Relationship marketing in relation to a case study.

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Relationship Marketing In Relation To a Case Study

Introduction

1.0         Relationship marketing has become a ‘hot’ topic between marketers over the last decade as organisations are realising the importance of research into various concepts and ideas that have the potential to provide a sound culture in which the organisation can become more successful. Being a modern concept, writers are keen to put across many ideas which can be put into practice in various industries today. This paper will endeavour to extract key arguments and will illustrate how and when such ideas have come around. It shall examine the effect that relationship marketing has on organisations today, making a specific observation towards one company in the UK.

Various authors have, over the last ten years or so, produced many definitions for relationship marketing. Morgan and Hunt (1994) define the concept:

“relationship marketing refers to all marketing activities directed towards establishing, developing and maintaining successful relations exchanges”.

This paper will examine both business-to-business (inter-firm) relationships together with customer relationships in various situations and industries. Corporate goals of the company will be one area of focus as companies are gradually altering business objectives from more traditional ‘profit only’ philosophies. Customer retention, maintenance and enhancement will provide key focus for this paper as will advantages and disadvantages, in a bid to make generalised and specific conclusions regarding the impact of relationship marketing and its potential impact on businesses and consumers.

Literature Review

2.0         It important to note that different forms of relationships occur with regard to business to customer and business to business (inter-firm) relationships. Effectively the inter-firm relationships are an integral part of the firms’ productivity. Exchange between two different organisations is known to support the governance theory where co-operation is a basis of such relationships. “Resource analysis of co-operation is a function of necessity to exchange needed resources” (O’Toole & Donaldson, 2000). Nevertheless the motives behind co-operation in the marketplace can vary significantly in terms of its purpose and effect. Co-operation between two firms could either have a more transactional direction where it is only necessary to create the transaction (Transactional analysis). This approach merely focuses on the efficiency of the exchange whilst a Relational approach (Behavioural analysis) is a more socially embedded route, concentrating more on aspects such as trust, commitment, co-operation, mutuality and equity between the two firms. Therefore the two types of analysis have different approaches. The Transactional approach is geared towards gaining control over partners or competition with disregard to co-operation, essentially striving to improve its economic position. “Therefore the exchange relationship maybe very co-operative but without economic links or have strong economic links but very uncooperative and imposed” (O’Toole & Donaldson, 2000).

2.1        The Relationship Strength Construct is explained using four descriptions to illustrate the differing strengths in relationships which are described to be bilateral, recurrent, dominant partners, or discrete. Bilateral relationships consist of partners liaising and co-operating for mutual advantage, where there appears to be a greater sense of solidarity between the firms. ‘An example of bilateral content and process would be present with the relationship of Ford Motor Company and Excel Industries-makers of windows for cars (O’Toole & Donaldson, 2000). A recurrent relationship encompasses a dependable supply relationship between two parties but the relationship does not develop further. The dominant partner concept can be explained by the relationship between a large supplier of a product that cannot be sourced elsewhere. The purchaser is forced into consistent relations with the supplier even the relationship is not desired. A discrete relationship, however, describes an interaction consisting of low levels of participation and belief. There is little commitment and O’Toole and Donaldson rate this element as the lowest in the construct.

2.3        Galbreath goes on to argue the importance of customer loyalty, “a strong correlation exists between customer loyalty, as measured by retention rates, and profitability. Loyal customers not only buy again and again, but they also tend to be less price sensitive” As customers become more loyal they are often prepared to pay premium prices because they feel a strong bond with the company may even feel a certain amount of obligation to make continuous purchases to maintain good supplier relations. Galbreath (2002) lists four indicators of loyalty as being profitability, likelihood to recommend, full customer engagement (i.e. feedback and product involvement) and attention. Attention from potential customers must be a marketing objective for any company as the competition to be noticed is growing considerably. Potential customers in all industries are often surrounded by advertising which is must be noticed if it is to be successful. People can only notice and remember a certain amount of what they see every day, as the majority of it will be automatically filtered out. However, if a company can be noticed on a consistent basis it allows for customer loyalty to be formed as the customer has the confidence that the product or service is in the public eye and carries with it a sense of reliability.

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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 ...

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