Berry, L.L. () Relationship Marketing. Upon the technological advancement of production flexibility, supply chain agility, and customer behavioral tracking. marketing". Most sources give Leonard Berry (Berry ) credit for originating it. relationship marketing is not only to get customers but also to keep them. relationship marketing would represent a paradigm shift in marketing (Berry, ; customer loyalty and profitability, as well as the technological improvements in .. Berry, L.L. (), “Relationship marketing”, in Berry L. L., Shostack, G. L.
He points out that USAA could Database marketing, they believe, can create a sili- not have achieved a 98 percent retention rate in automobile con simulacrum of the old-fashioned relationship insurance for its military clientele a group known for its people used to have with the corner grocer, butcher, frequent moves without its integrated, centralized ffata- or baker.
Accelerating interest and research is deepening and Targeting profitable customers for relationship market- extending understanding of relationship marketing. In this ing involves study and analysis of loyalty- and defection- section, we explore some of these emerging perspectives.
Relationship marketing firms need to deter- relationships, Gr6nroos adds the perspectives mine which types of customer defectors they wish to try to of noncustomer partnerships, mutual benefit, promise- save e. This is achieved by a mutual transactional customers, even if they are not profitable as exchange and fulfillment of promises" p. Thus certain companies may wish emphasizes the promise concept, articulated by Calonius to mount dual strategies: Calonius argues that keeping promises, rather than ments.
The emerging focus on relationship profitability making them, is the key to maintaining and enhancing should not be interpreted by marketers as a mandate to customer relationships. The Czepiel notes that relationship marketing in- healthier interpretation is that relationship marketing is not volves the mutual recognition of a special status between an appropriate strategy for all customers, but other strate- exchange partners.
Thus, for a relationship to exist, it has gies may be appropriate. Moreover, multiple relationship to be mutually perceived and mutually beneficial Barnes marketing strategies may be necessary for different market Adapted from Berry and Parasuraman Whereas a pure service company like service with educational or entertainment activities such USAA with a sharply focused customer niche likely would as seminars or parties.
Harley-Davidson dealers each have local base--would appropriately stress the profitable attraction, HOG chapters. Harley-Davidson pays the first year's retention, and enhancement of some customers relation- membership dues for customers who buy one of its motor- ship marketing as well as effecting profitable, inde- cycles.
The underlying purpose of HOG is to help buyers pendent transactions with others. Thus the company and its dealer network sponsor and facilitate weekend riding ral- Multiple Levels of Relationship Marketing lies, training sessions, and other events "that bring like- minded people together. Harley-Davidson mails a Relationship marketing can be practiced on multiple bimonthly magazine to HOG members that lists regional, levels, depending on the type of bond s used to foster national, and international riding events.
Most dealers customer loyalty. More recent literature in relationship distribute a local chapter newsletter.
With more than marketing e. Michael Keefe, director of the HOG pro- or bonds and their relative effects; these distinctions are gram, refers to the process as "customer bonding. If people not stressed in earlier literature. As shown in Table 1, the use the motorcycle, they'll stay involved.
If there's no- higher the level at which relationship marketing is prac- where to ride, no place to go, the motorcycle stays in the ticed, the greater its potential for sustained competitive garage, the battery goes dead, and a year from now, they advantage.
Level one relationship marketing relies primarily on Although social bonding normally cannot overcome a pricing incentives to secure customers' loyalty. Higher noncompetitive core product Crosby and Stephensinterest rates for longer duration bank accounts, a free it can drive customer loyalty when competitive differences video rental after 10 paid rentals, and frequent flyer points are not strong. A social relationship also may prompt illustrate level one relationship marketing.
Unfortunately, customers to be more tolerant of a service failure or to give the potential for sustained competitive advantage from this a company an opportunity to respond to competitor en- approach is low because price is the most easily imitated treaties. Crosby, Evans, and Cowles found a sig- element of the marketing mix.
Within 3 years of American nificant effect of life insurance salesperson relational Airlines establishing its AAdvantage frequent flyer pro- selling behaviors staying in touch with clients; personal- gram, 23 other airlines offered their own frequent flyer izing the relationship by confiding in clients and sending programs Stephenson and Fox Moreover, custom- cards and gifts; demonstrating a cooperative, responsive ers most interested in pricing incentives are particularly service attitude on relationship quality client trust in, and vulnerable to competitor promotions and may well flunk satisfaction with, the salesperson.
Relationship quality, in the profitability test discussed in the last section. Market- turn, had a significant positive influence on clients' antici- ers seeking to establish the strongest possible relationships pation of future interactions with the salesperson. Level three relationship marketing relies primarily on Level two relationship marketing relies primarily on structural solutions to important customer problems.
Level two relationship value-adding benefits that are difficult or expensive for marketers attempt to capitalize on the reality that many customers to provide and that are not readily available service encounters also are social encounters McCallum elsewhere, they create a strong foundation for maintaining and Harrison ; Czepiel Social bonding in- and enhancing relationships. The most At level three, the solution to the customer's problem important customer contacts from a marketing suc- is designed into the service-delivery system rather than cess point of view are the ones outside the realm of depending upon the relationship-building skills of individ- the marketing mix and the marketing specialists.
The ual service providers. The problem solution is "structural" marketing impact of the customer's contacts with and thus binds the customer to the company instead ofor people, technology and systems of operation and in addition to--an individual service provider who may other non-marketing functions determines whether leave the firm. In relationship marketing interactive ship comprises a series of automated shipping and marketing becomes the dominating part of the mar- invoicing systems that save customers time and money keting function.
The systems are scaled to customers' usage. Customers receive Attracting employees with the potential to be part-time free an electronic weighing scale, microcomputer terminal marketers, developing their marketing skills and knowl- with modem, bar-code scanner, and laser printer. Power- edge, and building an organizational climate for market- ship rates packages with the correct charges, combines ing will fail to deliver intended results if employees package weights by destination to provide volume dis- constantly turn over and customers continually must deal counts, and prints address labels from the customer's own with different--or inexperienced--service providers.
Users can automatically prepare their own in- cent literature positions employee retention as an antece- voices, analyze their shipping expenses, and trace their dent of customer retention. Schlesinger and Heskett packages through Federal Express's tracking system view high employee turnover as a central factor in what Lovelockp.
ByFederal Express was they label "the cycle of failure. High employee turnover negatively affects ser- Marketing to Employees vice quality and customer retention, thus hurting profit- and Other Stakeholders ability and further reducing resources available to invest in employees' success.
The idea of marketing to service employees to improve Reichheld argues that the longer employees stay their performance with customers predates the first papers with a company, the better they are able to serve their on relationship marketing. Long-term employees know more about the, and Berrywere early, ardent business and have had more opportunity to develop bonds proponents of service firms practicing internal marketing of trust and familiarity with customers. Reichheld writes, to improve external marketing.
Internal marketing is in- "Just as it is important to select the right kinds of customers cluded as an emerging perspective nonetheless because of before trying to keep them, a company must find the fight its increasingly sophisticated treatment in the literature, kind of employees before enticing them to stay" p. He relationship building with multiple stakeholder groups.
Thus service term perspective required in relationship marketing.
The centerpiece of its growth strategy through job-products that satisfy their needs" Berry and is an innovative, comprehensive internal marketing strat- Parasuramanp. Only when service providers egy that includes health care benefits, stock options, in- perform well does the likelihood of customers continuing depth training, career counseling, and product discounts to buy increase Berry Chief Ex- Gummessoncoined the phrase "part-time ecutive Officer and president Howard Schultz has been marketer" to stress the critical marketing role performed quoted as saying that the quality of Starbucks' workforce by customer-contact employees in service organizations, a is what makes and keeps the company competitive.
He theme of Gr6nroos's work from his earliest publications believes in the necessity of creating pride in, and giving on services marketing to his most recent works. In a workers a stake in, the company, so that workers perceive article, Gr6nroos underscores the limitations of the tradi- both financial and spiritual ties to their jobs Rothman, tional marketing mix paradigm for relationship marketing: As discussed earlier, designed to reduce employee turnover and instill the pride these feelings are likely to be heightened for services that of ownership.
The plan is structured on a 5-year vesting are personally important to customers, require consider- period. It starts 1 year after the option is granted, then vests able involvement, are heterogeneous, or are complex the employee at 20 percent each year.
Every employee also black box. Customers who develop trust in service receives a new stock-option grant each year, initiating a suppliers based on their e x p e r i e n c e s with t h e m - - new vesting period. The percentage of the grant is linked especially suppliers of services with these significant to the company's profitability Rothman In effect, mistrust in America, positions trust as perhaps the single companies must establish relationships with noncustomer most powerful relationship marketing tool available to a groups the means to successfully establish relationships company.
Yankelovich Partners has documented an ero- with customers the end. Internal relationship marketing sion of trust among American consumers in its annual to pave the way for external relationship marketing is an monitor study of consumer attitudes and lifestyles.
As mentioned earlier, Hunt and Morgan Barbara Caplana senior researcher at Yankelovich extend relationship marketing to include internal, supplier, Partners, writes: In an economic era characterized by more prevalent strategic How people are feeling and thinking speaks to a network competition networks of independent entities national mood of skepticism. Distrust permeates the collaborating as partners and competing against other such very fabric of American life.
There is a sense that networksHunt and Morgan stress that cooperation is integrity, credibility, and competence are lacking. Gummesson, in a Consumers are wary of misrepresentation, exag- paper, proposes 30 potential types of relationships, includ- geration and hype and are determined to stamp de- ing those of a company with customers, employees, inves- ception out.
He suggests that managers need to worthiness? Forthright, frequent, pany's success, as not all relationships are important to all two-way communications clearly are important.
Maritz companies all the time. Marketing Research surveyed consumers about being con- tacted by a company and found that 80 percent of its Trust as a Marketing Tool sample felt it was important for a company to keep in touch with its customers.
Eighty-seven percent indicated they For a strong relationship to exist, it must be mutually would buy from a company that had a reputation for beneficial Czepiel The good intentions of partners keeping in touch Cottrell Lexus, consistently in a relationship cannot be in doubt. Communications must ranked first by American consumers in J. Power re- be open, honest, and frequent. Similar values must prevail.
Business & Relationship Marketing
The rationale is to increase personal con- Evans, and Cowles ; Parasuraman, Berry, and tact between the customer and dealer Illingworth Zeithaml ; Morgan and Hunt Trust is "a will- Two-thirds of Lexus buyers today have bought one before, ingness to rely on an exchange partner in whom one has the highest repeat purchase rate in the luxury car market confidence" Moorman, Deshpand6, and ZaltmanHenkoff It is critical to the formation of service-based rela- Parasuraman, Berry, and Zeithaml report that the tionships because of the intangibility of services.
Most automobile insurance customers they interviewed ex- services are difficult to evaluate prior to purchasing and pressed strong resentment and mistrust of their insurance experiencing them, and some services remain difficult to companies because they believed these firms were price evaluate even after they have been performed. These latter gouging, making false promotional promises such as services, labeled "black box" services by van't Haaff lower premiums for safe driversand were prone to cancelare typically technical in nature, such as automo- their insurance if they had an accident.
Based on these bile repair, or are performed away from the customers' findings, the researchers advise auto insurers to communi- view, such as a restaurant meal. Customers purchasing cate with their policyholders more openly, regularly, and black box services are particularly vulnerable because they creatively about the rationale for rate hikes, their criteria have less knowledge than the supplier about what actually for canceling insurance, and other sensitive subjects.
The transpired in the service performance. Clients dissatisfied with the nual shareholders report. Communication leads to trust service need not pay the fee. Given to every new client, the and trust to relationship commitment Morgan and Hunt written guarantee reads: Communication intensity also can encourage cus- service quality in any given year, we will return to you the tomer perceptions of "special status" Czepiel and fees paid, or any portion thereof you feel is fair.
Four clients invoked'the guarantee during the first four Communications effectiveness in building trust can years of operation. According to management, all the have implications for organizational structure, especially claims were justified and were for the same reason: Warner Corpo- ration, a large heating, ventilation, and air-conditioning A higher standard of conduct. Companies seeking to company in Washington, D.
Corporate practices that rob customers of self- of making service calls throughout the trade area and rarely esteem or justice may be legal, but they destroy trust and seeing the same customer twice, the technician focuses on consequently the potential for relationship building. Rela- one or several zip codes. Called "Area Technical Direc- tionship marketers must be prepared to subject every pol- tors," each technician is expected to build a business in the icy and strategy to a fairness test.
They must be willing to assigned area. A new incentive system developed concur- level the playing field. They must be willing to ask not only rently with the restructuring encourages the technician's "Is it legal? One Area Technical Director said that he goes so far as to give his pager number to his customers Fineganp. Customers are served by a team for most or all of practitioners and academics are interested in its possibili- their service requirements, giving a big company the op- ties as never before and for good reasons.
Virtually all portunity to deliver a level of personalized service more market offerings have a service component from manu- characteristic of a small company Berry Both Guaranteeing the service. Service guarantees are an- company and customer benefit from effective relationship other means to build trust. Dissatisfied customers can marketing. Advances in information technology are mak- invoke the guarantee and receive compensation for the ing relationship marketing programs more affordable, fea- burden they have endured.
When executed well, service sible, and powerful. Guarantees also force the organization to improve cated perspectives to the subject.
These include focusing service to avoid the cost and embarrassment of frequent on profitable relationships, recognizing multiple levels of payouts. Guaranteeing a poor service is always a mistake. Blois, Keith John"Relationship marketing - is it always appropriate? Templeton College Centre for Management Studies. Burnes, Bernard and B.
DaleWorking in partnership: Theory and Practice, London: Shipp, and Kenneth J. Roering"Proactive Strategic Partnerships: Gartner"Building Good Business Relationships: Homse"Controlling the marketing-purchasing interface: Montgomery"Special Issue: Tanner JohnBusiness marketing: Brown"Patching: Sloan School of Management. Co-operating to Compete, London: Ford, DavidUnderstanding business markets: Ghoshal, Sumantra and Nitin Nohria"Horses for courses: Godin, SethPermission marketing: Technical Assistance Research Program, Washington: Gordon, IanRelationship marketing: Hakansson, HakanInternational marketing and purchasing of industrial goods: Halinen, AinoRelationship marketing in professional services: Hamel, Gary and C.
PrahaladCompeting for the Future, Boston: JemisonManaging Acquisitions, New York: Hiebeler, Robert, Thomas B.
Kelly, and Charles KettemanBest Practice: Building your business with customer-focused solutions, New York: Hill Roy, Wells and J. Hillier TerryOrganisational buying behaviour: Ricart i Costa, and Robert D.
NixonNew managerial mindsets: Gassenheimer, and James M. MaskulkaMarketing exchange transactions and relationships, Westport, Conn.: Jackson, Barbara BundWinning and keeping industrial customers: Weitz"Achieving strategic advantages in buyer-supplier relationships," Working Paper, Cambridge, Mass.: Prentice Hall International Editions.
Lawrence, Raymond John and Michael J. ThomasModern marketing management: BlenkhornReverse marketing: Martino, Jean-Marie"Investing in profitable customer relationships: The Conference Board Inc. Jerome and William D.