2.3.1 Customer retention stands out as being one of the most essential factors of relationship. The notion of retention must exist if relationships are to develop in such a way that relationship costs are recouped by long-term profitability. Galbreath (2002) makes reference to Bhote’s (1996) work using the following statements to promote this idea:
- Finding new customers costs five to seven more times than retaining current customers.
- Reducing customer defection by 5% can increase profit between 30% and 85%.
- Increasing customer retention by 2% equals cutting operating expenses by 10%.
Such figures should come as a surprise to many organisations that view investment in customer relationships as wasted investment. The reality, it seems, is that investment in relationships will directly result in savings as less capital is tied up in new customer marketing, such as promotion and administration.
2.4 Although there is little documented criticism towards relationship marketing, it is inevitable that the disadvantages are to be discussed. Gronroos (1994) outlines two problems that may face a company that adopts a relationship approach. “A ‘relationship’ client would not expect the supplier to behave opportunistically” (Gronroos, 1994). Customers may expect the supplier to treat them in such a way that the supplier misses opportunities elsewhere.
But how do firms know what systems to adopt in order to exceed customer expectations whilst creating and sustaining that special bond with their customers? Relationship customers will expect special treatment but other customers may be willing to may higher prices in turn for the higher standards of perceived quality.
2.5 Gronroos (1994) talks in great length about the marketing mix (Product, Price, Place, Promotion), which refers to the factors which can be varied in order to increase customer attraction, consequently boasting and increasing sales of the product or service in question. From a more transactional viewpoint, one method of increasing turnover would be to lower the price. In terms of the marketing mix, this would be just one way of to achieve higher sales as there are three other main variables that determine the success of the product or service. The other methods include changing the product, the promotion of the product and the place from it where it can be obtained regarding its distribution. However there is no question of Gronroos’ documented criticism of the marketing mix. Gronroos believes that many firms have in the past employed and presently do employ some form of the marketing mix system, stating that such systems have turned into a problem for firms over the years and that there is a paradigm shift to relationship marketing. “The development of alternative marketing theories discussed in the previous sections of this article demonstrates that even from a management perspective, the marketing mix and its four P’s became a problem for firms,”(Gronroos 1994). The traditional marketing mix philosophy concentrates on attracting the customer to the company via the promotion of the product and then selling the product at the most profitable price. Little attention is paid to retention and hence long term relationships are not promoted in the same way as CRM, and as industries become saturated and more competitive retention grows in importance.
Mobile Telecommunication Industry: Case Study
3.0 UK mobile telecommunication operators have experienced high growth in sales over the last ten years, especially in the handset sector where sales have soared, partly due to free handsets on contracts and the increased use of texting services. A mobile phone has become a necessity for more and more businesses and consumers, with a massive focus at the younger age range after the introduction of ‘pay-as-you-go’ promotions.
T-Mobile, formerly known as One-2-One has of course enjoyed such success, currently serving some 9 million people in the UK, together with another 40 million across continental Europe. (Telegraph, Jan 2002) This success, it seems, has gradually come to produce a saturated handset market in the UK, as the new customer base potential, i.e. people without mobile phones, has diminished just as quickly as we saw the sales soar. T-Mobile, along with the four other major UK operators have become aware of the problem and are keen to make changes in a bid to produce alternative revenue sources.
3.1 One reason for this need for such improvements comes from the high investment that UK operators poured into 3G, or 3rd Generation, purchasing of licenses over the last three years. 3G is a new, faster (near Broadband speed) method of communication that could see the end of current network speeds. It is a theory that allows for internet-like access, including many additional features such as picture and video viewing, together with more efficient connectivity with personal computers. A total of £22bn was invested in the UK (Telegraph, Jan 2002), and all operators are desperate to recoup this investment as quickly as possible. All operators are making concerted efforts to encourage consumers to use data facilities, additional text services such as picture messages and updates to offer alternative revenue to relieve the need to rely on voice revenue alone. If they can continue to stay profitable until 3G is up and running they should, in theory, be able to recoup initial 3G investment through new contracts and increased mobile use.
3.2 T-Mobile sees Relationship Marketing improvement as a direct method of retaining current customers and making them more profitable. Marilyn Gerson, of T-Mobile Customer Relationship Marketing (CRM) Department explains that “a close relationship between the company and customer is now a hot topic at T-Mobile, as more and more of the business becomes customer conscious” (19th March) She explains that a company called Round was brought into produce a CRM strategy that would result in a more competitive company that would able to interact with customers in a more efficient manner, in a bid to make them more profitable.
Jamie Clyde at Round explains the key model that represents the company’s view on CRM in any organization: “Our model encourages businesses to move from the traditional product focus or product centric views towards customer centricity, where the customer is the focus of every member in the business”. (20th March, 2003)
A Product Centric approach is based on low cost selling of high quantities on product where the customer is expected to purchase quickly and leave the transaction quickly so that the next customer can be dealt with.
Figure 1.0
As firms become more aware of the importance of customer satisfaction and repeat visits they are moving towards being customer centric. However, to meet stage four every employee of the firm must have the customer as the key focus. The company must be proactively looking to enhance relations with customers, not just reacting to complaints and comments when they arise.
3.3 Round expresses an ongoing sense of success with T-Mobile “Round is still actively engaged with T-Mobile and a number of wins have occurred which are evidence of a deep-seated cultural change. T-Mobile’s employees have adopted the language of customer centricity”. (Round, 2002) They also make reference to changes made such as interactive training and management training, but very few specific, practical changes were mentioned. Marilyn Gerson at T-Mobile, CRM, describes some of these changes, “increased communication with existing customers, in particular contract customers, through regular phone calls and texts.” She goes on to explain further objectives, “contracts handsets are encouraged over ‘pay-as-you-go’ if long-term relationships are important, we are also continually working towards more effective and efficient customer services department where calls are answered quickly and accurately”. If communication lines are kept open T-Mobile can increased their awareness of specific customer needs so they can react quickly before they decide to take their business to a competitor. In such a highly competitive industry it is clear that operators will adopt more aggressive methods when attempting to retain customers, as they are difficult to replace.
Literature In Relation to T-Mobile
4.0 Jeremy Galbreath (2002) outlines a similar concept to the model depicted above; in terms of economic ages, giving background theory on how relationship marketing, and its importance, came about. The three ages are as follows: Industrial Age; Information Age; Relationship Age, each age coming about as the previous age becomes obsolete in various industries. “The Industrial Age was marked largely by mass and scale”, where the focus was high sale volumes at low prices combined with fast transactions. The idea is to sell as many products as quickly as possible at minimal cost, utilizing economies of scale and technological advances. This philosophy was employed by many manufacturing companies where productivity was often measured by quantity of production. “Market share dominance was the paramount goal of the Industrial Age” (Galbreath, 2002). This can also be compared to the ‘product centric’ view shared by Round. The Information Age saw the introduction of increased communication and a increased desire from customers and suppliers for information. Companies demand more and more information about customers in a bid to produce large databases of information which could be used to target produces and services in the most effective way, whilst enhancing margins where possible. Galbreath (2002) summerises, “The primary goal of the information age business become converting products into a bundle of value-added, high-margin services” The Relationship Age business, as described by Round as ‘customer centric’ will utilize intangible assets if the company by creating “higher quality and more specialized goods and services – to tailor products and service in individual customer wants and needs” (Galbreath, 2002)
4.2 Making reference to banking in particular, Barnes and Howlett (1998) comment on the impact of technology on relationship marketing, “the growth of technology-based service delivery reduces the personal contact between financial services providers and their customer, thereby altering relationships which may have previously existed”. Personal contact is often viewed with high priority to customers in certain industries as they crave the reassurance that a face-to-face experience offers them. High street banks have recently witnessed differing feedback from customers in response to diminishing high street outlets, which are being replaced with telephone and internet facilities, often favoured by large organizations as costs can be cut and the whole service can be streamlined. T-Mobile has very little face-to-face contact with the end user, with most contact being passed to handset retailers who receive commission for introducing customers to the network. Szmigin and Bourne’s (1998) study into mutuality within relationships reaffirms the theory that both parties must have a desire to enter into a relationship. The negative response from high street bank customers leads us to believe that many customers do indeed crave a long-term relationship. This notion of ‘mutuality’ is expressed by a theory of ‘equity’, which suggests that a person will perceive a relationship equitable provided that they perceive their reward to be proportional to their costs, compared to the supplier involved. Hatfield et al (1979) explains, “when individuals find themselves in inequitable relationships, they feel distress”
4.2.1 Szmigin and Bourne go on to produce another means of relationship entrance, “service companies are ‘forcing’ customers into relationship through incentives or punishments”. This statement has great relevant on the case study of T-Mobile as it specifically relates to the 12 month contract system that all major operators use. Customers are tied into a relationship with the network operator for at least 12 months, often enticed into through introductory promotions on handsets and tariffs. Such schemes allow little flexibility on the part of the end user as the relationship is ‘forced’ upon them for a set period of time, often incorporating a number of terms and conditions. Such a scheme may produce difficulties when the firm is attempting to observe the state of customer relationships and customer satisfaction, as customers are offered little choice as to the quality of service.
4.3 Zeithaml (1981) explains the correlation between risk and the need for a relationship, “Customers have a greater need to form relationships where the service is perceived as high in risk”. If perceived high risk organizations cannot identify these customer requirements they may inevitably experience poorly maintained relationships that become less profitable and are open to termination. Although T-Mobile may not be perceived as a particularly high risk company, if they are to benefit from long-term relationships which out live standard 12-month contracts, they must understand the need that may exist to promote close, personal, and even face-to-face interactions with customers.
Conclusion
5.0 Wharton Marketing Professor George Day (2002, American Marketing Association), summerises the need for CRM in business, “For any company, the goal is to have a CRM system that makes customers feel the service is better than the competitors.” Such a quote encompasses many thoughts raised in this paper as it clearly defines the customer and the level of service that he or she observes as the essential ingredient if the firm is to succeed.
To suggest that there is a paradigm shift towards relationship marketing may appear to be a very bold statement to make but as individual industries change it is becoming clear that the transaction itself does not always offer the firm the attributes its needs to attract and maintain customers. It may be a safer or more sensible concept to put forward that there is paradigm shift towards the customer.
5.1 Barnes and Howlett (1998) work regarding technology provides evidence that T-Mobile may benefit from. Understanding how important any form of personal service is to customers, especially when such service is obviously in the early stages of being phased out altogether is one area that could undergo a radical transformation. A more in-depth study of personal customer attention may even lead T-Mobile to the conclusion that such personal interaction may be the differentiator that could allow the company to take real advantage of the previously mention concepts and ideals.
5.2 Essentially one has to ask if whether or not CRM systems resolve company problems with regard to the increased efforts of becoming more profitable whilst trying to sustain unique customer links. In highly competitive and saturated markets CRM systems, in most cases, do appear to be a vital element of retaining customer relationships. This is evident in the mobile phone telecommunications sector whereby the overriding factor and mission of such firms veers towards ‘hanging on to their customers’ whilst trying to attract new members even though this maybe more costly in the long-term. T-Mobile must press ahead with keeping their existing customers before attempting to attain new customers. Therefore their main objective or focal point of increased sales and profitability could rest with the concept of maintaining current customer relationships and inevitably their inter-firm relationships.
5.3 Business is not static, it shall always be a place of change, and it is the job of firms within any industry to adapt to the new environment whilst keeping corporate objectives in mind. Relationship marketing is a response to a change in many of today’s industries. T-Mobile are aware of this change and have proactively dealt with the task in hand. From initial inspection it would appear to be a positive step towards maximum profitability, the difference is that this goal may seem further away than previously.
Relationship marketing is a diversion that a firm can take on the way towards their corporate goals, it is not an alternative and rewards are there to be had, is it suits the firm, the stakeholders and the industry. It may be a modern concept but the literature provides an overwhelming bias towards this theory being a successful tool which a firm can utilise to gain a competitive advantage, so long as the competition has not taken the same approach.