004). The changes in the
concept and practice of business are characterised in Table 1.3.
Transaction-based
Characteristics Relationship Marketing
Marketing
Time orientation Short term Long term
Organisational goal Make a sale Emphasis on retaining
customers
Customer service Relatively low Key component
priority
Customer contact Low to moderate Frequent
Degree of customer Low High
commitment
Basis for seller-customer Conflict manipulation Cooperation and trust
interactions
Source of quality Primarily from Company-wide commitment
production
SELF-CHECK 1.3
Did you know that there are three conditions for the applicability of relationship
marketing? Berry (1983) has identified three conditions for the applicability of
relationship marketing and they are:
(a) The customer ought to show continuing and periodic desire for the service;
(b) The customer must be able to select the service provider; and
(i) Trust;
(ii) Commitment;
(iii) Cooperation;
(vi) Communication.
Without trust and commitment, there can be no alliance. They must often
cooperate to compete. Effective communication, shared values and
keeping promises generate inter organisational trust, which promotes
cooperation. Effective cooperation in turn allows partners to combine
their resources in ways that contribute to the development of competitive
advantages.
(i) Lobbying;
(i) Quality
Higher levels of quality are associated with market offerings that are
perceived as follows:
• More reliable;
• More valuable.
(ii) Innovativeness
This refers to a market offeringÊs perceived (Henard & Szymanski,
2001):
• Newness;
• Originality;
• Uniqueness; and
• Radicalness.
Factor Description
Opportunistic This entails „deceit-orientated violation of implicit or explicit
behaviour promises about oneÊs appropriate or required role behaviour‰
(John, 1984). For example, a manufacturer may shift business
away from a long‐time supplier in a manner that violates the
established norms of the relationship. Such behaviour, if
revealed, may reduce the supplierÊs trust in the
manufacturer, which in turn, may affect future interactions
(such as price negotiations).
Termination These are expected losses from termination and a result of the
costs perceived lack of comparable potential partners, relationship
dissolution expenses and/or substantial switching costs
(Morgan & Hunt, 1994).
Relationship These are the benefits derived from shared, developed and
benefits leveraged resources (such as information, processes, and/or
competences) with other organisations and/or consumers.
Relationships characterised by high termination costs result
in the ongoing relationship being viewed as important,
which results in increased relationship commitment.
SELF-CHECK 1.4
There are three types of environments that are conducive to successful relationship
marketing as shown in Figure 1.4.
Figure 1.4: Three environments that are conducive to successful relationship marketing
(a) Customisation
Relationship marketing in the mass market requires that the market
comprises different benefit segments that can potentially be served by
differentiated products. Customisation must be possible within the product
category for relationship to develop via people or technology (Bhattacharya
& Bolton, 2000). It is considered as a toll to build loyalty when mass-market
quality is no longer a sufficient differentiator (Gilmore & Pine, 1997).
SELF-CHECK 1.5
ACTIVITY 1.3
(i) Suppliers;
(ii) Distributors;
(iv) Employees;
(vi) Government;
(vii) Media;
(viii) Allies;
Market Stakeholders
Consumer markets • Customer markets in the business-to-business sector
Internal markets • Employees
Supplier and • Business partners
alliance markets • Suppliers
• Consultants
• Contractors
Influencer markets • Venture capitalists
• Regulators
• Lobbyists
• Litigators
Categories Description
Classic market 1. The classic dyad: The relationship between the
relationships supplier and the customer.
2. The classic triad: The drama of the customer-supplier-
competitor triangle.
3. The classic network: The distribution channel.
Special market 4. Relationships via full-time marketers (FTMs) and
relationships part-time marketers (PTMs).
5. The service encounter-interaction between customers
and service providers.
6. The many-headed customer and the many-headed
supplier.
7. The relationship to the customerÊs customer.
8. The close versus distant relationship.
9. The relationship to the dissatisfied customer.
10. The monopoly relationship – the customer or supplier
as prisoner.
11. The customer as a „member‰.
12. The e-relationship.
13. Pre-social relationships: Relationship to brand and
objects.
14. The non-commercial relationship.
15. The green relationship.
16. The law-based relationship.
17. The criminal network.
Structure Definition
Monopoly A competitive structure in which an organisation offers a
product that has no close substitutes, making that
organisation the sole source of supply.
Oligopoly A competitive structure in which a few sellers control the
supply of a large proportion of a product.
Monopolistic A competitive structure in which a firm has many potential
competitors and tries to develop a marketing strategy to
differentiate its product.
Pure A market structure characterised by an extremely large
competition number of sellers, not strong enough to significantly influence
price or supply.
The Internet has also given rise to a host of new businesses built upon the
concept of electronic social networks or communities such as Myspace,
Instagram and Facebook as well as electronic trading businesses such as eBay
(Pride & Ferrell, 2010).
SELF-CHECK 1.6
ACTIVITY 1.4
• Several factors play crucial roles in the rise of relationship marketing. Among
them are strategies that enhance the breadth of the products or services,
changes in customer behaviour over time and increasing the value of products
or services by the manufacturers and service providers.
Ambler, T. (2004). The new dominant logic of marketing: Views of the elephant.
Retrieved from http://facultyresearch.london.edu/docs/04-903.pdf
Boone, L. E., & Kurtz, D. L. (2006). Principles of marketing. Mason, OH: Thomson
South-Western.
Gilmore, J. H., & Pine, J. (1997). The four faces of mass customization. Harvard
Business Review, 75, 91–101.
Henard, D. H., & Szymanski, D. M. (2001). Why some new products are more
successful than others. Journal of Marketing Research, 38(3), 362–375.
Hunt, S. D., Arnett, D. B., & Madhavaram, S. (2006). The explanatory foundations of
relationship marketing theory. Journal of Business & Industrial Marketing,
21(2), 72–87.
Lambe, C. J., Spekman, R. E., & Hunt, S. D. (2002). Alliance competence, resources,
and alliance success: Conceptualization, measurement and initial test.
Journal of the Academy of Marketing Science, 30(2), 141–58.
Möller, K. (2006). The marketing mix revisited: Towards the 21st century
marketing. In E. Constantinides (Ed.), Journal of Marketing Management,
22(3–4), 439–450.
Pride, W. M., & Ferrell, O. C. (2005). Marketing: Concepts and strategies (5th ed.).
Boston, MA: Houghton Mifflin.
Pride, W. M., & Ferrell, O. C. (2010). Foundations of marketing. Mason, OH: South-
Western Publication.
Rami, O., Henrikki, T., & Kimmo, A. (2000). The role of communication in business
relationships and networks. Management Decision, 38(6), 403–409.
Reichheld, F. F. (1996). The loyalty effect: The hidden force behind growth, profits,
and lasting value. Brighton, MA: Harvard Business Review.
Shajahan, S. (2004). Relationship marketing: Text and cases. New Delhi, India: Tata
McGraw-Hill.
Sheth, J. N., Parvatiyar, A., & Sinha, M. (2015). The conceptual foundations of
relationship marketing: Review and synthesis. Retrieved from
https://pdfs.semanticscholar.org/758a/2732c0bdc41a0b45a47cda4a6548ec
d31250.pdf
Sin, L. Y., Alan, C. B., Yau, O. H., Chow, R. P., Lee, J. S., & Lau, L. B. (2005).
Relationship marketing orientation: Scale development and cross-cultural
validation. Journal of Business Research, 58(2), 185–194.
INTRODUCTION
Marketing revolves around relationships with customers and with all the business
processes involved in identifying and satisfying customers. Relationship
marketing was first defined by Berry (1983) as attracting, maintaining and in multi-
service organisations, enhancing customer relationships. The aim of relationship
marketing is to build a long-term mutually satisfying relationship with customers,
suppliers and distributors in the hope of earning and retaining their long-term
preference and business (Kotler, 2000).
This topic will look at the differences between transactional marketing and
relationship marketing, the characteristics of relationship marketing, the three
levels of relationship continuum and relationship marketing, the benefits of
relationship marketing as well as the disadvantages of conducting relationship
marketing. Happy reading!
Let us look at Table 2.1 which explains the differences between transactional
marketing and relationship marketing.
SELF-CHECK 2.1
Characteristic Description
Duration of the Length refers to the duration of a relationship where the early
relationship (length) stages of a relationship are characterised by high uncertainty
and low customer experience. In this phase of the relationship,
the specific investments are low and the mutuality between the
parties has not greatly evolved.
SELF-CHECK 2.2
ACTIVITY 2.1
The three levels of relationship marketing continuum are further explained in the
following subtopics.
Although this method can be attractive to users or buyers, it may not create long-
term buyer relationships. Since the programmes are not customised to the needs
of individual buyers, they are easily duplicated by competitors (Boone & Kurtz,
2013).
Social interaction can take many forms as seen in the following examples:
(a) The owner of a local shoe store might chat with customers about local events;
(b) The service department of an auto dealership might contact customers after
providing services to check if the customers are satisfied or have any
questions; and
(c) The investment firm might send holiday cards to all customers.
Marketers are beginning to see the potential for more precise targeting through the
use of social networking (Boone & Kurtz, 2013).
SELF-CHECK 2.3
ACTIVITY 2.2
The following are further explanations for the three levels of relationship
marketing:
Previous research shows that one of the motivation factors for customers to
engage in relational exchanges is to save money (Berry, 1995; Gwinner,
Gremler & Bitner, 1998). Customers who are prone to financial incentives
would normally be more vulnerable to competitorsÊ promotions and offers.
This level of relationship marketing is the least effective in the long term
because its price-based advantage is easily imitated by other competitors. As
such, financial incentives offer the lowest potential for sustainable
competitive advantage.
Another example, Maths Clinic tuition centre in Klang Valley offers not only
a reasonable price for its students but also provides them with transportation
services and free motivational sessions. Marketing programmes like this give
the organisation a strong potential for sustaining long-term relationships and
attracting more customers.
SELF-CHECK 2.4
ACTIVITY 2.3
Create a plan for a car wash business to attract customers at level one of
the relationship marketing continuum. Then, move the customers to
level two based on social interactions. Lastly, move the customers to the
highest level (level three) with interdependent partnership. Compare
your plan by posting it on the myINSPIRE forum.
(a) It typically costs five times as much to acquire new customers than to retain
a current one (Peppers & Rogers, 1993). Therefore, a companyÊs effort in
acquiring and keeping customers must be distributed accordingly.
(b) It is proven that if a company retains just five per cent more of its customers,
profits will increase by 25 to 125 per cent. This is because loyal customers are
less likely to switch and make more purchases than non-loyal customers
(Reichheld, 1996). This is a strong case which supports organisations that
develop and use customer retention strategies to retain current customers.
(c) It is more effective to retain a customer than to acquire a new one; it is easier
and less costly to sell more products to one regular customer than to sell the
same amount to two new customers. In other words, it is easier to persuade
the existing customer than to persuade new customers. This is due to the
reason that current customers are normally more confident towards the
company compared to new customers.
Copyright © Open University Malaysia (OUM)
TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING 39
(f) Loyal customers are barriers to competitorsÊ market entry and/or market
share gain.
Relational benefits are defined as benefits that customers received from long-
term relationships above and beyond the core service performance.
(Gwinner, Gremler & Bitner, 1998)
For example, special treatment benefits may take the form of customisation
such as tailored service. Customers forego relationships with other service
providers with the expectation of receiving special treatment when needed
(Gwinner et al., 1998).
As a conclusion, Gwinner et al. (1998) found that confidence benefits are received
and rated by customers as more important than the other relational benefits. This
is followed by social and special treatment benefits, respectively. These relational
benefits are part of customer relationship and are of particular interest to service
providers. This is because they provide evaluative criteria for consumers to
evaluate aspects of the service encounter such as providing trust, commitment and
reliability. The benefits are the key drivers that motivate both companies and
customers to interact with each other. Thinking about a new purchase, a buyer
evaluates all possible benefits that he may obtain. The same thing happens at the
sellerÊs end, where the benefits perspective dominates the decision-making
process (Hennig-Thurau et al., 2002).
SELF-CHECK 2.5
ACTIVITY 2.4
The Numi Tea was started by a brother-sister team, Ahmed and Reem
Rahim. Every member of the TeaÊm, as they call it, is committed to the
companyÊs core values of sustainability, creativity and
quality organics. This extends to their corporate customers and their
producers as well. Like their teas, every relationship is carefully
cultivated and maintained. „We focus on sampling versus the traditional
marketing methods such as print or TV advertising because for us the
conversion happens when people taste Numi Tea. Aware that most of
their best marketing is done on a friend-to-friend basis, Numi started a
Tea Champions programme. Numi sends thank-you packages to fans
and provides them with free tea and educational literature on their
fair-trade producers and health benefits of natural and organic
teas so that they can share with their friends. Numi Tea is also committed
to sustainability, organic farming and events in their local community.
(Source: Boone & Kurtz, 2010)
Disadvantage Description
Loss of control Developing a relationship inevitably results in some loss of
control over matters such as resources, activities and intentions.
Indeterminateness A relationship is subject to continuous change with an uncertain
future, which is in part determined by its history but also by
current events and the partiesÊ expectations of future events.
Resource Effort is required to build and maintain a relationship that can
demanding be viewed as an investment and a maintenance cost.
Preclusion from There is always a need to prioritise the use of limited resources;
other opportunities hence, it may not be possible to pursue all of the individually
attractive opportunities. Additionally, some relationships may
be irreconcilable with an existing relationship.
Unexpected Given that the two parties in a relationship will also have other
demands relationships, establishing a relationship means being linked, if
only passively, to a network of relationships. Such linkage or
membership of a network may bring with it obligations or
expectations by others of specific behaviours.
SELF-CHECK 2.6
• Relationship marketing can increase the market share by attracting more new
customers, conducting more business with existing customers and reducing
the loss of customers.
– Confidence benefits;
– Financial stage;
– Loss of control;
– Indeterminateness;
– Resource demanding;
– Unexpected demands.
Belois, K. (1998). DonÊt all firms have a relationship? Journal of Business and
Industrial Marketing, 13(3), 256–270.
Bitner, M. J. (1995). Building service relationships: ItÊs all about promises. Journal
of The Academy of Marketing Science, 23, 246–51.
Boone, L. E., & Kurtz, D. L. (2006). Principles of marketing. Mason, OH: Thomson
South-Western.
Gwinner, K. P., Gremler, D. D., & Bitner, M. J. (1998). Relational benefits in service
industries: The customerÊs perspective. Journal of the Academy of Marketing
Science, 26(2), 101–114.
Peppers, D., & Rogers, M. (1993). The one to one future: Building relationships one
customer at a time. New York, NY: Currency Doubleday.
Reichheld, F. F. (1996). The loyalty effect. Boston, MA: Harvard Business School
Press.
INTRODUCTION
It is noted that the relationship marketing plays a very important role in the
success of a business strategy. The drivers of relationship marketing include
customer satisfaction, loyalty, trust and commitment to ensure the success of oneÊs
business.
Therefore, this third topic will focus on the factors of customer satisfaction, the
importance of relationship quality, the values that customers look for, the principle
of loyalty and the importance of commitment and trust. So, let us continue with
the lesson!
3.1 SATISFACTION
What is satisfaction? Customers describe satisfaction in many ways. In fact,
customers can achieve satisfaction through the following:
(d) Size and design of the latest fashion that suit them.
Each and everyone in the service industry (including retailing) needs to focus on
customer satisfaction as it is a very significant investment for the organisation.
Satisfaction also needs to be achieved in order to stay in business. How can this be
done? This can be done by:
That person can be categorised as either an internal or external customer. The idea
of internal customers suggests that every employee is both a supplier and a
customer to other employees within the organisation, who will need to establish a
good working relationship in order to provide product or service of good quality
to the organisationÊs external customers. Table 3.1 provides some examples of the
various types of focal groups and their respective internal customers.
Table 3.1: Examples of Types of Focal Groups and their Respective Internal and
External Customers
Type of Focal
Internal Customers External Customers
Group
School principal Teachers, clerks and parents Students
Cafe owner Management staff, cooks, waiters Customers of the cafe
and cashiers
Attorneys in law Secretaries, law and accounting Clients of law firms
firms clerks
Sports complex Senior management, accounting, Customers renting and using
maintenance, publicity and the facilities of the sports
grounds staff complex
As for external customers, they are those whom we address as customers. They
are referred to as external customers because they are not involved in producing
the products or providing the services; they are merely the people who enjoy using
the products or services. Ultimately, they bring in all the gross revenues that keep
the company going.
the external customers. According to the service profit chain, the following
elements highlighted in Figure 3.1 occur in a company when its internal customers
are satisfied.
This logic seems indisputable – when everybody is happy, the company will do
well. Let us look at Table 3.2 which describes the satisfaction factors and the
elements in a supermarket.
Table 3.2: Satisfaction Factors and the Elements (Specific Attributes) in a Supermarket
SELF-CHECK 3.1
1. Define customer.
ACTIVITY 3.1
(b) Some firms obtain customer feedback through means such as toll-
free phone numbers and websites. How effective are these
methods in improving customer satisfaction?
The quality of the relationship between the salesperson and the customer will
determine the probability of continued interchange between both parties in the
future (Crosby, Evans & Cowles, 1990). To deliver a good quality product, the
provider must constantly refer to the customer in order to know the criteria against
which the product quality will be judged.
There are five dimensions of quality based on Little and Marandi (2003)Ês findings
(see Figure 3.2).
In addition, Seider and Berry (1998) suggested that service fairness (which is a
customerÊs perception of the degree of justice in a service firmÊs behaviour) needs
to be included as the sixth dimension. This is because unfair service is likely to be
judged as substandard quality and customersÊ sensitivity to fairness increases with
purchase risk and customer vulnerability.
SELF-CHECK 3.2
Companies need to understand the areas that will help them to increase the value
of their product or service to fulfil current market needs. How do companies
provide better quality product or service to their customers? The following are
some strategies to guide companies in providing better quality products or
services to the customers:
Research shows that the factors in Table 3.3 collectively influence a consumerÊs
decision to buy a durable product. Those factors may be termed as „values‰ that a
customer looks for (Saxena, 2009).
Large, established businesses try to do facilitate all the buying activities for their
customers. If you visit Walmart (a big retailer in the US), they fulfil all your
activities. The same goes for retailers in Malaysia such as HomePro, Mr DIY,
Harvey Norman and Courts Mammoth, just to name a few.
CVC puts the emphasis on steps taken by producers or retailers to retain existing
customers. They include design, production, marketing and distribution, in other
words, what businesses go through in order to bring the product or service from
conception to delivery to the customers. The CVC has been described as a
customerÊs activity cycle, relationship management chain and as a constellation of
values, which the customer buys. It involves taking care of the following elements
shown in Figure 3.3.
Now, let us discuss the stages in a relationship development one by one (see
Table 3.4).
Stage Description
Exploration This is the search and trial phase whereby the customer explores the
stage possibility of testing and initiating trial purchases. Exploration stage
enables each party to gauge and test the goal compatibility,
integrity and performance of the other. At this stage, both parties
show some commitment to build a successful relationship by
initiating communication. The communication that takes place will
be used as a medium to convey issues, wants, needs and priority
needs; whilst the effort in showing commitment might provide the
momentum to bring the relationship to the next level. This stage is
also to initiate the acceptance of the parties to establish a stronger
bond between them (Musadiq, 2008).
Expansion stage Expansion refers to the continual increase in benefits obtained by the
exchange partners and to their increasing interdependence. This
stage helps the parties to understand each other through extended
interactions. This stage provides an opportunity to an organisation,
not only to understand the customer needs and expectations better,
but also to identify the means and ways to meet the growing
demands. The expansion stage calls for more commitment and effort
of the parties for a long-term relationship (Musadiq, 2008). The cost
of withdrawing from the relationship increases, as does the level of
trust and joint satisfaction. At the end of this stage, there is an
„implicit or explicit pledge of relational continuity between
exchange partners‰ (Broch, Maniscalco & Brinberg, 2003).
SELF-CHECK 3.3
3.4 LOYALTY
Now, let us move on to loyalty. What does customer loyalty mean?
Getting customers to return to the product or service is the most crucial part in
every business. No business can achieve success by continually dealing with new
customers. Repeat customers are the source of profit that allows a business to grow
and prosper. Figure 3.5 provides some examples of statements indicating customer
loyalty.
Did you know that there are five principles that will create customer loyalty? The
principles are shown in Figure 3.6.
(b) Differentiation
A customerÊs selection from different products or suppliers is based on
product differentiation. The differentiations can highlight the unique
features of the products. Other attributes such as the payment term, the
service given and the function of the product can create a level of difference.
This can attract customersÊ attention, making the product the preferred one.
(e) Focus
To create loyal customers and achieve customer retention, we need to focus
on customersÊ wants and needs. The customer satisfaction survey or the
customer loyalty programme will help companies to get to know their
customers better.
SELF-CHECK 3.4
2. What are the steps that companies need to take in order to become
the preferred customer choice?
ACTIVITY 3.2
Measurement Description
Behavioural Behavioural measurements primarily focus on the customerÊs
measurements purchase history recency, frequency and monetary value.
Attitudinal Attitudinal measurements have the elements that underlie the
measurements purchasing motives and future actions where it will reflect the
emotional and the psychological attachment inherent in loyalty.
Composite Composite measurements are a combination of behavioural and
measurements attitudinal measurements.
SELF-CHECK 3.5
ACTIVITY 3.3
3.5.1 Commitment
Do you know the meaning of commitment? Do you think Figure 3.9 correctly
depicts commitment?
3.5.2 Trust
In your opinion, what is the meaning of trust in relationship marketing? Do you
think Figure 3.11 illustrates trust accurately?
Now, let us look at the definition of trust according to Morgan and Hunt (1994).
Trust exists when one party has confidence in an exchange partnerÊs reliability
and integrity.
(Morgan & Hunt, 1994)
(a) Consistency;
(b) Competence;
(c) Honesty;
(d) Fairness;
(e) Responsibility;
(g) Benevolence.
Trust shows that the customers believe more in the organisationÊs capability in
meeting their demands and expectations as compared to the competitors.
Therefore, the organisation must provide the market offering and fulfil the
promises made to the customer.
According to Dalrymple and Cron (1995), there are a few organisational attributes
associated with achieving customersÊ trust by (see Figure 3.12).
Meanwhile, let us look at Figure 3.13 which illustrates the model of commitment
and trust.
SELF-CHECK 3.6
ACTIVITY 3.4
(c) Suppose you work for a company that sells home appliances such
as refrigerators, microwave ovens and washing machines. Your
company has been slowly losing customers but no one seems to
know why. Employee morale is sliding as well. You believe that
the company is run by honest, dedicated employees who want to
please the customers. One day, you overheard an employee quietly
advising a potential customer to shop at another store. You realised
your companyÊs biggest problem may be the lack of employee
satisfaction, which is leading to external customer loss. What steps
do you think your employer could take to turn the situation
around?
(d) When Microsoft recently unveiled its own search engine, Bing,
sceptics said it would have a tough time making inroads due to
GoogleÊs dominance of the search industry where revenue is
generated by advertising. Microsoft is pinning its hopes for the
infant search engine on a new ten-year partnership with Yahoo!
MicrosoftÊs senior vice president of online audience business says,
„Really, now the goal is about share gain. If we grow share, we will
grow our way into profitability and we have confidence we can do
that.‰ Once approved by US regulators, the deal will give Microsoft
effective control of nearly 30 per cent share of the search market by
making Yahoo! the underlying search engine. „The nice thing is we
can say [to advertisers], you can be close to 30 per cent share in one
easy buy.‰
Adding Bing may also hurt Yahoo!, they say, in its own continuing
challenge to GoogleÊs increasing online dominance.
(i) Which partner do you think has more to gain from the
Microsoft-Yahoo! Partnership - Microsoft or Yahoo!? Why?
• Among the factors influencing a consumerÊs decision to buy products for value
are personal, esteem, utility and social.
• Customer value chain (CVC) is a business concept that represents the creation
of value for a customer.
• There are five principles of customer loyalty, namely people do business with
other people, differentiation, value and assurance, effective communication
and focus.
Baines, P., & Fill, C. (2014). Marketing (3rd ed.). Oxford, United Kingdom: Oxford
University Press.
Bennett, R., & Rundle-Thiele, S. (2004). Outcomes satisfaction not be the only goal.
Journal of Services Marketing, 18(7), 514-523.
Boone, L. E., & Kurtz, D. L. (2013). Contemporary marketing (2013 ed.). Mason,
OH: South-Western Cengage Learning.
Brink, A., & Berndt, A. (2008). Relationship marketing and customer relationship
management. Lansdowne, South Africa: Juta and Company Ltd.
Broch, C., Maniscalco, C., & Brinberg, D., (2003). Integrating process, structure, and
change in relationship development: An approach to create new customers.
Retrieved from https://www.impgroup.org/uploads/papers/4308.pdf
Crosby, L. A., Evans, K. A., & Cowles, D. (1990). Relationship quality in services
selling: An interpersonal influence perspective. Journal of Marketing, 54,
68–81.
Dalrymple, J., & Cron, L. (1995). Sales management: Concepts and cases. Hoboken,
NJ: Wiley.
Dwyer, F. R., Schurr, P. H., & Oh, S. (1987). Developing buyer-seller relationships.
Journal of Marketing, 51, 11–27.
Lawfer, M. R. (2004). Why customers come back: How to create lasting customer
loyalty. Franklin Lakes, NJ: Career Press.
Seiders, K., & Berry, L. (1998). Service fairness: What it is and why it matters.
Academy of Management Executive, 12(2), 8–20.
Copyright © Open University Malaysia (OUM)
TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING 73
INTRODUCTION
How do we develop a successful relationship marketing programme? To develop
a successful relationship marketing programme, a good and sensible way of
managing the programme is required. This process can be defined as marketing
planning, which is the planned application of marketing resources to achieve the
marketing objectives.
This topic will explain the process of marketing planning, situational analysis,
relationship strength, customer potential, company audit, ethical audit and social
audit. This is followed by internal and external audit as well as the objectives of
relationship marketing planning. Happy reading!
Figure 4.1 explains two types of marketing planning, namely strategic planning
and tactical planning.
(d) Ensure that employees and other stakeholders are working toward common
goals;
What is the difference between strategic and tactical planning? The difference
between strategic and tactical planning resides in the time horizon and the
organisational scope of the plan. Strategy refers to the plan to achieve a goal while
the tactic is how you execute the plan. Take note that strategic plan and tactical
plan do not oppose each other; in fact, they complement the other.
SELF-CHECK 4.1
ACTIVITY 4.1
Situational analysis is a process that helps to assess the organisation and its
environment/marketplace. It is also known as strategic audit.
In other words, it helps the company answer the question, „Where are we now?‰
(see Figure 4.4).
Element Description
Strengths Identify the strong points of your product, brand image and marketing
programmes so that you know what to develop in your plan.
Weaknesses Identify the areas in which your product, brand image and marketing
programmes are relatively weak.
Opportunities Your situational analysis needs to look for opportunities such as new
growth market that you can participate in or an exciting new way to
reach out to prospective customers. Other examples are new products
that complement your own companyÊs products/services, new
laws/technologies that allows new ways to promote or sell, or new
markets.
Threats A threat is an external trend or change that can reduce your sales or
profits, or makes it harder for you to achieve your growth goals.
Common threats include new technologies that create new
competitors, large competitors that can outspend you and economic or
demographic shifts that cut into the size or growth rate of your
customer base. Your plan needs to respond to these threats effectively.
Strengths and weaknesses are the internal factors affecting a company while
opportunities and threats are the external factors affecting a company.
SELF-CHECK 4.2
ACTIVITY 4.2
1. Read the following excerpt and then discuss the questions in the
myINSPIRE forum.
As I look at trust, time and trips, I felt one of the things we could
do better is communicate in ways that more closely resemble
todayÊs customer journey. No longer is it good enough to have
discrete silo communications in channels. Customers move
fluidly across screens and channels today and expect us to do the
same.
Table 4.2: Five Aspects that Needed to be Investigated When Analysing a Product
Aspect Description
Informal tests of The most important thing in analysing the product is to
the product in use obtain samples of the entire line and become thoroughly
familiar with them from the point of a prospective buyer.
The potential buyer may want to assess the features such as
quality, price, style and usage and buying convenience of the
product.
Technical tests These tests are about becoming familiar with the advantages
and disadvantages of the product itself. The tests indicate the
efficiency of the product in doing its job, as well as showing
its hidden merits and weaknesses or limitations.
The packaging The important aspects of the packaging are as follows:
• The convenience of the size and shape;
• The identification and recall purposes; and
• The product preservation through transportation,
storage and handling in the dealerÊs store.
History of the All available information regarding the history of the
product product should be studied by the analyst. Knowledge of the
general development of the business, of inventions and
patents involved and of the personality of the organisation
is important.
Specific uses of Most products are designed for one particular use.
the product Interestingly, it is frequently found that new uses may be
discovered, to the advantage of the product manufacturer.
Aspect Description
General history of In studying the company pertaining to its relation to the
the industry industry and its competition, one becomes thoroughly
familiar with all phases of the industries in which the
company is involved in. An example is that of the meat
packing industry. The operations of individual packers are
standardised according to the general practices of the trade.
Competitive The selling points of each competitor should be determined
products and comparison of the competitorsÊ products with those of
the company should be undertaken. This is necessary to
determine the principal advantages and disadvantages of
the product over its competitors as well as to find possible
opportunities for product improvement.
Factor Description
Influence of This includes all information which may provide clues to the
demographic influence of demographic factors (such as age, gender,
income and occupational status) on the purchase and use of
the product.
Basic Basic psychological, social and economic factors relating to
psychological, the purchase and use of the product should be given careful
social and consideration. The degree in which a purchase is based on
economic factors emotional or rational factors are important in determining
relationship marketing plans. Changes in habits, attitudes
and customs, which affect the position of the product in the
social structure should be taken into consideration as well.
Channels of distribution are the paths along which the products move
from the manufacturer to the customers.
Aspect Description
Advertising by The competitorsÊ advertisements should be thoroughly
competitors studied to understand their strategies. In addition to obtaining
copies of the published advertisement, it is possible to
determine the breakdown of a competitorÊs advertising
expenditures in different types of media across geographic
areas and individual markets through various services.
Special sales An analyst should study all special consumer merchandising
promotions methods employed and should become thoroughly familiar
with the records of the results of each effort wherever possible.
Among the more common strategies are:
• Samples;
• Booklets, premiums and gift offers;
• Contests; and
• Special devices such as one-dollar sales and trade-in deals.
SELF-CHECK 4.3
Describe the six marketing factors that affects the sales and profits of
companies.
Both the economic ties and the social bonding of partners: Belief in the spirit
of cooperation and trust, and actions taken indicates the strength of the
relationship.
(Donaldson & OÊToole, 2000)
Hausman (2001) saw the economic content of the relationship as an outcome rather
than a dimension of its strength. Relationship strength comprises the following:
(c) Relationalism.
(b) Have confidence in the otherÊs reliability and integrity (trust); and
(c) Believe that the relationship is important to the success of the organisation
(relationalism).
(b) Solidarity (the perception of one party regarding the importance of its
relationship with another);
(c) Flexibility (the willingness/ability to alter the terms of the relationship); and
(d) Duration.
The bond between the customer and the service supplier also affects the behaviour
(Egan, 2011). Several factors are commonly associated with strong relationships.
They are the criteria for assessing relationship strength (see Table 4.6).
Criteria Description
Economic • The most easily applied measure of relationship strength.
content • A supplier must measure the share of turnover of its customer or
profits arising from a customer.
Interaction • The amount of contact between customer and supplier such as
contact intensity, openness of communication as well as nature of
the contact (social or business).
Loyalty, trust • These important tools are required in retaining a customer.
and • Inferences can be made by monitoring customersÊ buying patterns,
commitment complaints information and various other factors.
Alignment • Characteristics relating to the ease with which the two parties
interact.
• The supplier and the customer share similarities in expectations of
the other party regarding values and behaviour such as
appearance, lifestyle, culture, value and goods.
Relationship • Care should be taken to interpret the significance of any past
history conflicts in the context of the relationship condition at the time.
Strong and mature relationship has higher conflicts due to mutual
interdependence.
• Relationship duration is also associated with relationship strength
– the longer the relationship, the stronger it is likely to be.
SELF-CHECK 4.4
Give the meaning of relationship strength and the criteria for assessing
it.
Potential customers are people who are not yet your customers but are facing
some problems that your products and services can solve.
They are also considered as your future customers and represent new revenues for
the next year and the years after that (Stull, Myers & Scott, 2008).
You can also have broader levels of customers such as the following (Whitton, &
Hollingworth, 2002):
(d) Larger companies such as insurance offices, banks and car manufacturers;
Demographic profiles will also help to identify and define the target customersÊ
specific characteristics that you believe would most likely lead them to buy your
product or service. Common characteristics used to classify customers include:
(a) Age;
(b) Gender;
What are some of the research tools used for identifying customers and learning
the market? Let us refer to Table 4.7 for explanations on various research tools.
ACTIVITY 4.3
Read the following excerpt and then discuss the question in the
myINSPIRE forum.
The following are some relevant questions to guide you in identifying attractive
customers:
(a) What is the worth of your product or service to your prospective customers?
(b) Have you targeted the right market for your product or service?
(c) Are you providing the right product or service to your target market?
(d) How much are your prospective customers willing to pay (price)?
Psychological
Description
Trait
Innovators Enjoy trying new products and are adventurous. They are the leading-
edge customers who are not afraid of the „bleeding edge‰ (new
products that could possibly bore high risk of being unreliable) of any
new product or service.
Forerunners Forerunners often comprise respected opinion leaders who are more
careful than innovators. Forerunners are customers or business customers
who are not very price-sensitive. They are ready to pay a premium in
order to be special.
Mainstream This type of customers will purchase a product not because it is
users innovative or different but because it fulfils a need such as saving time
or money. They choose the product because it is more practical or
reliable than the existing solution.
Followers Labelled as „conservatives‰, this group goes along with the majority
but at a much later time. They are under the influence of FUD (fear,
uncertainty and doubt) factor.
Traditionalists These types of customers are considered as „sceptics‰ who do not buy
a product or service until it has become a part of tradition. They are
very often old customers and ancient companies who do not like
change.
Rebels Rebels will always reject a product because of its very nature. These
people will not buy the product.
SELF-CHECK 4.5
ACTIVITY 4.4
(c) Audit assures, on the proprietorÊs behalf, that the accounts maintained truly
represent facts and that expenditure has been incurred with due regularity
and propriety;
(d) Audit assesses the adequacy of the accounting system to ascertain its
effectiveness in maintaining accounting records of an organisation;
(e) Audit carries out a review of financial statements to know whether the
accounting records are in agreement with those statements; and
To ensure social audit is effective, planners should seek to engage the involvement
of all the stakeholders such as customers, suppliers, employees and the wider
community in analysing the companyÊs ethical performance and developing plans
for future improvements.
(i) The internal audit system is part of the management control system;
(iii) The extent of checking also depends on the size and type of the business
organisation;
(vi) Generally, the internal audit is conducted by the permanent staff of the
organisation; and
What are the differences between external audit and internal audit? Let us look at
Table 4.9 which explains the differences between external audit and internal audit.
For objectives to be useful, the objectives should meet several criteria as explained
in Figure 4.9.
As a conclusion, objectives should not relate solely to the outputs of a plan but also
the inputs and process elements. Objectives need to measure the target share of
customer spending, enabling objectives (such as customer satisfaction, service
quality and other important components of relationship performance) that direct
how the outcome should be achieved as well as input objectives that enable the
strategy implementation.
SELF-CHECK 4.6
ACTIVITY 4.5
• There are two types of marketing planning, namely strategic planning and
tactical planning.
– The product;
– The market;
– Channels of distribution;
• Potential customers are people who are not yet your customers but are facing
some problems that your products and services can solve.
• PorterÊs value chain is a tool that can be used to conduct the company audit.
• Ethical audit and social audit need to be conducted to ensure the effectiveness
of relationship marketing in a company.
• For objectives to be useful, the objectives should meet several criteria, namely
realistic, measurable, time specific and compared to a benchmark.
Kotler, P., & Keller, K. L. (2007). Marketing management. Prague, Czech: Grada
Publishing.
Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2010). MKTG4 (student ed.). Mason,
OH: South-Western Cengage Learning.
Pakroo, P. (2010). Small business start-up kit for California. Valencia, CA: Delta
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SHRM. (2019). What is the difference between a strategic plan and a tactical plan?
Retrieved from https://www.shrm.org/resourcesandtools/tools-and-
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tacticalplansandgiveexamplesofeach.aspx
Stull, C., Myers, P., & Scott, D. M. (2008). Tuned in: Uncover the extraordinary
opportunities that lead to business breakthroughs. Hoboken, NJ: John Wiley
& Sons.
Viardot, E. (2004). Successful marketing strategy for high-tech firms. Boston, MA:
Artech House.
Whitton, R., & Hollingworth, S. (2002). Mission possible: How to make money from
your writing. Altona, VIC: Common Ground.
INTRODUCTION
From a transactional programme to a relational paradigm, organisations have
taken a big step in maintaining the consumer relationship in an effort to ensure the
organisationÊs financial and long-term survival (Palmatier, Dant, Grewal & Evans,
2006).
In this topic, we will look into the strategies, structures and system in
implementing relationship marketing programmes. Let us continue with the
lesson!
You will learn more about strategy as the next subtopics will explain the types of
marketing strategies, the frameworks and components that constitute a successful
relationship as well as the tools in relationship marketing.
(a) Company-to-Company
According to Ballantyne (2000), relationship marketing signals a strategic
shift in managerial thinking from extracting transactional value to
developing mutual value through relationships.
Hard work, resources and patience to face all new acquaintances who long
to be part of a new close relationship and network are involved (Zineldin,
2002). Each phase of the relationship life cycle forms a high level of
cooperative effort and differences in information, expectations, experiences,
needs, wishes, strategy requirements and consequences.
The phases of relationship development and the duration of each phase may
vary considerably depending on the following:
Later in 2012, Zineldin added a fifth phase into the relationship life cycle,
namely the dissolution phase. Now, let us learn more about these phases in
Table 5.1.
Phase Description
Discovery During this phase, the companies identify their needs and
phase willingness to start a strategic relationship arrangement. If, at
this phase, the parties discover that they failed to understand
each otherÊs needs and wants, not able to develop an
appropriate offering or act in a manner inconsistent with
expectations, then the next phase will probably not occur
(Zineldin, 2012).
In other cases, it may be that they do not actually believe in the brand and
feel disengaged or, worse, hostile toward the organisation. When people care
about and believe in the brand, they would be motivated to work harder and
their loyalty to the company increases. Employees are united and inspired
by a common sense of purpose and identity.
SELF-CHECK 5.1
ACTIVITY 5.1
Read the following case study and discuss the questions in the
myINSPIRE forum.
Figure 5.3: Two pages from a pamphlet used in RifaÊs internal marketing
(Rifa, 1983). Drawing by Bengt Mellberg
Source: Gummerson (2002)
Most executives claimed they could not spare the time. Groups of 40
employees participated in half-day programmes, which ended with lunch
or dinner with management. Considering that many of them worked
shifts, several programmes had to be conducted at night, ending with
coffee and cake. The management team presented ongoing changes and
made comments, followed by the participants working in groups around
a number of themes with a subsequent plenary discussion. The
publication was distributed as documentation when the participants left.
According to Conway and Swift (2000), there are several components are involved
in the implementation of a successful relationship marketing strategy. The main
components of successful relationships are shown in Figure 5.5.
Component Description
Commitment • It is of central importance in developing relationships.
• It is the strongest predictor of voluntary decisions to remain in the
relationship (Rusbult, 1983).
• Influenced by social bonding, which is the degree of mutual
personal friendship and liking shared by partners who have a
strong personal relationship. They are more committed to
maintain the relationship than less socially bonded partners.
• The greater the level of investment made by a manufacturer in a
relationship, the greater the increase in that manufacturer's
commitment to its relationship with its distributor.
Trust • The precondition for increased commitment.
• As a generalised expectancy held by an individual that the word
of another can be relied upon.
• Ali and Birley (1998) identified two types of trust:
– Characteristic-based trust because of who they are, which
pertains only to individuals; and
– Process-based trust because of how they behave, which
refers to the associations between "trust and long-term
relationships".
• Established through interactions and combined with other
external factors such as word-of-mouth opinions and media
reports about the seller to form an overall perception of trust on
the seller.
(c) Taking necessary actions based on the desire to either maintain the
relationship or to let it go.
SELF-CHECK 5.2
ACTIVITY 5.2
There are many tools used in relationship marketing strategy including those
shown in Figure 5.6.
Let us now look at the tools in relationship marketing strategy one by one.
SELF-CHECK 5.3
ACTIVITY 5.3
Table 5.3: Three Main Categories of Factors Affecting the Selection of an Appropriate
Organisational Structure
Category Definition
Internal factors Refer to issues found within the organisation that can affect its
structure. These include the skill levels of the staff, the motivation
and leadership styles as well as the culture of the organisation.
External factors Refer to the environment of the area/city, region and country in
which the organisation operates as well as the international
environment in which it operates; for example, PESTLE (politic,
economic, socio-culture, technology, law and rules, and
environment).
Market factors Refer to the competitors in the environment, the organisationÊs
customers, the product (or service) complexity and the technological
changes that can be identified.
The trend in industry nowadays is towards flatter and more fluid structures, with
less defined differences in levels and functional areas.
Let us now discuss the dimensions of an organisational structure one by one (see
Table 5.4).
Dimension Description
Centralisation Centralisation is one of the basic dimensions of organisational
structure and captures the extent in which decision-making is
concentrated in the hands of the few, often people at the top of the
power hierarchy (Paswan, Guzman & Blankson, 2012).
SELF-CHECK 5.4
1. What are the three main categories of factors affecting the selection
of an appropriate organisational structure?
ACTIVITY 5.4
But first, what does a system mean? The following is the definition of a system:
What is the aim of DSS? The aim of DSS is to improve and expedite the processes
by which the management makes and communicates decisions.
(a) Primary information (such as the sales and cost information from company
records, or subjective judgements by managers about the likely impact of
increased advertising spending); and/or
The DSS is divided into four main parts (see Figure 5.9).
The most important information about a customer is his profile. A customer profile
is a model of the customer the marketer bases on when deciding on the right
strategies and tactics to meet the needs of that customer.
Let us discuss the components of customer profiling in DSS one by one as shown
in Table 5.5.
Component Description
Prospecting Customer profiles, especially their buying patterns, provide clues on
prospective customers to the marketer. DSS helps you to understand,
anticipate and respond to your customers' needs in a consistent way,
right across your organisation.
Identifying The characteristics of each group can be obtained by class
typical identification or concept description. Knowing the customers and
customer targeting them with the right deal gets a far better response rate than
groups a general message.
Computing With customer profiling supported by data mining and knowledge
customer discovery systems, several marketing activities can be enhanced such
lifetime values as computing customer lifetime values, prospecting and evaluating
success or failure of marketing programmes.
Size of How much does the customer spend on a typical transaction? This
purchase information helps the marketer to devote appropriate resources to
customers who spend more.
Frequency of How often does the customer buy your product or service? This
purchase information will help the marketer (or manager) to build targeted
promotions such as frequent buyer programmes.
Recency of How long has it been since this customer last placed an order? The
purchase marketer may investigate the reasons why a customer or group has
not purchased over a long period of time and take appropriate steps.
SELF-CHECK 5.5
1. What is a system?
ACTIVITY 5.5
• The life cycle of relationship marketing consists of five phases - the discovery
phase, development phase, commitment phase and loyalty phase, and
subsequently, the dissolution phase.
• Four main parts in a DSS are input, processing, output and user.
Centralisation Implementation
Company-to-company Life cycle of relationship marketing
Company-to-employee/organisation Marketing strategy
(staff)
Participation
Customer profiling
Strategy
Decision-support system (DSS)
Structure
Dimensions
System
Formalisation
Tools
Frameworks
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entrepreneurs establishing new ventures. Journal of Marketing
Management, 14(7), 749–63.
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S. L.
INTRODUCTION
How do we implement relationship marketing programme? Well, let us explore
this topic to examine the concept of internal marketing in relationship marketing
as well as the roles of shared value, culture, staff, internal service quality, style and
skills in implementing relationship marketing in an organisation. So are you ready
to discover these matters? Let us continue with the lesson!
Rafiq and Ahmed (2000) have recognised five elements of internal marketing as
listed in Figure 6.1.
According to Varey and Lewis (1999), internal marketing is not seen as a means of
effecting change but as an end in itself. It creates conditions whereby the
organisation can have partnership with its internal and external stakeholders.
Thus, internal marketing or internal relationship marketing as a social process is
defined as follows:
(b) Internal marketing as a radical rethink of the organisation, its systems and
structures.
SELF-CHECK 6.1
ACTIVITY 6.1
Shared values are „those ideas of what is right and desirable (in corporate
and/or individual behaviour), which are typical of the organisation and
common to most of its members.‰
(Christopher, Payne & Ballantyne, 1991)
Employees will only commit to the mission if their individual values coincide
with those of the organisation as a whole. Moreover, having a clear,
meaningful mission statement and support from top management provides
Absence of communication could reflect the care (or rather the lack of
care) with which the organisation treats its customers. For example,
failure by the organisation to notify the customer of delivery delays or to
respond to a complaint.
On the other hand, the integration process includes the customers giving and
receiving the message through the consumption experience.
The planned messages will create expectations against which the customers
will evaluate the quality of the organisationÊs products or services. Hence,
failure to meet these expectations will destroy the customersÊ trust towards
the organisation. It is suggested that organisations need to treat planned
communication as an extension of its internal policies, processes and values
(Gronroos, 2000). For example, in creating the corporate image, the
consistency of messages between suppliers and customers is essential so that
various messages transmitted by the organisation do not conflict with one
another regardless of the various tools used.
SELF-CHECK 6.2
6.3.1 Staff
The staff is an important supporting condition for successful relationship
marketing implementation. Many commentators believe that the staff is the most
important element in the performance of a relationship marketing strategy (Buttle,
2004). There are several reasons that support the importance of the staff in
implementing relationship marketing strategies (see Figure 6.4).
Figure 6.4: Some reasons that support the importance of staff in implementing
relationship marketing strategy
Moreover, staff who are rewarded with incentives for high quality work (praise
from customers and management, bonus pay due to customer satisfaction and
customer-oriented remuneration) are more motivated. This recognition provides
a boost to the staff, which in turn enhances staff satisfaction and willingness to
make a commitment.
The virtuous circle model proposed by Reichheld, Markey and Hopton (2000) and
the service-profit chain model proposed by Heskett and Schlesinger (1994) support
the argument that employee retention is related to profitability.
The virtuous circle advocates that organisations must focus on internal service
quality to promote profit growth. Based on Reichheld et al. (2000), profitability can
be enhanced through a virtuous circle in the following ways:
(a) Profitable growth arises from loyal customers as loyal customers will
recommend the products or services to others;
(c) Customer satisfaction arises from high product value as the product benefits
exceed the costs;
(d) High product value is the result of satisfied and motivated staff who know
their job well;
(f) Employee satisfaction is due to the presence of internal service quality such
as staff benefits that includes pay, status and promotion.
However, it should be noted that recent research has found that satisfaction alone
does not guarantee customer retention as trust and commitment are key
prerequisites of loyalty (Omar et al., 2011).
The key implication of the virtuous circle model is the assumption that
organisations have an environment within which members of staff are motivated
and empowered to deliver good customer service. To promote growth and
employee satisfaction, organisations need to focus on internal service quality,
especially in terms of monitoring and control mechanisms.
Similarly, Berry and Parasuraman (1991) emphasised the value of treating staff the
way you would want them to treat customers, in the belief that this would provide
an ideal climate for changing marketing behaviour – „happy staff equals happy
customers.‰
If the eight components are well managed, internal service quality will be
enhanced and external service quality improved, thereby creating satisfaction and
bringing about a successful relationship.
It should be noted that the eight components of internal quality depend on the
nature of the service. Lovelock (1983) suggested that the scope of service personnel
to exercise discretion in tailoring and customising the service to individual needs
should be considered.
Since trust and commitment are vital in relationship marketing, the classification
of the types of services discussed in Table 6.1 suggests that employee retention
assumes a different level of importance in different service types or situations. For
instance, in the case of high discretion service (performance service and
professional service), employee retention takes on a greater role.
On the other hand, for production line and menu services, which involve simple
service product, the perceived level of risk in the recruitment of new staff is lower
as the new staff can be trained more quickly and cheaply.
According to Bowen and Lawler (1992), the more enduring the relationship, the
stronger the case of empowerment. Creating an intra-organisational environment
in which employees are flexible and prepared to take decisions without referring
to management will help to promote organisational growth (Chaston, Badger, &
Sadler-Smith, 2000).
SELF-CHECK 6.3
ACTIVITY 6.2
When I came home recently, I had an e-mail from Zappos asking about
the (returned) shoes, since Zappos had not received them. I was just back
and not ready to deal with that, so I replied that my mom had just died
but I will send the shoes as soon as I can. The company e-mailed back to
say that the staff has arranged with UPS to pick up the shoes, so I would
not have to take the time to do it myself. I was so touched. That was
against corporate policy.
Yesterday, when I came home from town, a florist delivery man was just
about to leave. It was a beautiful arrangement of white lilies, roses and
carnations in a basket – big, lush and fragrant. I opened the card and it
was from Zappos. I burst into tears. I am a sucker for kindness, and if
that was not one of the nicest things that I have ever had happened to
me, I do not know what is.
Such examples are justified by almost any cost because the cost that hit
Zappos by doing this is paid back multiple times over through the
customer loyalty that the company generates from making their
customers happy.
Source: Schoultz (2020)
Discuss the effect of the employee initiative towards the customer on the
companyÊs brand in the myINSPIRE forum.
6.4 STYLE
Managers at all levels of the organisation play a significant role in ensuring
successful implementation of the relationship marketing strategy through their
own management style. Do you know what style is? The following is the definition
of style:
Christopher et al. (1991) defined style as „the way managers collectively act
with respect to use of time, attention and symbolic actions.‰
(i) Rewards in kind are gifts certificates, merchandise or any other tangible
rewards;
These examples are further explained as follows (Little and Marandi, 2003):
SELF-CHECK 6.4
What are the types of rewards that can be used by management to exert
influence on staff in implementing relationship marketing?
6.5 SKILLS
Lastly, let us look at the aspect of skills in relationship marketing. PeopleÊs skills
and knowledge required for successful relationship marketing performance may
need to be reviewed and upgraded as they are the ones who actually develop
relationships, not the IT applications. People with excellent social skills are vital in
relationship-oriented organisations.
Furthermore, most staff rely upon a wide array of technologies to keep abreast of
changes in the marketplace and to identify trends leading to new business
opportunities. This requires company staff to be proficient in technology and to be
supplied with up-to-date hardware systems and applications. Training and
retraining of staff are no longer confined to employee orientation, but rather it has
become a continuous, ongoing process. Relationship marketing managers should
question whether existing skills and practices support the adoption of relational
approaches.
Training serves two key functions in relationship marketing, which are as follows:
(b) To maintain relationships with external customers by making the staff more
efficient and skilful.
Based on Little and Marandi (2003), the training process (derived from TQM
principles) comprises three levels, which are:
On the other hand, external training programmes are vital for organisational
change particularly in bringing new ideas or practices. Thus, the use of
external training or education is usually dictated by necessity.
In addition, there are various sources of information that you can refer to in
order to understand the effectiveness of training (see Figure 6.10).
SELF-CHECK 6.5
• To ensure optimal relationship marketing success, the right culture and shared
values must be created to get the maximum benefit from the organisation and
its people.
• Shared values are those ideas of what is right and desirable (in corporate
and/or individual behaviour) which are typical of the organisation and
common to most of its members.
• There are four types of services, namely the production line service, the menu
service, the performance service and the professional service.
Allen, R., & Kilmann, R. (2001). Aligning reward practices in support of total
quality management. Business Horizons, 44(3), 77–84.
Bowen, D. E., & Lawler, E. E. (1992). The empowerment of service workers: What,
why, how and when. Sloane Management Review, 33(3), 31–39.
Chaston, I., Badger, B., & Sadler-Smith, E. (2000). Organizational learning style and
competences: A comparative investigation of relationship and
transactionally orientated small UK manufacturing firms. European Journal
of Marketing, 34(5/6), 625–642.
Hallowell, R., Schlesinger, L. A., & Zornitsky, J. (1996). Internal service quality,
customer, and job satisfaction: Linkages and implications for management.
Human Resource Planning, 19(2), 20–31.
Heskett, J. L., & Schlesinger, L. A. (1994). Putting the service-profit chain to work.
Harvard Business Review, 72(2), 164–174.
Horovitz, J., & Panak, M. J. (1992). Total customer satisfaction: Lessons from 50
European companies with top quality service. London, England: Pitman.
Mitchell, C. (2002). Selling the brand inside. Harvard Business Review. Retrieved
from https://hbr.org/2002/01/selling-the-brand-inside
Omar, N. A., Alam, S., Abd Aziz, N., & Nazri, M. A. (2011). Retail loyalty programs
in Malaysia: The relationship of equity, value, satisfaction, trust and loyalty
among cardholders. Journal of Business Economics and Management, 12(2),
332–352.
Peelen, E., Verbeke, W., & Ouwerkerk, C. (1996). Exploring the contextual and
individual factors on ethical decision making of salespeople. Journal of
Business Ethics, 15(11), 1175–1187.
Rafiq, M., & Ahmed, P. (2000). Advances in the internal marketing concept:
Definition, synthesis and extension. Journal of Services Marketing, 14(6),
449–463.
Reichheld, F., Markey Jr. R., & Hopton, C. (2000). The loyalty effect – The
relationship between loyalty and profits. European Business Journal, 12(3),
449–463.
Tracy, B. (2015). Sales management: The Brian Tracy success library. New York,
NY: American Management Association (AMACOM).
INTRODUCTION
This topic will explain the strategic methods of monitoring and controlling
relationships at all levels, regardless strategic or tactical. Monitoring and
controlling relationships are becoming an important part of planning and
implementation. In fact, controlling is one of four management functions, which
refer to monitoring the performance, comparing it against goals and taking
corrective actions when needed.
Hence, monitoring systems provide the information that informs the planning
process while control mechanisms ensure the plan is implemented accordingly.
Let us find out more about monitoring and controlling. Happy reading!
On the other hand, soft monitoring and control mechanisms are based on the
principle that an employee does not require constant attention and monitoring.
This mechanism is appropriate when an employeeÊs output and achievements are
not easy to define, or where variations in activity or output are not critical. For
example, let us look at the customer service unit in maintaining customer
satisfaction. Although customer satisfaction can be monitored and linked to
employee reward schemes, an adversarial relationship between customers and
service staff will often exist. Better results can be achieved by relying on the
employeeÊs natural predisposition (through training programmes) in offering
good service.
The four aspects of the balanced scorecard performance indicators are discussed
in more detail in Table 7.1.
Aspect Description
Financial Typical financial goals have to do with profitability, growth and
perspective shareholder value. For example, sales by value or volume, market share
and growth are indicators of the financial aspect. Financial measures
such as quarterly sales have been criticised as being shortsighted and not
reflecting contemporary value-creating activities. Moreover, critics say
that traditional financial measures do not improve customer satisfaction,
quality or employee motivation.
Customer This could include measures of retention (customer loyalty), satisfaction
perspective levels and the balance of existing and new business or cooperative
projects. Many organisations consider taking care of the customer as its
utmost priority. The balanced scorecard translates into specific measures
of concerns that really matter to customers. Thus, retention of customers
can be viewed from the income of existing customers versus income from
new customers when measuring performance.
For customer satisfaction, we can look at the satisfaction level and
number of complaints and compliments while the level of
communication with customers can be monitored by looking at the
average number of contacts and feedback from customers.
Internal This perspective focuses on operational effectiveness and measurement
business of factor characteristics such as production costs, cycle times, reliability
perspective and defects. It also refers to human resources and competencies
developed by the organisation. Some of the examples of indicators of
internal business are:
(a) Keeping promises (i.e. number of defects, number of complaints,
number of returns);
(b) Efficiency (i.e. waste reduction targets and costs); and
(c) Staff satisfaction (i.e. staff satisfaction level, retention or turnover).
Innovation Due to global competition which may force a company to constantly
and learning change the targets for success, continual improvements to existing
perspective products and processes as well as introducing new products periodically
must be made.
Therefore, an organisation must measure its research and development
(R&D) efforts as well as its efficiencies in manufacturing and delivery.
For example, customer involvement in R&D projects is an indicator of
customer input. Other examples are the number of new products or
improvements made.
SELF-CHECK 7.1
ACTIVITY 7.1
Factors such as satisfaction, quality and trust are prerequisites of customer loyalty.
Thus, these factors will be a valuable measure of relationship marketing
performance. Now, let us discuss more about customer satisfaction.
This definition has two important elements, namely that satisfaction results
from an emotional state and expectations influence satisfaction.
(i) First, the consumer develops expectation about the company during
the customerÊs first encounter with the service company via advertising
and customer word-of-mouth; and
(ii) Second, after a previous encounter with the company, the consumer
compares his expectation against the actual product performance.
(ii) Service delivery (refers to the functional quality of the service); and
Based on the work by Bloemer, Ruyter and Wetzels (1999), service quality is
often conceptualised as the comparison of service expectation against actual
performance perception.
Model Description
SERVQUAL Based on the work by Parasuraman, Zeithaml and Berry (1985),
research on service quality has been dominated by the SERVQUAL
instrument, which consists of the Gap model. Parasuraman et al.
(1985) identified 10 dimensions that customers use to evaluate the
service and develop perceived service quality. The factors include
access, communication, competence, courtesy, credibility, reliability,
responsiveness, security, tangibles and understanding.
Therefore, if the customerÊs performance perception (based on the 10
dimensions) exceed the customerÊs expectation, the service provider
has provided quality service. The difference in scores determines the
level of service quality. The following is the formula used to calculate
service quality:
Service quality = Perceived service – Expected service
Subsequently, these 10 factors were summarised into five generic
dimensions which consisted of tangibles, reliability, responsiveness,
assurance and empathy (Parasuraman, Zeithaml & Berry, 1988).
SELF-CHECK 7.2
Relationship features refer to the factors that describe the nature of the
relationship itself, as is evident in the behaviour of the customer towards the
supplier.
This measure will include various indicators of customer loyalty, fidelity and
commitment.
Long-term loyalty refers to the customerÊs long-term purchase which is not easy
to change, whereas, short-term loyalty refers to customers who may change their
minds immediately once they find a better merchant or product choice (Dick &
Basu, 1994). Loyalty can be measured in different ways, the relevance of which
depends on the nature of the product and its market (see Figure 7.4).
According to Little and Marandi (2003), there are six measures that can be used in
measuring financial performance (see Table 7.3).
Measure Description
Income Relationship marketing manager must continuously monitor to
ensure cash flow constraints are met.
Profitability It is necessary to monitor net profit from each relationship (return
on relationship or ROR) because profitability is a performance
indicator, not a diagnostic tool.
Referral There is a tendency for loyal customers to become advocates and
generate new business to the organisation through positive word-
of-mouth.
Cross-purchasing Income from cross-selling and up-selling must be taken into
account.
Customer lifetime It is necessary to assess the total net income arising from a
value particular customer over the relationship life cycle.
Servicing cost Shaw and Reed (1999) recommended using activity-based costing
(ABC) to help a company record the benefits, cost and time spent
on a particular activity by each customer so that it can be used to
determine the cost of servicing a particular customer.
SELF-CHECK 7.3
(b) Some customers complain to rebuild self-esteem and/or to vent their anger
and frustration;
(c) When customers are highly involved with a service, they give feedback to try
and contribute toward service improvements; and
(d) Customers want to spare other customers from experiencing the same
problem(s) and they feel bad if a problem is not highlighted.
After the complaint has been lodged, the next stage is service recovery. Complaint
handling is about service recovery. Service recovery is an umbrella term for
systematic efforts by a firm to correct a problem following service failure and to
retain a customerÊs goodwill. The service recovery mechanism is also becoming a
vital part of relationship marketing strategy by facilitating customer retention.
According to Little and Marandi (2003), service recovery is based on four basic
principles (see Table 7.4).
Principle Description
Make it easy How can managers overcome unhappy customersÊ reluctance to
for customers complain about service failures? The best way is to directly address
to complain the reasons for their reluctance. Many organisations have improved
and give their complaint collection procedures by adding special toll-free
feedback phone lines and links on their websites, displaying customer
comment card in their branches and providing video terminals for
recording complaints.
Establish the Customers will be more willing to complain if they are confident that
grounds for they will be successful. For example, provide a simple,
complaint comprehensive warranty.
Offer The more quickly the complaint is resolved, the lower the negative
immediate impact on the customerÊs attitudes. Where possible, it is advisable to
redress where delegate authority and responsibility for resolving complaints to
possible customer-facing staff so that problems can be resolved as they arise.
Communicate Often, all that is needed in order to diffuse customer dissatisfaction
is an apology, together with an explanation of why the failure
occurred and the steps that have been or will be taken to ensure that
it does not recur.
SELF-CHECK 7.4
ACTIVITY 7.2
Let us look at Table 7.5 for the description of the Gaps model.
Gap 1, Gap 2, Gap 3 and Gap 4 are identified as functions of the way in which
service is delivered, whereas Gap 5 pertains to the customer and as such is
considered to be the true measure of service quality (Shahin, 2006). If the
customerÊs performance perceptions (based on the service quality dimensions)
exceed the customer expectations, then the service provider is said to provide
quality service. The difference in scores determines the level of service quality. The
following is the formula used to calculate service quality.
In understanding the Gaps model of service quality, the following are two issues
that need to be considered (see Table 7.6).
Table 7.6: Two Issues That Need to Be Considered in Understanding the Gaps Model of
Service Quality
Issue Description
Hard The intangibility and heterogeneity of service products mean that it is
control difficult to define how the service should be delivered and harder still to
techniques develop mechanisms that ensure that delivery is consistent. As a result,
the closure of Gap 2 and Gap 3 produces particular problems. Hard
control technique attempts to define service delivery with sufficient
clarity to allow for monitoring and control. This can be done by analysing
the service blueprinting and critical incident analysis.
(a) Service Blueprinting
This technique involves the development of a flow chart that
describes the service encounter from a customerÊs point of view. The
design process will be documented and codified to map the
sequence of events in a service and its essential functions in an
objective and explicit manner. Timings or other performance
standards can be placed on each element of the process.
(b) Critical Incident Analysis
This is an adaptation of the service blueprint which focuses only on
the events or interactions that are crucial in shaping the customerÊs
perceptions of service quality. It involves a set of procedures to
collect direct observations of human behaviour that have critical
significance and meet methodically defined criteria. These
observations are then kept track of as incidents, which are then used
to solve practical problems. Mystery shoppers are commonly used
to monitor conformance to the specification.
Soft control Although the Gaps model provides a prescriptive and clearly defined
techniques framework for managing service and relationship quality, there is still
some debate about the practicality of implementing it. Reichheld (1993)
has suggested that external service quality is too dynamic and subjective
for organisations to gauge correctly. Thus, senior managers should
concentrate on internal service quality, ensuring that staff is competent,
motivated and supported by a customer-centred culture. The internal
service quality can be monitored through measures such as staff
satisfaction and retention.
As a conclusion, a prudent organisation will use both the hard and soft control
techniques, though it must be noted that relationship marketing strategies lies in
the human elements of service quality – the personal relationship between
individuals. Even though hard monitoring and control has an important place in
reassuring managers and other stakeholders regarding corporate performance, it
is proposed by Little and Marandi (2003) that soft monitoring and control
techniques are more appropriate for a relationship marketing strategy.
– Financial perspective;
– Customer perspective;
– Relationship facilitators;
– Relationship returns.
– To communicate.
Copyright © Open University Malaysia (OUM)
178 TOPIC 7 MONITORING AND CONTROLLING RELATIONSHIP
– Company weaknesses;
Bloemer, J., Ruyter, K. D., & Wetzels, M. (1999). Linking perceived service quality
and service loyalty: A multi-dimensional perspective. European Journal of
Marketing, 33(11/12), 1082–1106.
Brady, M., & Cronin, J. (2001). Some new thoughts on conceptualizing perceived
service quality: A hierarchical approach. Journal of Marketing, 65(3), 34–49.
Cronin Jr, J. J., & Taylor, S. A. (1992). Measuring service quality: A reexamination
and extension. The Journal of Marketing, 56(3), 55–68.
Dick, A., & Basu, K. (1994). Customer loyalty: Toward an integrated conceptual
framework. Journal of Academy of Marketing Science, 22(2), 299–113.
Heskett, J. L., & Schlesinger, L. A. (1994). Putting the service-profit chain to work.
Harvard Business Review, 72(2), 164–174.
Jones, T. O., & Sasser, W. E. (1995). Why satisfied customers defect. Harvard
Business Review, 73(6), 88–99.
Kaplan, R., & Norton, D. (1992). The balanced scorecard approach – Measures that
drives performance. Harvard Business Review, 72(2), 164–174.
Lovelock, C., & Wirtz, J. (2004). Services marketing: People, technology, strategy
(5 ed.). Upper Saddle River, NJ: Pearson Education International.
Omar, N. A., & Musa, R. (2011). Measuring service quality in retail loyalty
programmes (LPSQual) implication for retailersÊ retention strategies.
International Journal of Retail and Distribution, 39(10), 759–784.
Reichheld, F., Markey, Jr. R., & Hopton, C. (2000). The loyalty effect – The
relationship between loyalty and profits. European Business Journal, 12(3),
134–139.
Rust, R. T., & Oliver, R. L. (1994). Service quality: Insights and managerial
implications from the frontier. In R. T. Rust & R. L. Oliver (Eds.), Service
quality: New directions in theory and practice (pp. 1-19). Thousand Oaks,
CA: Sage Publications.
Shaw, R., & Reed, D. (1999). Measuring and valuing customer relationships: How
to develop the measures that drive profitable CRM strategies. London,
England: Business Intelligence.
INTRODUCTION
Ethics has always been an ongoing issue in the field of business. Prior to 1960, there
were some discussions about ethics in businesses such as:
The increasing attention to ethics has called upon the marketers to include the social
and ethical considerations in their marketing practices. The need for marketers to
incorporate ethical and social considerations into marketing practices is also
consistent with relationship marketing.
In understanding relationship marketing and ethics, this topic will start with the
general criticism of marketing, the concept of consumerism, social responsibility
and ethics. The various approaches of ethical decision-making will also be
discussed. This is followed by an examination of the role of ethics with reference
to the characteristics of relationship marketing. Happy reading!
Ethics is the study of what is good and evil, right and wrong as well as just
and unjust.
(Steiner & Steiner, 1997)
An ethical manager will always try to do well and avoid doing evil. Ethics relate
to carefully thought out rules of moral values that guide individual and group
decision-making (Dibb, Ferrell, Pride & Simkin, 2001) whereas social
responsibility is a contract with the society as a whole. Let us look as some
practices deemed unethical by society (Kurtz, 2012):
(a) When the Houston-based energy giant Enron collapsed, it took with it the
retirement savings of its employees and investors;
(b) Executives from Tyco were convicted of using millions of company dollars
for their personal benefit; and
(c) Chemical manufacturer Monsanto was convicted of not only polluting water
sources and soil in a rural Alabama area for decades but of ignoring evidence
that its own scientists had gathered indicating the extent and severity of the
pollution.
The application of ethics in business is an art that requires judgement about both
the motivations behind an act and the actÊs consequences. According to Steiner and
Steiner (1997), managers in every society are influenced by four great repositories
of ethical values, namely:
(a) Religion;
(b) Philosophy;
(d) Law.
Little and Marandi (2003) suggested that marketers have been criticised from
several perspectives including the following:
(c) High pressure selling and marketing of shoddy or unsafe goods; and
The following are some of the specific criticisms directed towards marketers:
(c) The use of child labour in Asia by companies like Nike and Adidas.
Another definition from Kotler, Armstrong, Saunders and Wong (2001) states that:
According to Little and Marandi (2003), the consumer movement seeks to improve
the rights of traditional buyers in the following aspects:
(c) To be well informed about important aspects of the products offered for sale;
(e) To improve the „quality of life‰ through influencing products and marketing
practices.
For example, Body ShopÊs policy of not testing their products on animals and
contributing a portion of its profits back into the communities from whose land
they draw their raw materials has helped the organisation to expand its business
and benefit from a loyal customer base.
In contrast, Nestle, which has long been accused of exploiting a loophole in the
Health Star Rating system, has dropped MiloÊs 4.5 health star rating after receiving
criticisms from health experts for „deceiving‰ consumers into thinking Milo is a
healthy beverage. According to the Sydney Morning Herald, the brandÊs 4.5-star
rating was initially based on the condition that consumers consume just three
teaspoons of Milo with a glass of skim or low fat milk (Han, 2018).
SELF-CHECK 8.1
1. Define consumerism.
Now, let us discuss the five theories one by one in the following subtopics.
8.2.1 Relativism
This theory suggests that each situation is judged according to its own merits and
universal standards cannot be applied to judge the morality of a decision. Morality
is relative to the norms of oneÊs culture. That is, whether an action is right or wrong
depends on the moral norms of the society in which it is practiced. The same action
may be morally right in one society but be morally wrong in another. If the
rightness or wrongness of an action depends on a societyÊs norms, then it follows
that one must obey the norms of oneÊs society. In other words, to diverge from
those norms is to act immorally.
As a theory for justifying moral practices and beliefs, ethical relativism fails to
recognise that some societies have better reasons for holding their views than
others. Even if the theory of ethical relativism is rejected, it must be acknowledged
that the concept raises important issues. Ethical relativism reminds us that
different societies have different moral beliefs and that our beliefs are deeply
influenced by culture (Velasquez et al., 1992).
8.2.2 Utilitarianism
Utilitarianism is an ethical theory that determines right from wrong by focusing on
outcomes. It proposes that the moral merits of a decision lie in whether it serves the
greatest good for the greatest number of people.
Thus, the answer to the question of, „What makes a moral act right?‰ is when the act
serves the greatest number of people. In making a decision using this principle, one
must determine whether the harm in an action is outweighed by the good. If an
action maximises benefits, then that is the optimum choice among other alternatives
that provide less benefit. This moral reasoning is used in business because of the
way in which it accounts for costs and benefits.
However, this theory is difficult to apply in practice because stakeholders often have
conflicting interests, for example, customers want lowest cost while shareholders
want maximum profit and thus maximum dividend.
Justice means giving each person what he deserves or, in more traditional
terms, giving each person his due.
Justice and fairness are closely related and are often used interchangeably. The loss
of individual liberty nullifies any gains made in economic efficiency and
prosperity. Based on the justice theory, society would at least conform to two rules,
which are:
(a) Each person is to have an equal right to the most extensive basic liberties
compatible with similar liberties for others; and
(b) Social and economic inequalities are to be managed so that they are both
reasonable and open to all.
Type Definition
Distributive The extent in which societyÊs institutions ensure that benefits and
justice burdens are distributed among societyÊs members in ways that are
fair and just.
Retributive The extent in which punishments are fair and just. In general,
justice punishments are held to be just to the extent that they take into
account relevant criteria such as the seriousness of the crime and the
intent of the criminal, and to discount irrelevant criteria such as race.
Compensatory The extent in which people are fairly compensated for their injuries
justice by those who have injured them. Just compensation is proportional
to the loss inflicted on a person.
In evaluating any moral decisions, we must ask whether our actions treat all
persons equally. If not, we must determine whether the difference in treatment is
justified – are the criteria used relevant to the situation at hand?
However, justice is not the only principle to consider in making ethical decisions.
Sometimes, principles of justice may need to be over-ridden in favour of other
kinds of moral claims such as the rights or societyÊs welfare.
(a) Courage;
(b) Wisdom;
(c) Temperance;
(d) Fairness;
(f) Consistency.
In order to successfully apply the virtue theory to business, the business activity
must be viewed as a practice where it depends less on the type of activity and more
on the character and motivations of the people who are engaged in it. The
challenge that any organisation faces, therefore, is to educate its managers towards
the desirability of virtue-based behaviour.
As a true professional, the good manager will strive to achieve a certain specific
type of morally inclusive excellence. One critical feature of this excellence is that
its achievement entails adherence to certain virtues of character such as:
(a) Honesty;
(b) Fairness;
(d) Courage.
The excellence pursued by the true professional, therefore, is not something that
can be measured strictly in material terms; it is a moral as well as economic
excellence. Albeit hard to quantify, individuals or exemplars who have achieved
this excellence are generally identifiable by their predisposition to place personal
integrity over and above any material considerations (Dobson, 2007).
Due to the ethical dilemma of acting in the interest of various stakeholders and the
possibility of clashes between personal and organisational ethics, most
organisations are actively establishing ethical statement and codes of conduct as
point of reference for employees.
SELF-CHECK 8.2
ACTIVITY 8.1
ACTIVITY 8.2
The Malaysian Personal Data Protection Act 2010 („the Act‰) came into
force on 15 November 2013. As a result, businesses in Malaysia are now
faced with additional responsibilities and requirements when it comes
to dealing with the personal data of their employees, suppliers and
customers.
The Act applies to any person who processes and has control over or
authorises the processing of any personal data with respect to
commercial transactions („data user‰). The Act even applies to persons
not established in Malaysia (for example, foreign companies) if they use
equipment in Malaysia for processing the personal data other than for
the purpose of transit through Malaysia.
Thus, it is vital that the promises made include clear statements regarding quality,
refunds and delivery times. Unethical behaviours of stakeholders (other than
customers) are not favourable in building relationship with customers. For
example, the lock-in tactic and exit barriers are not genuine relationship building
tactics, and neither are exaggerated promises and over persuasive communication.
Copyright © Open University Malaysia (OUM)
TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING 195
At the same time, customers should respect the time and resources invested in the
relationship by suppliers and avoid opportunistic behaviours. Customers should
only consider exiting from a relationship after their complaints or requests have
not been attended to satisfactorily. The supplier ought to be given the opportunity
to put matters right, just as the customer has the right to seek redress.
Generally, there are eight principles that govern the utilisation of information
collected form customers (see Figure 8.3, which is the Data Protection Act of
United Kingdom (1998) based on the EU Data Protection Directive, 1995).
Figure 8.3: Eight principles that govern the utilisation of the information collected
Source: Little & Marandi (2003)
There are several implications from these principles. For example, the information
about customer and employee health, race and religion must be handled delicately
and obtained with full consent of the data subject (customer, employee). The
information may not be used for purposes other than those for which it is collected,
making the combining of databases for customer profiling and managing customer
relationship questionable. Additional information for profiling purposes, which
may be of questionable relevance to customer files such as hobbies, religion,
inclinations towards other products/services, may also pose problems.
SELF-CHECK 8.3
ACTIVITY 8.3
Are you worried about receiving unsolicited mail? Why? What should
you do when you received one? Discuss this issue in the myINSPIRE
forum.
• There are eight principles that govern the utilisation of the information
collected – processed for limited purposes, adequate, relevant and not
excessive, accurate and secure, among others.
Consumerism Relativism
Ethical issues Social responsibility
Ethics Universalism/deontology
Justice theory Utilitarianism
Principles Virtue theory
Cheah, D. (2020). Up close and personal: The Malaysian personal data protection
act. Retrieved from https://www.hg.org/legal-articles/up-close-and-
personal-the-malaysian-personal-data-protection-act-33273
Dibb, S., Ferrell, O. C., Pride, W. M., & Simkin, L. (2001). Marketing: Concepts and
strategies. Boston, MA: Houghton Mifflin.
Han, E. (2018, March 1). Nestle wipes Â4.5Ê health star rating off flagship Milo
product. The Sydney Morning Herald. Retrieved from https://www.
smh.com.au/healthcare/nestle-wipes-4-5-health-star-rating-off-flagship-
milo-product-20180301-p4z295.html
Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of marketing.
Harlow, England: Pearson Education.
Steiner, G. A., & Steiner, J. F. (1997). Business, government and society. New York,
NY: McGraw Hill.
Velasquez, M., Andre, C. Thomas Shanks, S. J., & Meyer, M. J. (1992). Ethical
relativism. Retrieved from https://www.scu.edu/ethics/ethics-resources/
ethical-decision-making/ethical-relativism/
Velasquez, M., Andre, C. Thomas Shanks, S. J., & Meyer, M. J. (1994). Justice and
fairness. Retrieved from https://www.scu.edu/ethics/ethics-resources/
ethical-decision-making/justice-and-fairness/
INTRODUCTION
Companies do not exist in isolation; they are positioned within a chain network. It
is the performance of the network that determines whether companies can achieve
their goals. Relationships with suppliers and customers are critical to the delivery
of value for the company and its customers. For example, Toyota only
manufactures about 20 per cent of the value of its cars. It relies on a network of
approximately 50,000 supplier relationships to create and supply the input
required for ToyotaÊs car manufacturing activities. The relationships enable the
delivery of what Toyota requires and at the same time, enable them to meet their
customersÊ demands.
Relationships are useful to companies. Suppliers may have ideas for product
improvements, new product development and process improvements. For
instance, Boeing cooperates with major international airlines in developing new
aircrafts. This ensures that its product innovations meet customer requirements
and create high acceptance for the new aircrafts.
Thus, many companies today co-operate closely with their suppliers in a number
of activities such as product development and process improvements. The
complete relationship between your business and the customers you are selling to
is called key account management (KAM). Generally, KAM describes the
individual approach of sales people to their customers in order to create a long
everlasting business relationship.
In this topic, we will discuss the key account development cycle, the criteria for
key accounts and major decisions in designing KAM. Last but not least, we will
also discuss the relevance of KAM to relationship marketing.
Characteristic Description
Conscious selection The starting point of KAM is the identification of customers who
of key accounts are seen as potential strategic partners.
Development and Having identified the key customers, the organisation must have
maintenance of strategies and systems in place to build and maintain business
long-term relationships with the customers.
relationships
Establishment of In order to enable the other two features of KAM, the
cross-functional organisational structure and system must enable
processes for multifunctional processes that are focused on individual
servicing accounts accounts.
KAM can also be described according to the key activities that the suppliers
undertake in building and maintaining the relationship (Homburg, Workman &
Jensen, 2002). The key activities include the following:
Let us look at an example. The following are Wal-MartÊs commitments to its key
vendors:
(a) Wal-Mart looks for a very close relationship and strong commitment with its
key vendors like Warner-Lambert − highly valued trust and integrity;
(c) Analytical skills are essential when dealing with Wal-Mart because it will
provide its key vendors access to all kinds of data. Wal-Mart uses the data to
build a win-win relationship;
(d) Wal-Mart hungers for consumer insights. It places great value on any
information that can improve its understanding of the people who shop at
Wal-Mart stores; and
KAM may occur at the individual as well as the organisational level. Therefore,
the benefits of KAM can be classified into supplier, mutual and buyer benefits.
Table 9.2 shows the major benefits of KAM.
SELF-CHECK 9.1
1. What is KAM?
Now, let us discuss the stages one by one (see Table 9.3).
Stage Description
Pre and McDonald, Millman and Rogers (1997) described this stage as the
early KAM scanning and attraction stage. The supplier will identify potential key
accounts (potential customers) and gain information to make a selection.
At this stage, the suppliers are willing to make adjustments to its standard
offerings and customers are of relatively low importance to the
organisation. At this stage, the need is to build on the initial order and
find ways to keep the account. The sales representatives play a central
role in this process, with the focus on the product or service offered.
Mid-KAM At this stage, the relationship between the supplier and the customer
begins to shift to a process where trust and commitment start to develop
between both parties. Reassurance of responsiveness and flexibility are
now more important and the objective is to seek and reinforce preferred
supplier status. The supplier begins to feel the importance of offering the
customer value-added services in addition to its product and price. The
number of contact points between both parties will increase and senior
staff level of the organisation realises the importance of managing the
account.
Partnership At this stage, the structural and social bonds between both parties
and strengthen as boundaries break down. There will be a series of regular
synergistic formal and informal contacts. Sharing of sensitive information and joint
KAM problem solving become common practice. Both parties still operate as
(mature independent businesses but they see it in their interests to acknowledge
KAM) the interdependency and seek economies in operations and market
development. The superior returns from this stage can fund the
development of those in the early and mid-KAM stages.
Uncoupling A breach of trust may lead to relationship disintegration at any stage of
KAM the relationship. However, Millman and Wilson (1999) suggested that
relationship dissolution should not necessarily be viewed as a failure,
since it may be in the interest of one party to terminate the relationship.
Whether intentional or not, the uncoupling stage should be managed
carefully to reduce the social and economic impacts on the organisation.
Take note that not all relationships develop through all the stages. Some remain
forever market-based, adversarial and at armsÊ length. Others develop only up to
early or mid stage and never beyond that. Some develop very rapidly or even skip
certain stages. Some relationships last for a short time while others for a very long
time. Some business relationships studied by researchers in Europe have lasted for
over 200 years, with one, observed in the iron and steel industry in Sweden, tracing
back to over 900 years (Wilson, 2019).
SELF-CHECK 9.2
ACTIVITY 9.1
Let us now discuss the criteria for key account selection in more detail (see
Table 9.4).
Criteria Description
Relationship Longevity of the relationship can be an indicator of the strategic
history importance of an account, constituting commitment and trust between
both parties. However, Ojasalo (2001) pointed out that longevity is no
guarantee of profitability.
Sales volume This particular criterion is commonly accepted by an organisation in the
selection of key account as it is easily quantified and readily accepted by
players within the organisation. It should be stressed that potential sales
volume is as important as current sales volume. An organisation should
consider linking fast-growing companies or companies in developing
markets as important.
Profitability Ojasalo (2001) stressed that high sales volume does not always lead to
profitability. Total revenue must exceed its service costs within a given
time frame. The quantification of profitability needs to consider the
major costs as well as benefits. Qualitative/subjective judgments should
be taken into consideration.
Status Association with prestige and good reputation of an organisation such
as national, multinational or blue-chip companies often helps in
winning future customers. Ojasalo (2001) identified the fact that
organisations often benefit from association with a reputable partner.
Companies with good reputation focus on long-term value creating
activities and more receptive to KAM initiatives.
Strategic The compatibility between present and intended strategic fit, which
compatibility includes product as well as market arenas, should be taken into account,
for example, the alignment of goals, modus operandi, culture and
relational norms between organisations.
Resource The ability of the organisation to leverage its resources or competences
synergy effectively will distinguish it from its competitors.
Ease of Krapfel, Salmond and Spekman (1991) recommended that by
replacement calculating the cost of replacing an existing customer or supplier, an
organisation can obtain useful quantitative measure of the relationshipÊs
value.
Factor Description
Product quality Includes products as well as services.
Ease of doing business Having a reliable and skilful purchasing officer.
People quality Personality and skills of key contacts in the company.
Last but not least, compatibility between present and intended product, market
arenas and physical location should also be considered.
SELF-CHECK 9.3
ACTIVITY 9.2
ABC reasoned that its products are commodities and therefore, could
not compete on price. However, the company had identified that there
were major opportunities for streamlining the testing and treatment
processes both at extraction and refinement stages in the production
process. By expediently moving the test facilities from remote sites to the
rigs and to the refineries, they were able to reduce time and costly
mistakes from the process.
Take note that even though the hierarchy is not definitive, it serves as a rough
guide for the prerequisites of any strategic relationship and partnership. Let us
discuss the KAM activities in more detail (refer to Table 9.6).
Activity Description
Quality In the earliest stage of the relationship, the supplierÊs total offering
improvement involves a significant service element, i.e. even supplier of
manufactured goods must be able to reassure buyers of the quality of
their processes and people as well as its manufacturing capability
(McDonald et al., 1997). Hence, organisations should focus on
internal process quality rather than product quality. McDonald et al.
(1997), and Millman and Wilson (1999) believed that quality
improvement becomes the fundamental element of KAM and the
prerequisite of a strategic relationship. It is vital for an organisation
to continuously develop products in response to the market and
buyersÊ needs as well as competitor activity.
Customisation This is the second prerequisite in any relationship. Customisation
means the physical modification of the product or tailored service
and the supplier must be able to offer products which are not offered
by competitors.
Conflict The flexibility of the supplier in accepting responsibility to resolve
resolution and the buyerÊs problem is a key determinant of a buyerÊs trust in his
problem- supplier (Selnes, 1998). In addition, the supplier must be able to
solving respond and tackle the difficulties faced by the buyer, which can lead
to repeat purchase over time (Parasuraman, Zeithaml & Berry, 1998).
Information According to Selnes (1998), sharing of information can improve the
sharing relationship because information is a valuable resource, which is able
to expedite the buyerÊs operation plan. Sharing sensitive information
is seen as an expression of trust by the buyer.
Resource This refers to the ability to share resources for mutual advantage
sharing whether for a temporary joint venture or the development of a
permanent system or resources. This is the pinnacle of key account
relationship building.
Communication Communication underpins all other tactics and is critical to the
initiation, development and maintenance of key accounts. Schultz
and Evans (2002) suggested that customers are concerned about
efficient interaction in which they feel that informal communication
is less cumbersome than formal channels. In addition, two-way
communication and personal touch from companies are also
important elements of communication.
SELF-CHECK 9.4
In addition, Homburg et al. (2002) identified eight types of KAM systems (see
Figure 9.5).
Let us discuss further the types of KAM system activities by Homburg et al. (2002)
in Table 9.7.
Isolated KAM It is a system in which KAM activities are instigated by sales effort
locally. However, the support from the central business units is
low. In addition to that, the access to the functional resources is
limited, selling centreÊs esprit de corps is low and involvement
from senior management is moderate.
Country-club It is a system with high degree of involvement from senior
KAM management. However, structures and processes are poorly
developed, with teams hardly ever formed. In addition, special
activities are not intense nor proactive. The KAM activities are just
representations by senior managers.
No KAM The supplier may pay lip service to KAM system. No special
activities are undertaken for the key customers.
Remember, the no KAM and isolated KAM systems perform the worst. Cross-
functional and dominant KAM systems perform well, whilst top management
system produces the most profit.
(c) Facilitating inter-level or inter-functional processes that add value to the total
offering;
In addition, McDonald et al. (1997) mentioned four skills and competences in the
implementation of KAM:
(a) Integrity;
SELF-CHECK 9.5
Principles Description
Active support of senior Relationship marketing initiatives must be supported by
management influential members of the organisation if they are to
succeed.
The need for cross- The development of KAM relationships works better
functional coordination when they are supported by teams arranged around
customers rather than functional areas.
The importance of Communication plays an important role in building and
communication maintaining relationship with key accounts.
ACTIVITY 9.3
A KAM system can also keep track of the changing roles and
responsibilities of key National Health System of Britain (NHS) decision
makers and stakeholders, record details of how new NHS units work
and provide an overview of the needs and priorities of regional NHS
organisations. The ability to access this level of detail on a KAM system
is critical as restructuring continues rapidly in the NHS with non-
legislated bodies such as sustainability and transformation partnerships
(STPs), becoming increasingly influential and moving towards
integrated care systems (ICSs).
A good KAM system will allow them to view all of these interactions
against key performance metrics, enabling them to see the impact of each
contact and as a result, transfer best practice throughout the company.
Sophisticated KAM systems incorporate a wealth of customer
information as well as form a strategic link between sales and marketing
functions.
This enables disparate teams to work together more effectively, take more
responsibility for customer interactions within their regions and develop
tailored and personalised multichannel campaigns that resonate with
outcome-focused NHS.
Source: Cox (2018)
Critically appraise the KAM system used in the UK health sector. Share
your answer for discussion in the myINSPIRE forum.
– Mid-KAM;
– Uncoupling KAM.
– Relationship history;
– Sales volume;
– Profitability;
– Status;
– Strategic compatibility;
– Ease of replacement.
– Quality improvement;
– Customisation;
– Information sharing;
– Communication.
– No programme;
– Part-time programme;
– Top-management KAM;
– Middle-management KAM;
– Operating-level KAM;
– Isolated KAM;
– No KAM.
Kempeners, M., & Van Der Hart, H. (1999). Designing account management
organizations. Journal of Business and Industrial Marketing, 14(4), 310–335.
McDonald, M., Millman, T., & Rogers, B. (1997). Key account management:
Theory, practice and challenges. Journal of Marketing Management, 13(8),
737–757.
Millman, T., & Wilson, K. (1999). Processual issues in key account management:
Underpinning the customer-facing organisation. Journal of Business and
Industrial Marketing, 14(4), 328–337.
Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 12–40.
Shapiro, B. P., & Moriarty, R. T. (Eds.). (1984). Organizing the national account
force. Cambridge, MA: Marketing Science Institute.
INTRODUCTION
With more services available today, organisations can no longer expect results
from mass advertising and marketing campaigns aimed at the broad mass of
customer. As the market becomes increasingly fragmented and products become
increasingly commoditised, organisations are finding it difficult to use traditional
mass media marketing techniques to capture market share. Broad marketing and
advertising campaigns are simply no longer as effective as they once were. One
message does not fit all. So how do we fit in and survive?
Let us find out the answer in this final topic, which focuses on customer
relationship management (CRM). You will be introduced to CRM definition,
myths, role in customer profiling and customisation as well as the factors to be
considered for a successful implementation of the CRM strategy. Are you ready?
Let us begin the lesson!
In order to maintain their existence and position in the market, organisations are
moving quickly to embrace customer relationship management (CRM). Most
academics view CRM as a technology-enabled relationship marketing. On the
other hand, practitioners view CRM as an information technology (IT) project.
Source Definition
Brown (2000) CRM is the process of acquiring, retaining and growing profitable
customers. It requires a clear focus on the service attributes that
represent value to the customers and creates customer loyalty.
Payne (2001) CRM is a management approach that seeks to create, develop and
enhance relationships with carefully targeted customers.
Kumar and CRM is the practice of analysing and utilising marketing database
Reinartz (2006) and leveraging communication technologies to determine corporate
practices and methods that will maximise the lifetime value of each
individual customer to the organisation.
Buttle (2009) CRM is the core business strategy that integrates internal processes
and functions with external networks to create and deliver value to
targeted customers at a profit. It is grounded on high-quality
customer data and enabled by IT.
Boone and CRM is the combination of strategies and technologies that
Kurtz (2012) empowers relationship programmes to re-align the entire
organisation towards a concentrated focus on satisfying customers.
Customers today are becoming increasingly difficult to woo, bargaining for low
prices but quality products and services and preferring efficient and convenient
personal service. These new directions have encouraged companies to focus on
customers by servicing their needs and creating pleasant customer experience.
Moreover, technology advancements have also contributed to the development of
CRM.
What are the objectives of CRM? Retaining customers and establishing customer
loyalty are major objectives of the CRM approach (Zikmund, McLeod & Gilbert,
2003).
However, many organisations that have invested in CRM fail to achieve the
benefits. Why? One of the causes of the failure is due to the lack of CRM
understanding. Some of the common myths of CRM are shown in Figure 10.1.
Now, let us discuss the common myths one by one (see Table 10.2).
Myth Definition
CRM refers to CRM often implies that the customers can be managed and
the management manipulated to behave in certain way. This is a mistake because
of customers customers usually manage the organisation and decide on the
purchase of a product (what, when and how).
CRM software Most early CRM implementations were seen as IT initiatives – „Buy
will solve all our CRM application and all your troubles will be solved.‰ CRM
problems software is certainly a necessary enabler but it does not offer a total
solution. Knowing what to do with the information is vital. The
information needs to be translated into real customer intelligence
and used for marketing purposes such as market segmentation,
targeting, customer communication, customer retention and
customer development in order to generate a competitive
advantage.
CRM To achieve CRM success, the organisation needs to invest in an IT
application will infrastructure. Another significant cost in developing an effective
always pay for CRM system is the price of process change. Process change implies
themselves an alteration in the habitual pattern for accomplishing a task. As
CRM investment decisions are often vague and not clearly
measurable, the customer and the business benefits must be defined
clearly and realistically.
All customers Actually, not all customers are comfortable with new technology.
love the new Therefore, organisations need to be careful with the type of
technology technology they adopt for CRM.
Our Conflicting objectives and measures across the departments often
organisation cause misunderstandings with customers. To ensure CRM is
speaks to its successfully implemented, organisationÊs systems and processes
customers with must be evaluated based on the customer experience.
one voice
SELF-CHECK 10.1
Once the tools and technologies are available, the organisation will be able to
understand its customer needs and wants on an individual basis. One of the aims
of CRM is to build a mutually beneficial long-term relationship with customers,
either at the segment or individual level. To achieve this goal, the organisation has
to offer products or services that meet the requirements of its customers.
According to Buttle (2009), data mining can be used for market segmentation and
customer valuation purposes. For example, in business-to-consumer (B2C) context
such as retailing, banking and home shopping, data mining is used for customer
profiling, segmentation and identification of the futureÊs most potential customers.
For example, customers can be segmented based on the revenue and margin value
of the purchases they make.
Generally, data mining can provide answers to questions that are important for
CRM strategy development and implementation. Some of the questions are listed
in Figure 10.3.
Figure 10.3: Some important questions for CRM strategy development and
implementation
As mentioned earlier, data mining refers to the creation of intelligence from large
quantities of data. How does data mining help in CRM? Data mining is able to
facilitate CRM in a number of ways such as the following:
(a) Provides relevant information that is not easily located from a large database;
(c) Helps to find associations between data. For example, the data may reveal
that customers who buy low fat yoghurt are also big buyers of herbal health
and beauty products;
(d) Makes predictions on future behaviour and customer lifetime value through
historical purchase behaviour;
(e) Allows classifying of customers according to the value they produce for the
company;
(f) Helps to discover sequential patterns. For instance, organisations might find
that „if customers buy pants, then there is a 30 per cent probability that they
will buy shoes within the next three months‰; and
SELF-CHECK 10.2
ACTIVITY 10.1
What kind of tools can Munchery use to conduct CRM? Discuss the
answer in the myINSPIRE forum.
As soon as companies have done this, they will have a roadmap to move forward.
Companies will then need to talk to vendors about how to help them develop and
manage their portfolios. The long-term planning of customer initiatives, which are
based on corporate strategy and reflected in project portfolios, is not only a CRM
best practice; it is the future of CRM.
The goal of CRM cannot be achieved overnight. CRM usually requires significant
changes in the systems, information management practices, business processes as
well as organisational and employee behaviours in order to be successful.
According to Little and Marandi (2003), there are several considerations for a
successful implementation of CRM strategy (see Figure 10.5).
Let us now look into the considerations in more detail (Table 10.3).
Consideration Description
Top management A successful CRM strategy starts from the top of the organisation,
commitment to which requires a major cultural change within the organisation. If
customer top management does not initiate the appropriate structural design
and reward systems, the result of CRM efforts could be
insignificant or even negative. Changes in attitudes as well as
continuous training in all aspects of marketing, operation as well
as technology must be emphasised.
Integration of Companies often face the challenge of integrating data from several
channels sources into a coherent single view of the customer. Failure to
integrate databases may lead to inefficiency and may damage
customer relationships. Therefore, the successful operation of CRM
requires a seamless operation and multichannel integration of the
processes and the channels involved such as e-tailing, m-tailing,
call centre, sales force and communication system. Besides that, the
channel integration also allows customers to have a method of
contact with the supplier.
Building of trust Trust exists when one party has confidence that he can rely on the
other exchange partner. Trust means a customer believes that the
marketer is reliable and has integrity (Omar, Alam, Abd Aziz &
Nazri, 2011). Customers need to trust not only the supplier but also
the technology, which is the facilitator of the relationship between
them and the supplier. Having a reliable security device within the
CRM systems, clear communication and stringent policy of security as
well as privacy (in a company) concerning the customers are
important. When there is trust in a relationship, all partners believe
that none will become opportunists.
SELF-CHECK 10.3
ACTIVITY 10.2
– Call centre;
– Sales force;
– Website or e-CRM;
– Point-of-sale terminal;
– Service history;
– Smart card.
• Data mining is the creation of intelligence from large quantities of data. Data
mining can be used for market segmentation and customer valuation
purposes.
– Makes predictions;
– Integration of channels;
– Cost.
Boone, L. E., & Kurtz, D. L. (2012). Contemporary marketing (15th ed.). London,
England: South-Western Cengage Learning.
Buttle, F. (2009). Customer relationship management: Concepts and tools (2nd ed.).
Oxford, England: Elsevier Butterworth-Heinemann.
Omar, N. A., Alam, S., Abd Aziz, N., & Nazri, M. A. (2011). Retail loyalty programs
in Malaysia: The relationship of equity, value, satisfaction, trust and loyalty
among cardholders. Journal of Business Economics and Management, 12(2),
332–352.
Payne, A. (2001). Steps to a strategy: The IT report for directors and decision
makers. Conspectus, 14–16.
OR
Thank you.