Maritime Policy and Management

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Marketing the professional ship management

service

Photis M. Panayides & Richard Gray

To cite this article: Photis M. Panayides & Richard Gray (1997) Marketing the professional
ship management service, Maritime Policy and Management, 24:3, 233-244, DOI:
10.1080/03088839700000028

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Marketing the professional ship management service

PHOTIS M. PANAYIDES
RICHARD GRAY
Centre for International Shipping and Transport, Institute of Marine
Studies, University of Plymouth, Drake Circus, Plymouth, PL4 8AA,
U.K.

This article aims to apply the relationship marketing concept in a professional

ship management context. The dramatic growth in the ship management industry
means that companies are increasingly seeking ways of ensuring competitiveness.
Efforts have mainly concentrated on the improvement of the quality of the ser-
vice, market entry strategies, establishment in strategic locations, and promotion.
Nevertheless, it is argued that in the professional service context of ship manage-
ment, the aspect of building and maintaining client relationships is of utmost
importance. The building of client relationships will require investments of an
economic and social nature, training of personnel and the consideration of
marketing as a strategic issue. Ship management companies that build long-
term client relationships will ensure client retention, reduce transaction costs
and achieve differentiation and competitiveness.

1. Introduction
Although the basic ship management functions have been performed since the early
days of shipping [I], ship management is nowadays an industry in its own right. Over
the recent years there has been dramatic growth in the ship management industry
(table 1). This growth has been described as the shipping industry's fourth wave [2].
Apart from basic ship operation and crewing, the number of services on offer has
been extended to include chartering, sale and purchase, insurance, newbuilding
supervision and claims handling to name but a few. The growth of services may
be attributed to the responsiveness of ship management companies to the needs of
the market place. The increase in the number of services has certainly contributed
towards the increasing complexity of ship management [3]. This complexity has
given rise to different definitions of ship management. However, all definitions stress
that ship management is a service related to the operation and maintenance of a ship
that may be rendered by an independent company [4,5,6,7]. Ship management may
thus be defined as the rendering of services related to the systematic organization of
the economic resources (land, labour, capital) required for the sustenance of a ship as
a revenue earning entity.
The initial demand for professional ship management services came about in the
late 1960s when oil majors took advantage of the availability of tax-breaks on ship
investment and made capital investments on ship purchase, delegating management
to third parties. On the other hand, low freight rates and the devalued sale and
purchase market of the early 1970s [8], forced traditional owners to abandon vessels
to the hands of their creditors, the banks, who again entrusted management to the
hands of independent ship managers. Recognizing the advantages and opportunities
offered by third-party management [9,10], traditional shipowners had also delegated

0308-8839197 $ 1 2 . 0 0 0 1997 Taylor & Francis Ltd

 P . M . Panayides and R. Gray

Table 1. Growth of ship management companies 1990-1997.

Year Number of companiest

1990191 226
1991192 412
1992193 504
1993194 504
1994195 499
1995196 515
1996197 614
Source: Fairplay World Shipping Directory.
?Numbers are subject to error as companies may appear more than once, due to
establishment in different countries. Also manning agents and other companies
which are not strictly independent ship management companies may be included.

management, further enhancing the viability of the ship management industry. The
growth developed further in the 1980s when many traditional shipowners viewed
ships as financial investments (asset plays). They were, hence, more interested in the
vessels' sale and purchase value, rather than in ship operation. Delegation of ship
operation to third-party managers was a feasible way of concentrating their efforts
on the sale and purchase market.
Despite its initial growth, it seems that the way ahead may not be that prosperous
for ship management. The ship management sector has recently received criticism as
not being able to replace the genuinely interested owner, and success depends very
much on the ship manager's relationship with the financial owners of the vessel
[11,12]. As competition for contracts intensifies, the companies will need to have a
strategic marketing plan in order to retain their clients over the long term. The
marketing plan should also provide grounds for service differentiation whilst at
the same time enhancing the ship manager-shipowner relationship. A closer look
at the marketing efforts of the ship management companies is required in order to
put into context the problems, if any, that ship managers may encounter.

2. Marketing in ship management

It has been stated earlier that ship management is a fairly new service in the shipping
industry. Consequently, advanced marketing strategies have been underplayed as
managers had first to establish themselves in the market place. The marketing stra-
tegies adopted were mainly intended to attract clients. A brief study of the marketing
initiatives in ship management indicates use mainly of the marketing mix elements.
The marketing mix has been defined as the set of marketing tools (product, price,
distribution and promotion) that the firm uses to pursue its marketing objectives in
the target market [13,14]. The product consists of a basic service package which is
made up of the core service, facilitating services (and goods), and supporting services
(and goods) [15]. The core service is in essence the management of the ship, with
facilitating and supporting services being the operational, technical aspects of man-
agement as well as land, labour and capital that is provided by the ship manager. The
service may be in a generic form, an expected form, or may be augmented [16,17].
The generic form consists of the basic ship management service in its most plain
version, i.e. an office with basic equipment and personnel with some expertise in the
management of ships. Ship management in its generic form may be offered by any
 Marketing the professional ship management service 235

competent ex-seafarer who may tender for a contract if supported by a telex and a
small team of personnel [18]. In its expected form, the service actually consists of
what the customer expects from it. For instance, the customer will expect the basics
of the generic form but also prudent management of the ship with a view to safety
and profit from ship operation. The augmented service would consist of additional
features in the ship management service provision that individual companies may
employ. For example, a ship management company may adopt a 'caring for the
environment' policy or a total quality management system. Such efforts of service
augmentation would have helped the company to differentiate itself from other
companies a few years ago.
Nowadays, however, it is accepted that all major ship management companies
have acquired recognized quality and safety management certificates and many
others are in the process of doing so. Moreover, the compulsory obligation for
compliance with the International Safety Management (ISM) code dictates that
virtually all ship management companies will soon hold a quality and safety manage-
ment certificate of one form or another. It follows that adoption of total quality
management has become insufficient for differentiation among ship management
companies.
Price is the second variable in the marketing mix. The pricing policy as a means of
marketing strategy may not be very effective as far as ship management is concerned.
This is because ship managers earn a basic fee for their service, and rates charged are
fixed and vary by a small margin from company to company. For example, an
annual turnover in fee income for crewing and technical management of a fleet of
1&12 vessels would be in the region of $800,000 to $1.2 million [19]. The manage-
ment fee levied is typically between 5 and 10% of the total vessel running costs,
largely depending on vessel type [20,21]. Of course, many times, the price charged
depends on the quality of the service offered. A ship manager operating at higher
quality standards will normally require a higher fee. The actual price will be indivi-
dually agreed between the ship manager and shipowner after a series of negotiations.
If the shipowner is price-sensitive, the ship manager may be willing to bend a little in
order to secure a contract. The actual price set by a company will be a measure of the
cost effectiveness of its operations. However, as most companies try to achieve tight
cost control, variations in prices are relatively small and differentiation cannot be
achieved through the isolated use of the price variable.
The third variable in the marketing mix, distribution, refers to a series of strate-
gies pursued by companies in order to efficiently make their offering easily accessible
and widely available. Ship management companies may adopt this variable through
establishment in key geographical locations, market entry strategies, and marketing
channel configurations. The location of the ship management company is important,
not only as a means of marketing but also for associated advantages. The location of
a service organization's facilities is often determined by the location of customers
and the degree of customer contact [22]. Thus, ship management companies, follow-
ing the trend established by shipowners, have increasingly fled from traditional
shipping centres to locations which provided proximity to clients and cost effective-
ness in terms of operation, taxation and cheap land and labour. Another considera-
tion for re-locating has been geographic proximity to manpower and ship spare
parts/supplies sources [23]. Table 2 shows the number of ship management
companies located in the ten leading ship management centres. Ship management
companies pursue market entry strategies through formation of joint ventures, or
 P. M . Panayides and R. Gray

Table 2. Number of companies in the ten leading ship management centres.

Country Number of companiest

United Kingdom
United States of America
Greece
Norway
Germany
Singapore
Hong Kong
India
Cyprus
Netherlands
Source: Fairplay World Shipping Directory 1996197.
?Numbers are subject to error as companies may appear more than once, due to
establishment in different countries. Also manning agents and other companies
which are not strictly independent ship management companies may be included.

establishing subsidiaries in all the major ship management centres of the world. In
facilitating client accessibility to the increasing range of services on offer, ship man-
agers may utilize marketing channels. The essential function of the marketing chan-
nel in a services perspective is to bring the service supplier and client closer to each
other [24]. Marketing channel configurations in ship management may take the form
of agency and partnership arrangements, and associations with other companies in
the shipping industry. Agents and associated companies can play an important role
in the flows of promotion and negotiation.
The promotional marketing mix component of a ship management company
mainly includes advertising, entry in maritime directories, production and distribu-
tion of promotional literature, public relations (PR), and aspects of personal selling.
It has been noted that there is no evidence to support that advertizing directly
generates enquiries in ship management [25]. In fact, there is evidence that consumer
attitude toward comparative advertizements of professional services is significantly
lower than consumer attitude toward all other types of advertizements [26].
Notwithstanding the above, advertising takes a significant sector of the ship man-
agement promotional mix in terms of monetary investment. The largest of ship
management companies advertize heavily in a number of widely circulated maritime
newspapers and periodicals like Lloyd's List, Lloyd's Ship Manager, Seatrade and
Fairplay International Shipping. It is also a fact that the bulk of advertizing is con-
centrated upon the offering of a quality service, followed by international coverage
and adequately trained personnel. Similarly, entry in maritime directories has
become usual practice for ship management firms. Directories such as Fairplay
World Shipping Directory, Lloyd's Maritime Directory, Lloyd's Register List of
Shipowners, and The Shipmanagers' Register are the ones where ship management
companies appear most often.
Another method of promotion used by ship management companies is that of
production and distribution of marketing literature (brochures). The contents
include description of the functions of the company and a basic departmental struc-
ture accompanied by colourful pictures of vessels under management, the company's
premises and staff. The brochures are distributed among prospective clients and
people that visit the company's premises.
 Marketing the professional ship management service 237

PR has been defined as any area of communication that reflects the public image
of a company [27]. Although all methods of the promotional mix may be perceived
to be embraced within the PR context, PR actually goes a step further than mere
advertising. PR involves methods of communicating the image of the company in a
more authoritative way by, for example, a speech in a conference or seminar, a press
release, or presentation of the company's activities in exhibitions and trade shows.
Ship management companies widely adopt such methods and representatives of the
companies often appear as speakers in conferences throughout the world. In this way
they appeal directly to an audience of prospective clients.
Promotion may also take the form of personal selling. The first step in personal
selling involves identification of prospective customers mainly through referral
sources, acquaintances, joining organizations to which prospective clients belong,
or during conferences and exhibitions. Based on these acquaintances, staff of the
ship management company may visit the premises of prospects that exhibited some
interest in the service and strengthen the prospective client's preference.
It has been recognized that service businesses are more difficult to manage using a
traditional marketing approach [28]. The marketing mix approach may also prove
insufficient in ensuring long-term relationships between ship management companies
and their clients. The academic literature suggests that marketing is nowadays mov-
ing away from the traditional approach of the marketing mix paradigm towards a
relationship approach [29,30]. Relationship marketing involves building bonds
between the service provider and its clients and, in a number of ways, tying the
clients to the particular service provider over the long term. As far as ship manage-
ment is concerned, it has been reported that relations with customers will become
increasingly important in the future [3 11.

3. A new paradigm in marketing theory

The emergence of the relationship concept in marketing stems from the fact that
marketing involves exchanges, and that the acquisition of new customers is much
more expensive than retention of existing customers [32]. In fact it may cost at least
six times as much [33]. Also, the returns from a short-term sale may be minimal or
even negative if equated with the cost of establishing contact and signing the first
contract. It is only when the customer keeps buying that the sought benefits will be
achieved. The distinct advantages accruing to relationship marketing has led some
scholars to accept that relationship marketing constitutes a paradigm shift in estab-
lished marketing theories [34,35]. The view of relationship marketing as a new mar-
keting paradigm also arises from the recognition that the traditional marketing mix
paradigm is too simplistic and far from satisfactory in today's marketing realities
[36]. The relationship paradigm is viewed as an alternative and a complement to the
marketing mix approach, which is more appropriate to discrete transactions or single
exchanges [37]. Since the provision of the ship management service does not involve
a single transaction, but on-going interactions and exchanges between the ship
management and shipowning entities, it seems that a relationshp approach may be
beneficial to professional ship management marketing [38].

4. Relationship approach to ship management

Independent ship management is a professional service available to shipowners. The
applicability of relationshp marketing to services and, hence, to ship management
stems from some unique characteristics of services. Services are intangible (in
238 P. M. Panayides and R. Gray

contrast to goods) and they are consumed at the moment they are produced [39].
These characteristics necessitate an awareness of the social and physical context of
the marketing exchange in order to deliver customer satisfaction [40]. The direct
outcome of an interactive and exchange process in marketing is the relational
approach [41]. Furthermore, relationships tend to develop during the period of
time when the customer interacts directly with the firm (the service encounter). An
understanding of the service encounter is critical for delivering customer satisfaction
[421.
Hence, an evaluation of the relationships formed during the service encounter is a
prerequisite for effective marketing. Service encounters in ship management are
characterized by an on-going nature where information exchange, financial trans-
actions and social interactions are always at a peak. Prior to any negotiations both
parties may mutually request information regarding the business practices of each
other. Thus, a shipowner may need to know the size and structure of the ship
management company, how many vessels are being managed and the probable
specialization of the ship manager in operating a specific ship type. Further, it
may request evidence of quality management certificates, bearing in mind the
trend towards the requirement for certification by shipowners [43]. The ship manager
will, in turn, need to have knowledge of the business track record of the owner and
the size, type, trading areas and probable charterers of the vessel(s). Further, the ship
manager may request details of ship classification, and survey and maintenance
reports, and may also request an independent survey prior to agreeing the terms
of the contract. After the initial information exchange, the perceived rewards from a
potential agreement will be assessed by each party. If the outcomes of those assess-
ments are satisfactory, the parties will decide to enter into a contractual agreement.
Of course more detailed information will be exchanged during the process of drafting
the ship management agreement which will involve bargaining and negotiations.
Once the parties have reached an agreement and the managers have assumed man-
agement responsibility, different types of information will be exchanged on a con-
tinuous basis. The ship management contracts usually specify that the managers will
occasionally have to furnish the owners with reports, budgets and other ship man-
agement related documentation.
However, the exchange of information is not limited to the contractual obliga-
tions as problems arising during the ship managment process will need mutual co-
operation. The ship managers offer a service and will require a reimbursement for
their endeavours. At this point the financial transactions come into play which may
involve account credits and furnishing of bank guarantees and related documenta-
tion. Social relationships also tend to develop in business interactions. Such relation-
ships may evolve due to the sociocultural and/or physical closeness of the parties as
well as through co-operation and trust that will develop over the long-term.
A lot of hard work has been done towards improving the ship management
service. For example, the majority of companies now operate in accordance with
high industry standards, hold quality certificates or are in the process of obtaining
such certificates. However, improving the service alone may not be the best market-
ing method in the increasingly competitive ship management environment. It has
been stated that increasingly competitive market places resulting in good products
and service alone are inadequate for a company to gain competitive advantage [44].
A point will be reached where ship management companies will need to differentiate
themselves in order to gain competitive advantage. It is at this point where
 Marketing the professional ship management service 239

marketing, and relationship marketing in particular, comes into play. Application of

relationship marketing will not only assist towards achieving differentiation but will
also ensure that clients are retained over the long-term. And customer retention is
the key to profitability and the future ship management viability.

5. Effective marketing of the ship management service

Some key proposals, based on relationship marketing, will be made towards the
effective marketing of the professional ship management service. This does not
suggest, however, that the marketing activities traditionally undertaken by ship
management companies should be abolished. The traditional activities should sup-
plement the core activities that will be described, and should form part of the client
attraction strategy. Nevertheless, it is proposed that the issues discussed herewith
should form the core of marketing in ship management. It is proposed that the centre
of marketing in ship management should be the establishment and maintenance of
client relationshps. Hence, concentration on the issues of relationship initiation,
establishment, management and maintenance is imperative.
The fundamental base of marketing is that it involves exchanges [45]. It has been
established that ship management itself involves continuous exchanges and trans-
actions between the ship manager and the shipowner. The concept of exchanges
forms the basis upon which relationships are built [46,47]. Marketing scholars
have used the antecedents of social exchange theories in order to explain the forma-
tion of interorganizational relationships that may be used to enhance marketing
management within the interacting firms. It is recognized that the buying and the
selling organizations initially come together because of the complementarity of their
needs [48], and because each organization depends upon the resources of the other
[49]. The outcomes of the initial interactions will be assessed by equating the per-
ceived rewards against the costs of establishing a relationship. If the outcomes are
satisfactory, then the parties will move closer together through the formation of
ties or 'bonds'. The stronger the bond formed, the stronger the link between the
organizations and the more viable the relationship.
The task of establishing client relationships in ship management involves devel-
opment and maintenance of bonds between the shipowning and ship managing
organizations. Bonds may take the form of economic investments that will ultimately
lead to interorganizational adaptations, or may be social in nature [50]. Economic
investments may involve the deployment of resources such as people, time, tech-
nology or business administration procedures or processes. For instance, if a ship
manager installs a specialized computer system to have'direct access to his client's
office and facilitate quick exchange of information, then he is making an investment
in the particular relationship. If the software program installed is of a specific nature
that meets the needs of the particular owner-client, then it may not be sufficient for
use outside the particular relationship. The installation of the system will lead to
reciprocal adaptations since personnel from both organizations must adapt to the
particular usage specifications of the software. This involves a human-capital invest-
ment, idiosyncratic in nature and, hence, non-marketable as it cannot be used out-
side the specific relationship [51]. Such irretrievable, transaction-specific investments
will lead the parties to reciprocal adaptations, facilitating further interactions and
locking the parties in a longer-term bilateral (or at least quasi-bilateral) exchange
relationship [52]. Although some of the adaptations between the firms may take
240 P. M . Panayides and R. Gray

place in the form of specific investments, to a large extent more adaptations occur
through continuous processes as a result of day-to-day experiences [53].
However, apart from economic investments, the establishment of long-term,
stable relationships with clients requires bonds of a social nature. These bonds are
a reflection of the ship manager's ability to deliver client satisfaction and convey
trust and commitment. It has been already stated that the parties will carry out a
cost-benefit analysis of their initial interactions prior to signing a relational contract.
If the outcomes are satisfactory then the relationship will develop. However, assess-
ments of the gains and costs of the relationship will not terminate but continue
throughout the duration of the contract. It follows that for the relationship to
continue and strengthen, the outcomes of the continuous assessments must deliver
satisfaction to both parties. A shipowner who is satisfied with the personal service,
level of service quality in ship operational matters, and the ship manager's co-
operation in administrative matters, is more likely to continue dealing with the
particular manager. On the other hand, a ship manager who is himself satisfied
with the client interactions (i.e. on-time payment of fees, co-operation, adaptability
of behaviour), will want the relationship with the particular client to continue.
Hence, satisfaction may establish source loyalty on the part of the shipowner.
Nevertheless, source loyalty may represent mere repeat purchase behaviour which
connotes lack of 'true' loyalty to the selling organization [54]. Stable relationships in
the services marketing area, connoting true loyalty, are built on the foundation of
mutual commitment [55]. Committment has been defined as an implicit or explicit
pledge of relationship continuity between exchange partners [56], or an enduring
desire to maintain a valued relationship [57]. Commitment is the most representative
variable of a long-term relationship in that it refers both to the stability of the
relationshp [58], as well as its quality and durability [59]. The ship manager's com-
mitment to the specific relationship through delivery of a personal service, interper-
sonal communication and client meetings of a social nature, will ensure the client's
commitment to the selling organization and provide the basis for a long, stable
business relationship. If commitment is the foundation of a stable business relation-
ship, trust is an essential part of it. Trust has been defined as the belief that a party's
word or promise is reliable and a party will fulfil his obligations in an exchange
relationship [60]. Perceived integrity, willingness to reduce uncertainty, confidenti-
ality, expertise, tactfulness, sincerity, congeniality and timeliness were the factors
found to be most strongly associated with trust [61]. The degree of trust a buyer
has for his supplier affects his behavioural attitudes towards that supplier [62]. Trust
between the ship manager and shipowner will begin to develop as soon as they
experience positive interactions and yield mutual benefits. Since trust constitutes a
major social bond [63], the accumulation of trust will tie the parties closer together,
resulting in a more stable, long-term relationship.
Service marketing in general, and the ship management service in particular, are
extremely complex. The complexity of service marketing requires not only external
marketing but also internal and interactive marketing [64]. Relationship marketing
itself also involves internal marketing. Internal marketing describes the work done
by the company to train and motivate all employees to serve the client well. It is
essential for ship management companies to train employees, who engage in frequent
interactions with the client's organization, of the value and ways of implementation
of the relationship marketing approach. Interactive marketing describes the
employees' skill in serving the client. The client will judge the quality of the service
 Marketing the professional ship management service 24 1

on two aspects. The technical quality (e.g. were the surveyors satisfied with the ship's
maintenance?) and the functional quality (e.g. did the ship manager show concern of
our business objectives?). Professional service suppliers must deliver 'high touch' as
well as 'high tech' [65]. Employees that interact with the shipowner's organization
most frequently should be at the forefront of providing a caring and personalized
service based on relationship marketing principles.
A very significant issue, largely underestimated in the ship managment business, is
that of the part-time marketer. Part-time marketers are people not directly involved
with day-to-day marketing activities in the organization, but highly influential in the
development of client relationships. Examples include the telephone operator con-
necting the client to the marketing manager, a receptionist welcoming the client to
the company's premises, an employee visiting the client's premises to present a report
on operational matters, or even a managing director having dinner with a client. All
these people have something in common. They can influence client relations, client
satisfaction, client perceived quality and revenue [66]. Training of part-time
marketers is, hence, of the essence. Relationship marketing does not only involve
activities undertaken by the marketing department or the professional marketers,
but by all people in the ship management organization. Developing a client-oriented
approach with a view to establishing client relationships requires the involvement of
people from the top to the bottom of the management hierarchy [67]. McKenna [68]
notes: 'Marketing today is not a function; it is a way of doing business.. .[it] has to be
all-pervasive, part of everyone's job description, from the receptionists to the board
of directors'.
However, the requirement for the involvement of all people in the organization
towards the establishment of client relationships necessitates a change in the formu-
lation of management strategy in ship management companies. The development of
a client-centred philosophy requires professional service firms to adopt strategic
planning 1691. Traditionally, marketing strategy formulation has been the function
of an isolated marketing department. If client relationships are to be established,
marketing decisions and marketing strategies should be taken and formulated
respectively, at the top of the management hierarchy. Pitt and Morris [70] conclude
that a point has been reached where marketing is moving from a transaction-based
activity to a corporate responsibility for establishing and managing relationships
with clients.

6. Conclusion
The concept of relationship marketing may prove to be essential for ship manage-
ment viability. Its applicability stems from the fact that ship management is not a
single transaction but a series of continuous interactions upon which stable, long-
term relationships can be built. It has been stated that shipowners entrust their
vessels to managers in order to be relieved of the pressures imposed from the external
environment [71]. The authors cannot fully agree with this statement, as it precludes
a single-transaction and excludes the notion of relationship formation. Day-to-day
ship management practice shows that owners tend to interact with the managers
regarding operational/administrative matters even after the contract is signed and
management responsibility has been assumed. Based on these interactions, managers
can build strong bonds with their clientele by adopting concepts of relationship
marketing. The bonds will actually enhance the future co-operation between the
parties and yield mutual benefits. Relationship marketing does not disregard the
242 P. M. Panayides and R. Gray

need for internal a n d strategic marketing either. N o r does it underestimate the

importance of client attraction, despite the fact that aggressive (and highly costly)
advertizing and other promotional activities may be ultimately reduced t o a
minimum, by ensuring client retention.
Relationship marketing may thus be characterized as total marketing. I t provides
for the ship management companies a n essential tool for encompassing a n overall
marketing activity that has, up t o now, been fundamentally underplayed. The ques-
tion facing professional ship management companies is not whether t o d o marketing,
but how to d o it effectively. As competition intensifies a n d the traditional marketing
approaches become less effective, the professional ship management companies must
not remain indifferent to relationship marketing.

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