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In what ways does relationship marketing differ from other approaches

to satisfying customer needs and wants?

In 1983 Berry coined ‘Relationship Marketing’ as a term for the interaction of businesses and
their customers, specifically the method which places precedence on the attraction and
maintenance of customers through an enhanced customer service, “Relationship retailing
means attracting, retaining and enhancing client relationships.” (Berry and Gresham 1986).
Morgan and hunt describe relationship marketing as “Establishing, developing, and
maintaining successful relational exchanges” (1994). Relationship marketing represents a
noticeable alteration in firms’ attitudes to catering for the customer’s needs, a departure from
the out-of-date assumption that the customer is uninformed and gullible. This essay will
examine the model of relationship marketing, in contrast to other models of retail marketing.
In particular it will identify its relevance in the modern day, to see whether the model has
longevity in delivering relevant customer value. In order to answer the question an
investigation of the numerous evolving notions of ‘consumer value’ will be needed to
accurately assess whether relationship marketing, in competition with other models, is best
equipped to deal to the ever-changing demands of the contemporary market. The change of
consumer demands has lead to the exposure that traditional marketing approaches are largely
unsuited to this new climate. In order to validate this hypothesis an investigation of the
demands contemporary consumer is needed along with an evaluation of the other classic
models of marketing practices; transactional, brand and value-based marketing.

Transactional marketing is a commonplace practice that is widely used many sectors.


Underlying the theory is the premise that the consumer is unfaithful and unsophisticated in
their perception of the market. As a result, the response from the firms is the short term
security of the present sale, optimising market share and sales volume with little thought in
any future value that the consumer may hold. The focus on the short-term sale inevitably
leads to a shortfall in the quality of the product delivered. The automotive sector traditionally
has taken a transactional-based approach to marketing, and findings from Toyota seem to
suggest that this approach is now inept in dealing with the contemporary customer. It was
found that female customers, who “make or influence 80% of car purchases”, disliked the
salesroom atmosphere. This forced a change from Toyota who now offer internet purchasing
and removing the salespeople from the customer (Piercy 2002). This admission of error from
Toyota shows that transactional-based retail is model that is largely obsolete, left behind with
the evolution of the informed consumer. The model of transactional marketing is lacking in
its inability to retain customer loyalty, which lead to the emergence of the next major
marketing model, the model of Brand marketing.

Brand marketing came to prominence in the 1950’s with companies hoping to cultivate
devotion by creating a brand that distinguished it from the rest of the competition. Fuelled by
the generation of ‘baby-boomers’ and the simultaneous rise in income, the decade saw ‘An
explosion of new products, soaring demand for national brand’ (Low and Fullerton 1994).
The unprecedented rise of brand power led to 84% of large consumer packaged goods
manufacturers having brand managers by 1967 (Buell 1975). A model based upon
transactional marketing theory, brand marketing attempts to facilitate a relationship between
the brand and the consumer. The theory goes that a recognisable brand can simplify the
decision making for the consumer (Low and Fullerton 1994). Like relationship marketing it
aims to elicit a greater retention in customers as “customer retention is substantially less
expensive than customer acquisition” (Birch, 1990). However in the modern day it has come
to the point where brands clog up the supermarket shelves and confuse the consumer making

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decision making all the more difficult. Like transactional marketing, problems of brand
marketing “include short-run thinking”, the “neglecting [of] segmentation” and “excessive
preoccupation with internal functions” (Business Week 1973). The narrow minded, short-
term focus of the brand manager is dead as a repercussion of “increased trade concentration,
declining brand loyalty, media fragmentation, and changing consumer purchasing habits”
(Skenazy 1987). This can be seen with the decline of a number of brands; Coca Cola had
over half the world drinks market in 1999 (Piercy 2002) however the share price plunged to
$47 in 2000 down from $85 in 1998 with weak sales and profit continuing into 2001 (Piercy
2002), McDonalds reached sales of £20 billion in the late 1990’s however in 2001 reported
falling profits in consecutive quarters for the first time in the company’s history as a result of
its lack of diversification in its product ranges which led to consumers growing tired of the
same old range (Piercy 2002). Brand marketing itself however is still a viable model
however which is proven by the number of recognisable brands that still exist in the
marketplace today. Piercy states that now what is needed is “more than a brand” (2002), that
the emphasis is now placed upon delivering brand value, whereby the brand has a differential
to the rest of the market that’s not just in appearance. Piercy goes on to conclude that the
modern era has seen the death of “blind branding”, “If all you can do ... is cut prices, then
your brand really isn’t worth much” (2002). The real failure in brand marketing is the
previous assumptions on the customer, that were all to prevalent in transactional marketing,
now the customer has ‘wised-up’ the focus is now whether the brand can deliver value
opposed to whether it has value in itself. The need to provide customer value led to the
emergence of the next evolution in marketing retail strategy: relationship marketing.

A retail strategy that re-surfaced and came to the fore in the 1990’s, relationship marketing
has become particularly prevalent in the modern day, with consumer awareness on the rise
and customer loyalty on the decline. Piercy writes of the ‘new customer’, “Customer
awareness of marketing activity and expectations of better value have escalated dramatically,
increasing market volatility in their wake” (2002). With the rise of technological innovations
there has been an explosion of customer awareness and an increased choice of alternative
products which have convoluted the markets resulting in a greater competition for business.
As a repercussion of the rise of the ‘new customer’ firms have had to adapt and evolve their
practices with a shift of emphasis “from transactions to value” (Piercy 2002). The rise of the
‘new customer’ has seen a fundamental shift from supplier power to buyer power, with the
acquisition of greater commercial awareness and the greater pressure on demand for value
(Piercy 2002b). Relationship marketing differs from other approaches as it focuses on
building long-term relationships with its customers. It is characterised by “long-term
interaction between firms involving many transactions”(Fontenot and Wilson 1997). One of
the main focuses of relationship marketing is the “attention on customer retention” where it
can “tighten connections” and provide “lasting relationships” (Piercy 2002). This provides
the benefits to the firm of “additional business with existing customers through broadening
and extending the relationship” (Ville 2009) and “increase[ing] the opportunity to sell more
products to present customers while reducing the chances of customers straying to the
competition” (Berry and Gresham 1986). Morgan and Hunt propose that “the presence of
relationship commitment and trust is central to successful relationship marketing” (1994). It
affords a breadth of knowledge on customer knowledge, specifically market segmentation
and the ability to carry out personal customisation on its services or products. Innovations
like Customer Relationship Management (explored in later greater detail) have allowed this
strategy to focus on market segmentation, an area both previous models failed to address. It
is also different in its approach as it begins to examine the whole approach of going to
market, looking more at the long term, integrating marketing across the whole department

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rather than being controlled by a position such as the brand manager. The utilisation of
relationship marketing is most appropriate when the consumer; “periodically re-buys in the
product classifications sold by the retailer”, “has alternatives from which to choose”, “is ego-
involved” and when “the consumer requires personal service” (Berry and Gresham 1986) as
these present the greatest opportunities to add value through a personalised service and the
creation of a service. When this is applicable we can focus on relationship marketing’s key
goal of customer retention through consumer attachment. Berry presents the idea of
converting “customers into clients” which offers the visible advantage that “clients are more
likely to be loyal than are customers” (1994). When a firm can create an intimate
relationship with a former “rational customer” then relationship marketing is able to provide
value, “emotionally-driven consumption is the polar opposite of economic rationality” (Stern
1997).

In relationship marketing it is essential that the strategies in place must be such that it
provides a selling point that is unique to the firm, whilst simultaneously still providing value
that is relevant to the customer. With competitors frequently offering similar lines of service,
and analogous promotions, competitive advantages through relationship marketing is
obviously an attractive premise which is why it is important that the strategy is difficult for
competitors to replicate; otherwise the competitive advantage will obviously be lost.
“Relationship Customisation” (Berry Gresham 1986) is a method which involves “learning
the preferences of individual clients” and using this information in order to attempt to add
value to the customer. These initiatives require the consumer to provide personal information
which is most commonly gathered simply using past sales data. A widely used strategy in
relationship marketing is the technique of customer relationship management (CRM). CRM
schemes such as the Tesco Clubcard, ‘Britain’s most successful loyalty card’ (Fletcher 2004),
have flooded the markets leading to competitors such following suit with similar initiatives.
The unobtrusive use of store-cards has proved an effective way of obtaining customer data,
proving invaluable customer-research. CRM is most effective when the product line is
regularly purchased and is more likely to gain a competitive advantage. In the modern market
however where increasingly companies look to follow suit CRM does not offer uniqueness in
its fallibility that it can be duplicated. When there is no differentiation between competing
systems all added value is lost, leading to CRM systems simply becoming “glorified
database[s]” (Piercy 2002).

A different strategy in relationship marketing is “offer augmentation” (Berry Gresham 1986).


This is entails the integration of extras, particularly intangible benefits, into the product in
order for it to provide a unique added value, that competitors do not have the capability to
duplicate. The Curtis Mathis’ initiative of putting a rose on top of every recently installed
TV set is an example of intangible benefits, with the added value in the customer
relationships much higher than the individual price of each rose (Berry Gresham 1986). This
strategy is more difficult to implement as the key to success is finding something only your
firm can provide, but if this is can be done then the possible benefits are vast.

The ongoing challenge of securing the long-term relationship of increasingly disloyal


consumers has led to the emergence of the new value-driven strategy. Firms have begun
abandoning the pursuit of market-share and are now seeking improved customer retention.
The theory is that by offering “superior value to customers, management can in turn deliver
superior value to shareholders” (Piercy 2002). When a new “value proposition” can be
created then this will lead to “increased customer satisfaction, loyalty and - ultimately –
sustainable, profitable growth” (Mazur 1999). Only when customers demand a relationship

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focus, then relationship marketing can provide “an incredibly powerful leverage for
competitive advantage” (Piercy 2002). However this is clearly dependant on customer type,
which can be illustrated via the segmentation of markets by customer relationship
requirements. Companies who seek to find value in unexplored areas will be those that
prosper. Take for example Ryanair, the success of this no-frills airline owes little to customer
service and relationship building. With open-seating and internet ticketing it has managed to
cut costs in order to fulfil its value proposition. Ryanair has ‘allowed people to fly when
otherwise they would have travelled by sea and road, or simply stayed at home’ (Piercy
2002). Southwest Airlines in the United States simply offered a point to point set of routes,
opposed to the traditional hub-based system of flight paths. This combined with its low
operating costs have seen profits rise to $7.5 billion in 2002, compared with $4.2 billion in
1998 (Cravens and Piercy 2006). Heinz created a cone-shaped bottle as to enable children to
draw shapes on their food, for extra enjoyment. This product captured “6% of the $500
million market in seven weeks” (Piercy 2002), adding value through “making boring food
fun” (Piercy 2002) via innovative packaging. Whilst the first two models, transactional and
brand, base themselves around Porter’s model of competitive advantage which suggests that
there are only “two sources of competitive advantage: low cost and differentiation” (Lane
2009), the more recent models, relationship marketing and value-driven strategies, seek to
move away from this idea and applies the core capabilities and competencies of the firm in
order to provide a value proposition. Value-driven companies look to operate without a
defined, isolated marketing department and instead instill a joint effort within the corporation,
with the strategic pathway at the centre of this theory. Value-based marketing focuses on
more than relationship marketing is its reliance on market-sensing, the first step of the
strategic pathway (Lane 2009).

Relationship marketing was initially a novelty for corporations as it provided a way for firms
to differentiate themselves from the rest of the market who were content to compete purely
on price in their quest for market share and sales. Relationship marketing offered a fresh
perspective that identified the need for a longer term view on customer value. Expanding on
the notion of customer retention first implemented via brand marketing, relationship
marketing sought customer loyalty as a means of growth over customer share. This was
brought about by a fresh perspective of marketing, moving away from the ‘brand manager’
idea of having an independent unit for marketing and applying “boundary-less companies”
(Slater and Narver 1994) where feedback from business performance is fed back into the core
capabilities. Relationship marketing places less sensitivity to price as the previous models,
however value-driven marketing recognises the fact that cheaper services can be
encompassed in the value proposition. Where relationship marketing places particular stress
on interaction quality (Berry and Gresham 1986) value-driven marketing realises that this is
an area in which the consumer might particularly not need and may even prefer less. For
relationship marketing to be appropriate the consumer has to want the level of personalised
service, for example an arm’s length transactional buyer may see no need in personalised
service. It’s for this reason that relationship marketing is a model that is now in its decline.
A functioning value-driven corporation will identify the relevant needs and wants of the
particular customers and adapt, with the ones performing the practices of value-driven
marketing the best being the most successful (Day 1994).

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