BBMR4103 Relationship Marketing - Vapr20

BBMR4103
Relationship Marketing
Copyright © Open University Malaysia (OUM)

BBMR4103
RELATIONSHIP
MARKETING
Dr Che Amiza Che Wel
Dr Nor Asiah Omar

Project Directors: Prof Dr Widad Othman
Prof Dr Shamsul Nahar Abdullah
Open University Malaysia
Module Writers: Dr Che Amiza Che Wel

Dr Nor Asiah Omar Pro
Moderator: Dr Baderisang Mohamed

Multimedia University
Enhancer: Dr Chiew Wye Mei
Developed by: Centre for Instructional Design and Technology

Open University Malaysia
First Edition, August 2014

Second Edition, August 2015 (rs)
Third Edition, April 2020 (MREP)
Copyright © Open University Malaysia (OUM), April 2020, BBMR4103
All rights reserved. No part of this work may be reproduced in any form or by any means without
the written permission of the President, Open University Malaysia (OUM).

Table of Contents
Course Guide xi–xvi
Topic 1 Introduction to Relationship Marketing 1

1.1 What is Meant by Relationship? 2
1.1.1 Basics of Building a Relationship 2
1.1.2 Levels of Relationship Building 3
1.2 Definition of Relationship Marketing 4
1.3 The Rise of Relationship Marketing 5
1.4 Conditions that are Conducive to Relationship Marketing 7
1.4.1 Factors for Successful Relationship Marketing 8
1.4.2 Conducive Environment for Relationship Marketing 13
1.5 Interaction and Network Approaches to Marketing 16
1.6 Changes in the Marketing Environment 20
Summary 24
Key Terms 25
References 25
Topic 2 Characteristics of Relationship Marketing 29

2.1 Transactional Marketing versus Relationship Marketing 30
2.2 Characteristics of Relationship Marketing 31
2.3 The Relationship Marketing Continuum 33
2.3.1 Financial Stage 34
2.3.2 Social Interaction Stage 34
2.3.3 Interdependent Partnership Stage 34
2.4 Levels of Relationship Marketing 35
2.5 Benefits of Relationship Marketing 38
2.5.1 Types of Benefits 39
2.6 Disadvantages of Relationship Marketing 43
Summary 44
Key Terms 45
References 45

iv  TABLE OF CONTENTS
Topic 3 Drivers of Relationship Marketing 48

3.1 Satisfaction 49
3.1.1 Know Your Customer 49
3.1.2 Importance of Customer Satisfaction 50
3.2 Relationship Quality 52
3.3 Customer Value 54
3.3.1 Values that Customers Look For 54
3.3.2 Customer Value Chain (CVC) 55
3.3.3 Process of Relationship Development 56
3.4 Loyalty 59
3.4.1 Principles of Customer Loyalty 59
3.4.2 Benefits of Customer Loyalty 62
3.5 Commitment and Trust 64
3.5.1 Commitment 64
3.5.2 Trust 65
Summary 70
Key Terms 71
References 71
Topic 4 Planning a Relationship Marketing Programme 74

4.1 Relationship Marketing Planning 75
4.1.1 Marketing Planning 75
4.1.2 Steps in the Marketing Planning Process 77
4.2 Situational Analysis 79
4.2.1 Content of the Situational Analysis 80
4.2.2 Information Obtained from Situational Analysis 83
4.3 Assessing Relationship Strength 87
4.3.1 Definition of Relationship Strength 87
4.3.2 Measuring Relationship Strength 88
4.4 Assessing Customer Potential 89
4.4.1 Definition of Potential Customers 89
4.4.2 Identify Customers and Learn the Market 90
4.4.3 What Makes a Customer Attractive? 92
4.4.4 Customer Buying Behaviour 93
4.5 Company Audit 95
4.5.1 Origin of the Word „Audit‰ 95
4.5.2 Definition of Audit 95
4.5.3 Essential Features of Auditing 96
4.5.4 Ethical Audit 96
4.5.5 Social Audit 97
4.5.6 Classification of Audit 97

TABLE OF CONTENTS  v
4.6 Relationship Marketing Planning Objectives 100

4.6.1 Definition of Marketing Objectives 100
4.6.2 Relationship Marketing Planning Objectives 101
Summary 102
Key Terms 103
References 104
Topic 5 Implementing Relationship Marketing Programmes: 106

Strategy, Structure and System
5.1 Implementing Relationship Marketing Strategy 107
5.1.1 Types of Strategies 107
5.1.2 Strategy Frameworks and Components of 114
Successful Relationships
5.1.3 Tools in Relationship Marketing Strategy 117
5.2 Structure in Relationship Marketing 119
5.2.1 Dimensions of Organisational Structure 120
Implemented in Relationship Marketing
5.3 Implementing Relationship Marketing System 122
5.3.1 Decision-support System (DSS): System in 122
5.3.2 The Structure of Proposed Marketing DSS 124
Summary 126
Key Terms 127
References 127
Topic 6 Implementing Relationship Marketing Programmes – 130

Shared Value, Staff, Styles and Skills
6.1 Internal Marketing 131
6.1.1 Employees as Customers 131
6.1.2 Internal Marketing as a Change Management Tool 132
6.1.3 Internal Marketing as a Social Process 133
6.1.4 Internal Relationship Marketing as Knowledge 134
Renewal
6.1.5 Internal Marketing as Implementation Tool and 134
Business Philosophy
6.2 Shared Value and Culture 137
6.3 Staff and Internal Service Quality 141
6.3.1 Staff 142
6.3.2 Internal Service Quality 143
6.4 Style 149
6.5 Skills 152

vi  TABLE OF CONTENTS
Summary 155
Key Terms 156
References 157
Topic 7 Monitoring and Controlling Relationship 160

7.1 Approaches to Monitoring and Controlling 161
7.1.1 Hard versus Soft Monitoring and Controlling 161
Mechanisms
7.1.2 Performance versus Diagnostic Monitoring 162
7.1.3 The Balanced Scorecard Approach 162
7.2 Measures of Relationship Success 164
7.2.1 Relationship Facilitators 165
7.2.2 Relationship Features 168
7.2.3 Relationship Returns 169
7.3 Complaint Analysis and Handling 171
7.4 Controlling Service Quality 173
Summary 177
Key Terms 178
References 179
Topic 8 Ethical Considerations in Relationship Marketing 181

8.1 Ethics and Marketing 182
8.1.1 Criticisms of Marketing 183
8.1.2 Consumerism, Social Responsibility and Ethics 184
8.2 Approaches to Ethical Decision-making 186
8.2.1 Relativism 187
8.2.2 Utilitarianism 188
8.2.3 Universalism or Deontology 188
8.2.4 Justice Theory 189
8.2.5 Virtue Theory 190
8.3 Ethics and Relationship Marketing 192
8.3.1 Relationship Marketing and Ethical Issues in 192
Communication
8.3.2 Relationship Marketing and the Ethics of 194
Keeping Promises
8.3.3 Legal Implications of Unethical Relationship 195
Marketing
Summary 197
Key Terms 198
References 198

TABLE OF CONTENTS  vii
Topic 9 Key Account Management (KAM) 200

9.1 What is Key Account Management (KAM)? 201
9.2 Key Account Development Cycle 204
9.3 Identifying Key Accounts 206
9.4 Servicing Key Accounts: KAM Activities 210
9.5 Servicing Key Accounts: Developing a KAM Infrastructure 212
9.6 Relevance of KAM to Relationship Marketing 215
Summary 217
Key Terms 219
References 219
Topic 10 Customer Relationship Management (CRM) 221

10.1 Definitions of Customer Relationship Management (CRM) 222
10.2 Common Myths of CRM 223
10.3 CRM Tools and Customer Profiling 225
10.4 Strategic Approach to CRM 230
Summary 233
Key Terms 235
References 236

COURSE GUIDE

COURSE GUIDE  xi
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through the
course material. It also suggests the amount of time you are likely to spend in order
to complete the course successfully. Please keep on referring to Course Guide as
you go through the course material as it will help you to clarify important study
components or points that you might miss or overlook.
INTRODUCTION
BBMR4103 Relationship Marketing is one of the courses offered at Open
University Malaysia (OUM). This course is worth 3 credit hours and should be
covered over 8 to 15 weeks.
COURSE AUDIENCE
This course is offered to all learners of the Bachelor of Business Administration
(BBA) programme. This module aims to impart the relationship marketing
perspective especially for those majoring in Marketing. Learners should be able to
form a strong understanding on the importance to impart relationship marketing
views or perspectives in all marketing activities throughout the organisation.
As an open and distance learner, you should be acquainted with learning

independently and being able to optimise the learning modes and environment
available to you. Before you begin this course, please confirm the course material,
the course requirements and how the course is conducted.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.

xii  COURSE GUIDE
Table 1: Estimation of Time Accumulation of Study Hours
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 4
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 15
Revision 16
Assignment(s), test(s) and examination(s) 15
TOTAL STUDY HOURS ACCUMULATED 120
COURSE LEARNING OUTCOMES

By the end of this course, you should be able to:
1. Identify the characteristics and drivers of relationship marketing;
2. Describe the planning and assessment of relationship marketing

programmes using appropriate approaches;
3. Explain the implementation of relationship marketing programmes by

taking into consideration elements of strategy, structure, systems, shared
values, skills, style and staff;
4. Illustrate appropriate approaches and measures to control and monitor

relationship management;
5. Apply ethical considerations used by marketers in relationship management;

and
6. Discuss key account management (KAM) and customer relationship

management (CRM) as well as their relevance to relationship marketing.

COURSE GUIDE  xiii
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented as
follows:
Topic 1 begins with an introduction to relationship marketing, followed by factors

and influences towards relationship marketing. The role of relationship marketing,
the importance of interactions and network are also discussed.
Topic 2 examines the characteristics of relationship marketing and the three main
levels of relationship continuum, which will bring benefits to the company and the
customer.
Topic 3 discusses how the drivers of relationship marketing help to identify

customer satisfaction and the importance of relationship quality. We will discuss
the values that customers look for in products or services provided by the
company and the process of developing successful relationship marketing.
Topic 4 provides an important foundation for situational analysis by discussing

the importance of establishing internal and external audits. These activities
provide a structure for companies to utilise its unique strengths. The objectives of
relationship marketing planning are also explained.
Topic 5 addresses issues relating to the strategy, structure and systems involved
in implementing relationship marketing programmes in the company.
Topic 6 describes the concept of internal marketing and internal service quality in
relationship marketing. The level of training process and the sources of evaluating
a training programme are also covered in this topic.
Topic 7 explains the major approaches of monitoring and controlling relationship,

for example, the balance scorecard. Areas in measuring relationship success such
as relationship facilitators, relationship features and relationship returns are also
included. In addition, complaint analysis and service quality are also discussed in
this topic.
Topic 8 focuses on the concept of consumerism, social responsibility and ethics in

relationship marketing. The role of ethics and the approaches to ethical decision-
making are also explained at length in this topic.
Topic 9 describes key account management (KAM) and key account development
cycle, key decisions and activities, including criteria for key account selection. The
relevance of KAM to relationship marketing is also discussed.

xiv  COURSE GUIDE
Topic 10 deals with the criticisms, role and common myths of customer
relationship management (CRM). Aspects discussed include the role of CRM in
customer profiling and customisation. Factors to be considered for a successful
implementation of CRM strategy are also discussed in this topic.
TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:
Learning Outcomes: This section refers to what you should achieve after you have
completely covered a topic. As you go through each topic, you should frequently
refer to these learning outcomes. By doing this, you can continuously gauge your
understanding of the topic.
Self-Check: This component of the module is inserted at strategic locations

throughout the module. It may be inserted after one subtopic or a few subtopics.
It usually comes in the form of a question. When you come across this component,
try to reflect on what you have already learnt thus far. By attempting to answer
the question, you should be able to gauge how well you have understood the
subtopic(s). Most of the time, the answers to the questions can be found directly
from the module itself.
Activity: Like Self-Check, the Activity component is also placed at various

locations or junctures throughout the module. This component may require you to
solve questions, explore short case studies, or conduct an observation or research.
It may even require you to evaluate a given scenario. When you come across an
Activity, you should try to reflect on what you have gathered from the module
and apply it to real situations. You should, at the same time, engage yourself in
higher order thinking where you might be required to analyse, synthesise and
evaluate instead of only having to recall and define.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the Summary, you should be
able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.

COURSE GUIDE  xv
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
References: The References section is where a list of relevant and useful textbooks,
journals, articles, electronic contents or sources can be found. The list can appear
in a few locations such as in the Course Guide (at the References section), at the
end of every topic or at the back of the module. You are encouraged to read or
refer to the suggested sources to obtain the additional information needed and to
enhance your overall understanding of the course.
PRIOR KNOWLEDGE
Learners of this course are required to pass BBSG4103 Marketing Management and
Strategy course.
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
Ahmed, P. K., & Rafiq, M. (2002). Internal marketing: Tools and concepts for
customer-focused management. New York, NY: Butterworth-Heinemann.
Brown, S. A. (2000). Customer relationship management: A strategic imperative in

the world of e-business. New York, NY: Wiley.
Buttle, F. (2004). Customer relationship management: Concepts and tools. Oxford,

England: Elsevier Butterworth Heinemann.
Christopher, M., Payne, A., & Ballantyne, D. (1991). Relationship marketing:

Bringing quality, customer service and marketing together. Oxford,
England: Butterworth-Heinemann.
Grönroos, C. (1981). Internal marketing: An integral part of marketing theory.

Marketing of Services, 236–238.
Gronroos, C. (2000). Creating relationship dialogue: Communication, interaction

and value. The Marketing Review, 1(1), 5–15.

xvi  COURSE GUIDE
Gummersson, E. (2002). Total relationship marketing: Marketing management,

relationship strategy and CRM approaches for the network economy. Oxford,
England: Butterworth Heinemann.
Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of marketing.
Harlow, England: Pearson Education.
Kumar, V., & Reinartz, W. J. (2006). Customer relationship management: A

database approach. Hoboken, NJ: John Wiley and Sons.
Little, E., & Marandi, E. (2003). Relationship marketing management. London,

England: South-Western Cengage Learning.
Ojasalo, J. (2001). Key account management at company and individual levels in

business-to-business relationships. Journal of Business and Industrial
Marketing, 16(3), 199–218.
Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 12–40.
Rabb, G., Ajami, R. A., Gargeya, V. B., & Goddard, G. J (2008). Customer
relationship management: A global perspective. Hampshire, England:
Gower Publishing Limited.
Reichheld, F., Markey Jr, R., & Hopton, C (2000). The loyalty effect-the relationship
between loyalty and profits. European Business Journal, 12(3), 449–463.
Zikmund, W. G., McLeod, R. Jr., & Gilbert, F. W. (2002). Customer relation

management: Integrating marketing strategy and information technology.
Hoboken, NJ: Wiley.
TAN SRI DR ABDULLAH SANUSI (TSDAS)

DIGITAL LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for
the use of OUM learners. This comprehensive digital library, which is accessible
through the OUM portal, provides access to more than 30 online databases
comprising e-journals, e-theses, e-books and more. Examples of databases
available are EBSCOhost, ProQuest, SpringerLink, Books24×7, InfoSci Books,
Emerald Management Plus and Ebrary Electronic Books. As an OUM learner, you
are encouraged to make full use of the resources available through this library.

Topic  Introduction to
Relationship
1 Marketing
LEARNING OUTCOMES
By the end of this topic, you should be able to:

1. Define relationship and relationship marketing;
2. Describe the rise of relationship marketing;
3. Identify the conditions which are conducive to relationship
marketing;
4. Explain the interaction and network approaches to marketing; and
5. Discuss the changes in the marketing environment.
 INTRODUCTION
Do you have your favourite brand for certain products that you use? Why do you
kept coming back to a certain business or product? Of course, people do business
with those whom they know, like and trust.
Furthermore, companies want loyal customers rather than having to keep

attracting customersÊ attention for only one single purchase. With the increase of
service-based economies, intensified competition worldwide, aging population,
advertising saturation and the blooming of the digital age, businesses that connect
with their customers and provide added value will result in successful sales.
Customer loyalty would ensue if companies successfully build long-lasting and
mutually beneficial relationships with their customers.

2  TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING
This topic will introduce you to relationship marketing by defining relationship

and relationship marketing. A discussion on the rise of relationship marketing is
presented, followed by the conditions that encourage the thriving of relationship
marketing. Lastly, this topic will discuss the interaction and network approaches
to marketing as well as the changes in the marketing environment. So are you
ready to be a „marketer‰? Let us continue with the lesson!
1.1 WHAT IS MEANT BY RELATIONSHIP?

Did you know that any meaningful relationship between a customer and a
business enterprise begins with the expectation of mutual benefits? Through such
a relationship, the customer is expect to:
(a) Realise cost savings;
(b) Improve the efficiency of decision-making;
(c) Reduce risk by dealing with trustworthy companies, services and products;
(d) Acquire solutions that are tailored for specific needs and budgets; or
(e) Realise social and other value-added benefits such as simplifying the choice
process.
1.1.1 Basics of Building a Relationship

To build a good relationship between a corporation and its customers/suppliers,
both parties should be linked, trust each other, committed to work together
towards a win-win situation whereby both parties would be able to reap benefits.
Let us look at Figure 1.1 which shows you the assumptions that define the features
of corporate relationship building.
Figure 1.1: Four assumptions that define the features of corporate relationship building

TOPIC 1 INTRODUCTION TO RELATIONSHIP MARKETING  3
ACTIVITY 1.1
Does repeat purchase mean there is a relationship between a supplier

and a customer? Discuss this matter in the myINSPIRE forum.
1.1.2 Levels of Relationship Building

Did you know that the investment in customer relationship building consists of
five different levels? These levels are explained in Table 1.1.
Table 1.1: Five Levels of Customer Relationship
Level Description
Basic marketing The salesperson sells the product.
Reactive marketing The salesperson sells the product and encourages the
customer to call if he has questions, comments or complaints.
Accountable The salesperson calls the customer to check whether the
marketing product meets the expectations of the customer and asks for
any product or service improvement suggestions and specific
disappointments.
Proactive marketing The salesperson contacts the customer from time to time with
suggestions about improved product uses or new products.
Partnership The company works continuously with its customers to help
marketing improve their performance.
Source: Shajahan (2004)
Based on Table 1.1, there is no relationship building between the company and the
customer at the basic marketing level. At the reactive marketing level, the
company waits for the customerÊs reaction after purchasing the product or service.
At the accountable marketing level, the company bears responsibility for the
product or service provided. Companies that conduct proactive marketing would
always try to improve their products and services by getting their customersÊ
feedback as well as contacting the customers from time to time to offer information
about improved product or new product uses. Meanwhile, partnership marketing
is the highest level of relationship marketing. At this level, the company tries to
ensure that the customers and the company work together to achieve a state of
continuous benefit, whereby both the parties gain from the relationship.

SELF-CHECK 1.1
1. What are the assumptions that define the features of corporate

relationship building?
2. Describe five levels of customer relationship building.
ACTIVITY 1.2
Tenaga Nasional Berhad or TNB, is a Malaysian electricity company. It

is the only electric utility company in Peninsular Malaysia and the
largest public listed power company in Southeast Asia. TNB has taken
on the role of powering the nation and this forms the core of the
companyÊs corporate responsibility (CR) policy.
(a) Is it necessary for TNB to adopt relationship marketing?
(b) If yes, until which level of relationship has TNB reached thus far?
Discuss the questions in the myINSPIRE forum.
1.2 DEFINITION OF RELATIONSHIP

MARKETING
What does relationship marketing stand for? Let us look at Table 1.2 which lists
some of the definitions of relationship marketing.

Table 1.2: Definitions of Relationship Marketing
Source Definition
Berry (1983) Attracting, maintaining and in multi-service organisations,
enhancing customer relationships.
Berry and Attracting, developing and retaining customer relationships.
Parasuraman (1991)
Gronroos (1994) Relationship marketing identifies and establishes, maintains
and enhances relationships with customers and the
stakeholders or profit so that the objectives of all parties
involved are met. This is done by mutual exchange and
fulfilment of promises.
Sheth and Parvatiyar Relationship marketing involves and integrates customers,
(1995) suppliers and other infrastructural partners into a companyÊs
developmental and marketing activities.
Gummesson (1995; Relationship marketing is about interaction, network and
2008) relationship. It is based within the intricate system of business
and customer relationship. The quality of the interaction will
dominate the outcome of the companyÊs operation.
Sheth, Pavartiyar Relationship marketing is the ongoing process of engaging in
and Sinha (2015) collaborative activities and programmes with immediate and
end-user customers to create or enhance mutual economic,
social and psychological value, profitably.
SELF-CHECK 1.2
In your own words, define relationship marketing.
1.3 THE RISE OF RELATIONSHIP MARKETING

Changes in the concept and practice of business have been reshaping the
marketing discipline. Gruen (1995) and Gronroos (1989) suggested that the
business philosophy has shifted from production orientation to selling orientation,
to marketing orientation and subsequently to relationship marketing orientation.
Relationship marketing stresses that the traditional short-term transaction-based
exchange should be replaced with long-term relationship-based exchange (Sin et
al., 2005).

According to Christopher, Payne and Ballantyne (1991), marketing interest in the

1950s was primarily focused on consumer goods. In the 1960s, increased attention
was directed towards the industrial market. Considerable academic interest was
focused on the area of non-profit or social marketing in the 1970s. In the 1980s, the
attention shifted to the service sector, an area of marketing that has received
remarkable attention in view of its importance in the overall company. In the 1990s
and beyond, relationship marketing became an area of marketing that has received
increasing attention.
The emphasis has moved from transaction focus to relationship focus (Christopher
et al., 1991; Boone & Kurtz, 2006). Competitive advantage and market share
became its primary indicator of performance (Ambler, 2004). The changes in the
concept and practice of business are characterised in Table 1.3.
Table 1.3: Comparison between Transaction-based Marketing and Relationship

Marketing Strategies
Transaction-based
Characteristics Relationship Marketing
Marketing
Time orientation Short term Long term
Organisational goal Make a sale Emphasis on retaining
customers
Customer service Relatively low Key component
priority
Customer contact Low to moderate Frequent
Degree of customer Low High
commitment
Basis for seller-customer Conflict manipulation Cooperation and trust
interactions
Source of quality Primarily from Company-wide commitment
production
Source: Boone & Kurtz (2006)
Based on Table 1.3, we can see that relationship marketing, as opposed to

transactional marketing, is characterised as having a long-term orientation and the
focus is to retain customers. Frequent customer contact and customer commitment
are key components of customer service. Buyer-seller interaction is based on trust
and cooperation while company-wide commitment is the source of quality service.

SELF-CHECK 1.3
What is the difference between transactional marketing and relationship

marketing?
1.4 CONDITIONS THAT ARE CONDUCIVE TO

RELATIONSHIP MARKETING
Successful relationship marketing will evolve when there are win-win situations
for both customers and the organisation. In maximising the profit for an
organisation, the benefits of a relationship should end with customer satisfaction
while the organisation (service provider) should reduce the economic retention
cost at the same time.
Did you know that there are three conditions for the applicability of relationship
marketing? Berry (1983) has identified three conditions for the applicability of
relationship marketing and they are:
(a) The customer ought to show continuing and periodic desire for the service;
(b) The customer must be able to select the service provider; and
(c) There must be a choice of suppliers available to the customer.
These conditions facilitate the relationship building between customers and

service providers. High involvement services (such as banking, insurance, auto
repair and hairstyling services) have characteristics that encourage relationship
building. A relationshipÊs success depends on many factors. What are the factors?
Let us look at the following subtopic for the answers.

1.4.1 Factors for Successful Relationship Marketing

Generally, there are eight factors for successful relationship marketing (Hunt,
Arnett & Madhavaram, 2006). These factors are shown in Figure 1.2.
Figure 1.2: Eight factors accounting for successful relationship marketing

Source: Hunt, Arnett & Madhavaram (2006)
Let us discuss the factors one by one.
(a) Resource Factor

Alliance between two parties happens when the two parties pool their
resources together to achieve mutually compatible goals. Resources are any
tangible or intangible entity (such as physical assets and/or capabilities)
available for use by the organisation to compete in the marketplace (Morgan
& Hunt, 1994).
According to Lambe, Spekman and Hunt (2002), these resources can be

categorised as complementary resources and idiosyncratic resources (see
Figure 1.3).

Figure 1.3: Types of resources

Source: Lambe, Spekman & Hunt (2002)
Complementary resources are especially important to success. Partners with

complementary resources are compelled to overlook difficulties and focus on
strategic outcomes because they recognise that they can produce outcomes
together that are superior to those that either firm could produce separately.
In addition to the resources that partners bring to the relationship, some

relationships also develop new resources called idiosyncratic resources,
which represent a key mediating variable in the alliance. Marketers should
search for partners with complementary resources and diligently create
idiosyncratic resources.
(b) Competence Factor

What is competence?
Competence is the ability to sustain the coordinated deployment of

assets in a way that helps the organisation achieve its goal.
(Sanchez, Heene & Thomas, 1996)
Competence enables organisations to use their resources efficiently and

effectively. Furthermore, it is deeply rooted in action, commitment and
involvement. The development of an alliance competence requires
knowledge accessibility, facilitative mechanisms and effective
knowledge leveraging (Spekman, Isabella & MacAvoy, 2000). For
relationship marketing to be successful, marketers need to develop alliance
competences, refine their market relating capabilities and manage their
relationship portfolios well.

(c) Internal Marketing Factor

The organisation should identify the needs and wants of its employees. The
internal marketing orientation will raise the internal aspects of performances
such as employee commitment and satisfaction, which in turn positively
affect both the organisationÊs external marketing orientation and external
part of performances, i.e. customer satisfaction and profit (Hunt, Arnett, &
Madhavaram, 2006).
(d) Relational Factor

Although there are numerous factors associated with successful relational
exchanges, the six factors (Hunt et al., 2006) cited most often are as follows:
(i) Trust;
(ii) Commitment;
(iii) Cooperation;
(iv) Keeping promises;
(v) Shared values; and
(vi) Communication.
Without trust and commitment, there can be no alliance. They must often
cooperate to compete. Effective communication, shared values and
keeping promises generate inter organisational trust, which promotes
cooperation. Effective cooperation in turn allows partners to combine
their resources in ways that contribute to the development of competitive
advantages.
(e) Public Policy Factor

Public policy is the law that sets boundaries for all forms of exchange,
including relational exchange. Therefore, changes in rules and
regulations often have profound effects on inter organisational
relationships. Public policy affects property rights and contract laws
(Morgan & Hunt, 1994). For example, antitrust laws restrict cooperative
efforts.
Changing public policy is a very complex and skilful process. According to

Hunt et al. (2006), it involves the participation of many parties such as
businesses, interest groups and individuals who are competing and
collaborating to influence the policymakers to act in a certain way on a
variety of policies. The following are some of the possible ways to influence
the policymakers:

(i) Lobbying;
(ii) Advocating their positions publicly;
(iii) Attempting to educate supporters and opponents; and
(iv) Mobilising allies on a particular issue.
(f) Information Technology Factor

To make relationship marketing strategies a success, it is required that
organisations adopt the inter-organisational information system (electronic
data interchange or EDI) and creates an organisational process that is
conducive to knowledge use and sharing (Hunt et al., 2006). For example, to
foster supplier manufacturer relationships, the US automobile
manufacturers developed an extranet called the Automotive eXchange
Network (AXN), which links automobile manufacturers with several
thousand suppliers. The benefits of adopting successful inter-
organisational information systems include:
(i) Increases in both internal and inter-organisational efficiency;
(ii) Improvements in relationships among partners; and
(iii) Increases in inter organisational cooperation.
(g) Market Offering Factor

What is market offering?
A market offering is a distinct entity that is composed of a bundle of

attributes, which may be tangible (such as a laptop and its bag) or
intangible (such as a laptopÊs warranty and brand recognition), objective
or subjective and which may be viewed by some potential buyers as a
want satisfier.
(Hunt, 2000)
An organisationÊs market offering may become a valued resource for

other organisationsÊ strategies. When attributes of market offerings are
perceived by consumers to be closer to their ideal view of attributes, then
the offerings would be more valuable. Common attributes used by
consumers for comparison purposes include quality, innovativeness and
the degree in which the market offering can be customised to meet
individual needs.

(i) Quality
Higher levels of quality are associated with market offerings that are
perceived as follows:
• Better in meeting consumer needs and wants;
• More reliable;
• More durable; and
• More valuable.
(ii) Innovativeness
This refers to a market offeringÊs perceived (Henard & Szymanski,
2001):
• Newness;
• Originality;
• Uniqueness; and
• Radicalness.
Kleinschmidt and Cooper (1991) found that innovative market

offerings are more likely:
• To be successful and more profitable;
• To have higher domestic and foreign market shares;
• To open new windows of opportunities; and
• To meet sales and profit objectives.
(h) Historical Factor

Successful relationships require time to develop. Successful, long term
relationships have a history. As a result, historical factors can have a
significant impact on inter-organisational relationships. The identified
factors include opportunistic behaviour, build-up of high termination costs
and past relationship benefits (Morgan & Hunt, 1994). These identified
factors are explained in Table 1.4.

Table 1.4: Identified Historical Factors
Factor Description
Opportunistic This entails „deceit-orientated violation of implicit or explicit
behaviour promises about oneÊs appropriate or required role behaviour‰
(John, 1984). For example, a manufacturer may shift business
away from a long‐time supplier in a manner that violates the
established norms of the relationship. Such behaviour, if
revealed, may reduce the supplierÊs trust in the
manufacturer, which in turn, may affect future interactions
(such as price negotiations).
Termination These are expected losses from termination and a result of the
costs perceived lack of comparable potential partners, relationship
dissolution expenses and/or substantial switching costs
(Morgan & Hunt, 1994).
Relationship These are the benefits derived from shared, developed and
benefits leveraged resources (such as information, processes, and/or
competences) with other organisations and/or consumers.
Relationships characterised by high termination costs result
in the ongoing relationship being viewed as important,
which results in increased relationship commitment.
Therefore, marketers need to manage the interactions with all relationship

partners so that, through time, opportunistic behaviours are minimised,
benefits are equitably distributed and termination costs are monitored.
SELF-CHECK 1.4
What are the factors for successful relationship marketing?
1.4.2 Conducive Environment for Relationship

Marketing
Why does a relationship develop between a customer and an organisation? A
relationship develops between a customer and an organisation when there are
benefits to both from their exchanges. For a profit maximising organisation, the
benefits of relationship marketing with end users arise from the economics of
retention (Reichheld, 1996). For the customers, the benefits of a relationship with
the organisation include customisation and decreased cost due to the efficiencies
in dealing with known suppliers including lower search costs and risk reduction
(Sheth & Parvatiyar, 1995).
There are three types of environments that are conducive to successful relationship
marketing as shown in Figure 1.4.
Figure 1.4: Three environments that are conducive to successful relationship marketing
Let us discuss these environments in detail.
(a) Customisation
Relationship marketing in the mass market requires that the market
comprises different benefit segments that can potentially be served by
differentiated products. Customisation must be possible within the product
category for relationship to develop via people or technology (Bhattacharya
& Bolton, 2000). It is considered as a toll to build loyalty when mass-market
quality is no longer a sufficient differentiator (Gilmore & Pine, 1997).
Mass customisation is the ability to take standard components, elements or

modules and, through customer-specific combinations or configurations,
produce a tailored solution. In a manufacturing environment, the aim would
be to produce generic semi-finished products in volume to achieve
economies of scale, and then finish the product later to meet individual
customer requirements. An example is the Japanese National Bicycle
Company, which offers customers the opportunity to configure their own
bicycle from different style, colour, size and component options. Within two
weeks, the company delivers the tailored bike to the customer. The company
has become the market leader in Japan as a result of this marketing and
logistics innovation.
(b) Customer Intimacy

In the mass market, relationship marketing can facilitate customer intimacy
by invoking emotions in a variety of contexts. Broadcast media can create a
sense of identification or affiliation with the organisation. Organisational
procedures can influence customersÊ perceptions of the fairness of the
exchange relationship. In favourable situations, these circumstances can
invoke emotions such as happiness, pride and achievement.

On the other hand, in unfavourable situations, these same circumstances can

invoke emotions such as anger and frustration. Customers and employees in
organisations who engage in favourable relationships feel a sense of
„commitment‰ towards one another (Morgan & Hunt, 1994).
(c) Two-way Interactions

An exchange relationship between the organisation and the customer
requires (direct) two-way interactions. The two-way interactions can also
reduce the propensity for customers to switch to new suppliers. This is
because customers need to invest in educating their suppliers about their
needs and to start all over again with a new supplier (Hart, 1996). Let us look
at Table 1.5 which describes two-way interactions in different settings.
Table 1.5: Two-way Interactions in Different Settings
Two-way Interactions Description

In service organisations The customer frequently interacts with the organisation
when he encounters service employees such as the
salesperson, customer service representative or service
provider.
In manufacturing The customer interacts with the organisation by mail, toll-
organisations free telephone numbers, sweepstakes and contests, e-mail
addresses and the World Wide Web.
SELF-CHECK 1.5
What are the conducive environments that contribute to the success of

relationship marketing?

ACTIVITY 1.3
Malayan Banking Berhad (Maybank) is Southeast AsiaÊs fourth largest

bank in terms of assets. ItÊs headquarter is in Kuala Lumpur and it is
MalaysiaÊs largest company in terms of market capitalisation. The
Maybank Group has a global network of over 2,200 offices in 20
countries, including all 10 ASEAN countries. Maybank chose Microsoft
Dynamics CRMÊs Extended CRM with the xRM Framework to provide
the core database functionality required to track vendors and customers
entering into procurement and property contracts with Maybank. The
fully digitised and fully automated solution has eliminated lost
contracts, accelerated initial processing, enabled consolidated reporting,
increased bargaining power through better information availability and
assured rapid, ready disaster recovery. The project has even resulted in
Maybank being awarded the Asian BankerÊs „Best Reporting and
Compliance Implementation‰ award for its use of Microsoft Dynamics
CRM.
(Source: Amended from Stokes, 2014)
In the myINSPIRE forum, discuss the impact of the adoption of the

above-mentioned chosen software for MaybankÊs relationship
marketing.
1.5 INTERACTION AND NETWORK

APPROACHES TO MARKETING
The role of communication is different in the research of business relationships
and networks from that of traditional marketing (Rami, Henrikki & Kimmo, 2000).
The interaction and network approaches are very close to each other and increase
significantly with the increasing global market value and the expanding of new
information and communication technologies.
We will discuss the four relationship marketing approaches introduced by Kotler

(1992), Morgan and Hunt (1994), Payne (1995) and Gummesson (1997). A summary
of the four approaches to relationship marketing are given in Table 1.6.

Table 1.6: Four Approaches to Relationship Marketing
Source Categories Subcategories

Kotler (1992) 10 players • Immediate environment (4)
• Macro-environment (6)
Morgan and Hunt 10 partnerships • Buyer partnership
(1994) • Lateral partnership
• Supplier partnership
• Internal partnership
Payne (1995) 6 markets • Customer markets
• Supportive markets
Gummesson (1997) 30 relationships • Market relationships:
– Classic
– Special
• Non-market relationships:
– Mega-relationship
– Nano-relationship
The four approaches to relationship marketing are further described as follows:
(a) Kotler (1992)

Kotler mentioned that a firmÊs success in relationship marketing depends on
10 critical players. They are:
(i) Suppliers;
(ii) Distributors;
(iii) End users;
(iv) Employees;
(v) Financial firms;
(vi) Government;
(vii) Media;
(viii) Allies;
(ix) Competitors; and
(x) General public.

(b) Morgan and Hunt (1994)

Morgan and Hunt discovered 10 forms of relationship marketing
approaches, which can be identified within four types of partnerships. These
partnerships are supplier partnerships, lateral partnerships, internal
partnerships and buyer partnerships (refer to Table 1.7).
Table 1.7: Four Types of Partnerships
Type of Partnership Relationship

Supplier partnership • Goods supplier
• Service supplier
Lateral partnership • Competitors
• Non-profit organisations
• Government
Internal partnership • Business units
• Employees
• Functional departments
Buyer partnership • Intermediate customers
• Ultimate customers
Source: Morgan & Hunt (1994)
(c) Payne (1995)

Payne (1995) introduced six markets stakeholders in relationship marketing.
The original models of the six markets are explained in Table 1.8.
Table 1.8: The Six Markets in Relationship Marketing Activity
Market Stakeholders
Consumer markets • Customer markets in the business-to-business sector
Internal markets • Employees
Supplier and • Business partners
alliance markets • Suppliers
• Consultants
• Contractors
Influencer markets • Venture capitalists
• Regulators
• Lobbyists
• Litigators

Referral markets • Customers advocates

• Intermediaries
• Business advisors
Recruitment • Employment agencies
markets • Graduates
• Potential employees
Source: Payne (1995)
(d) Gummesson (1997)

According to Gummesson, there are about 30 types of relationship marketing
which fall under four categories (refer to Table 1.9).
Table 1.9: Four Categories of Relationship Marketing
Categories Description
Classic market 1. The classic dyad: The relationship between the
relationships supplier and the customer.
2. The classic triad: The drama of the customer-supplier-
competitor triangle.
3. The classic network: The distribution channel.
Special market 4. Relationships via full-time marketers (FTMs) and
relationships part-time marketers (PTMs).
5. The service encounter-interaction between customers
and service providers.
6. The many-headed customer and the many-headed
supplier.
7. The relationship to the customerÊs customer.
8. The close versus distant relationship.
9. The relationship to the dissatisfied customer.
10. The monopoly relationship – the customer or supplier
as prisoner.
11. The customer as a „member‰.
12. The e-relationship.
13. Pre-social relationships: Relationship to brand and
objects.
14. The non-commercial relationship.
15. The green relationship.
16. The law-based relationship.
17. The criminal network.

Mega-relationships 18. Personal and social networks.

19. Mega-marketing where the „real customer‰ is not
always found in the marketplace.
20. Alliances, which change the market mechanisms.
21. The knowledge of the relationship.
22. The alliances, which change the basic conditions for
marketing.
23. The mass media relationship.
Nano-relationships 24. Market mechanisms, which are brought into the
company.
25. Internal customer relationships.
26. Quality providing a relationship between operations
management and marketing.
27. Internal marketing.
28. The two-dimensional matrix relationship.
29. The relationship to external providers of marketing
services.
30. The owner and financier relationship.
Source: Gummesson (1997)
1.6 CHANGES IN THE MARKETING

ENVIRONMENT
Did you know that the marketing environment is influenced by six forces? What
are these six forces? Let us look at Figure 1.5 for the answer.
Figure 1.5: Six forces of marketing environment

The management of an organisation needs to have a very strategic plan in order

for the organisation to survive through the environmental forces, which are either
fluctuating rapidly or slowly and are dynamic. Any changes within the marketing
environment will create uncertainties, threats and opportunities for marketers. In
order to monitor the changes in the marketing environment effectively, marketers
need to engage in environmental scanning and analysis (see Figure 1.6).
Figure 1.6: Two methods of monitoring marketing environments
Now, let us discuss the six forces in greater detail.
(a) Competitive Forces

A marketer generally defines competition as other firms that market
products that are similar or can be substituted for its products in the same
geographic area. These competitors can be classified into any one of the four
types of competition forces shown in Figure 1.7.
Figure 1.7: Four types of competition forces

Source: Pride & Ferrell (2010)

There are four types of competitor structures, namely monopoly, oligopoly,

monopolistic and pure competition (refer to Table 1.10).
Table 1.10: Four Types of Competitor Structures
Structure Definition
Monopoly A competitive structure in which an organisation offers a
product that has no close substitutes, making that
organisation the sole source of supply.
Oligopoly A competitive structure in which a few sellers control the
supply of a large proportion of a product.
Monopolistic A competitive structure in which a firm has many potential
competitors and tries to develop a marketing strategy to
differentiate its product.
Pure A market structure characterised by an extremely large
competition number of sellers, not strong enough to significantly influence
price or supply.
Source: Möller (2006)
(b) Economic Forces

One of the environmental forces is the nature of our economy. Entrepreneurs
must recognise the activities at the macroeconomic level of the economy such
as the economic growth, the determination of the rate of consumer spending
and the like. At the microeconomic level, entrepreneurs must determine if
the consumer has the ability to buy products or services (Pride & Ferrell,
2010).
(c) Social-cultural Forces

Social forces include the characteristics of the population as well as its values
and its behaviour. Some entrepreneurs have launched businesses to appeal
to specific ethnic groups, particularly ethnic food businesses.
Another social force is culture. In recent years, many countries have

experienced notable cultural changes that have influenced consumer
attitudes and values. For example, with more working women, the time
available to perform household tasks is shrinking. This has led to the
phenomenon of time poverty. Entrepreneurs are responding to this trend by
creating business ventures that will help alleviate or reduce consumersÊ time
poverty by providing delivery services, online shopping and ready-to-eat
foods (Pride & Ferrell, 2010).

(d) Technological Forces

New technologies are forever changing the way consumers shop and what
they buy. Moreover, new technologies are enabling entrepreneurs to create
unique new businesses or enhance how they can conduct their businesses.
One of the most important technologies that have changed the marketing
landscape is the Internet.
The Internet has also given rise to a host of new businesses built upon the
concept of electronic social networks or communities such as Myspace,
Instagram and Facebook as well as electronic trading businesses such as eBay
(Pride & Ferrell, 2010).
(e) Legal and Regulatory Forces

Federal laws influence marketing decisions and activities. Regulatory
agencies and self-regulatory forces also affect marketing efforts (Pride &
Ferrell, 2010).
(f) Political Forces

Political forces have the potential to influence marketing decisions and
strategies. At the macro-level, government policies can directly affect the
industry. A change of government often leads to new policies. The most
obvious and important policy for many industries is the government policy
in relation to funding support (Pride & Ferrell, 2010).
SELF-CHECK 1.6
1. Why is the environmental scanning and analysis process very

important for business development?
2. What are the four types of competitive forces that affect an

organisation? In your opinion, which is the most important type of
competitive force? Elaborate your answer.
3. Explain how the social-cultural environment influences marketing.
4. Discuss the impact of the technological environment on an

organisationÊs activities.
5. State an example of a possible effect on business due to a change in

government.

ACTIVITY 1.4
Sime Darby Berhad (SDB) is a Malaysian trading conglomerate. Its core

businesses operate in and serve the industrial, plantation, vehicle and
logistics sectors as well as healthcare, insurance and retail segments. SDB
contributes to Yayasan Sime Darby (YSD) to support its efforts towards
community development in Malaysia. In turn, YSD offers scholarships
to outstanding and deserving individuals and funds impactful
conservation, community outreach and development programmes.
Discuss in the myINSPIRE forum the kind of environment that is being

created and its impact towards SDB.
• Any meaningful relationship between a customer and a business enterprise

begins with the expectation of mutual benefits. Through such a relationship,
the customer expects to enjoy cost savings, improve the efficiency of decision-
making, reduce risk by dealing with trustworthy companies, products and
services, and others.
• There are many definitions of relationship marketing. One of the definitions

states that relationship marketing is attracting, maintaining and in multi-
service organisations, enhancing customer relationships.
• Several factors play crucial roles in the rise of relationship marketing. Among
them are strategies that enhance the breadth of the products or services,
changes in customer behaviour over time and increasing the value of products
or services by the manufacturers and service providers.
• Three conducive environments to relationship marketing are customisation,

customer intimacy and two-way interactions.

• There are four relationship marketing approaches which are introduced by

Kotler (1992), Morgan and Hunt (1994), Payne (1995) and Gummesson (1997).
• The marketing environment includes competitive, economic, social-cultural,

technological, legal and regulatory, and political forces.
• Environmental scanning is the process of collecting information about forces

in the marketing environment while environmental analysis is the process of
assessing and interpreting information that has been obtained from the
scanning process.
Competence factor Market offering factor

Customer intimacy Public policy factor
Customisation Relational factor
Environmental analysis Relationship marketing
Environmental scanning Resource factor
Historical factor Transactional-based marketing
Information technology factor Two-way interactions
Internal marketing factor
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crm-30060

Topic  Characteristics
of Relationship
2 Marketing
LEARNING OUTCOMES

1. Contrast transactional marketing with relationship marketing;
2. Identify the characteristics of relationship marketing;
3. Describe the three levels of relationship continuum and relationship
marketing;
4. Identify the benefits of relationship marketing; and
5. Recognise the disadvantages of conducting relationship marketing.
 INTRODUCTION
Marketing revolves around relationships with customers and with all the business
processes involved in identifying and satisfying customers. Relationship
marketing was first defined by Berry (1983) as attracting, maintaining and in multi-
service organisations, enhancing customer relationships. The aim of relationship
marketing is to build a long-term mutually satisfying relationship with customers,
suppliers and distributors in the hope of earning and retaining their long-term
preference and business (Kotler, 2000).
In other words, relationship marketing is the development, growth and

maintenance of cost-effective, high-value relationships with individual customers,
suppliers, distributors, retailers and other partners for mutual benefit over time
(Boone & Kurtz, 2013). The shift from transaction-based marketing, which focuses
on short-term, one-time exchanges to customer-focused relationship marketing is
one of the most important trends in marketing today.

30  TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING
This topic will look at the differences between transactional marketing and
relationship marketing, the characteristics of relationship marketing, the three
levels of relationship continuum and relationship marketing, the benefits of
relationship marketing as well as the disadvantages of conducting relationship
marketing. Happy reading!
2.1 TRANSACTIONAL MARKETING VERSUS

RELATIONSHIP MARKETING
Transactional marketing and relationship marketing approaches have different
objectives and scopes. Generally, transactional marketing concentrates on getting
new customers from time to time. On the other hand, relationship marketing
works on developing an ever-improving relationship between the organisation
and the customer, in addition to having new prospects (Musadiq, 2008).
Let us look at Table 2.1 which explains the differences between transactional
marketing and relationship marketing.
Table 2.1: Differences between Transactional Marketing and Relationship Marketing
Transactional Marketing Relationship Marketing

• Focuses on a single sale. • Focuses on a series of independent
transactions.
• Aims to catch the customer. • Aims to keep the customer.
• Little emphasis on customer service. • High emphasis on customer service.
• Mass market broadcast. • Dialogue and tailored communication.
• Limited customer commitment. • High customer commitment.
• Moderate customer contact • High customer contact (interaction
(interaction between an organisation between an organisation and the
and the customer for a limited time customer for a longer period).
period).
• Business is defined by its products. • Business is defined by its customer
relationship.
Source: Musadiq (2008)

TOPIC 2 CHARACTERISTICS OF RELATIONSHIP MARKETING  31
As a conclusion, relationship management can be described as a management tool

to build and develop long-term relationship between a seller and a buyer that are
beneficial for both parties. It is about cooperation and on-going exchanges between
the buyer and the seller. This ongoing collaborative exchange creates value for
both parties and builds customer loyalty.
In addition, relationship management highlights the importance of customers; it

makes them feel special (Buttle, 1998) and in turn they might become advocates
for the seller. An organisation that displays the characteristics of relationship
marketing is forward thinking and puts customers at the centre of its thought
process.
SELF-CHECK 2.1
State the differences between transactional marketing and relationship

marketing.
2.2 CHARACTERISTICS OF RELATIONSHIP

MARKETING
The relationship characteristics describe the development of a relationship over
time. So what are the characteristics of relationship marketing? Let us look at
Figure 2.1 for the answer.
Figure 2.1: Three characteristics of relationship marketing

Let us delve further into the characteristics of relationship marketing (see

Table 2.2).
Table 2.2: Characteristics of Relationship Marketing
Characteristic Description
Duration of the Length refers to the duration of a relationship where the early
relationship (length) stages of a relationship are characterised by high uncertainty
and low customer experience. In this phase of the relationship,
the specific investments are low and the mutuality between the
parties has not greatly evolved.
As the relationship progresses over time, the following

happens:
(a) Trust develops between the parties;
(b) Customers gain experience in using the products and
services;
(c) Familiarity and interdependencies between the parties
grow; and
(d) Psychological attachment increases.
Service usage Service usage provides customers with a better knowledge of
(depth) the company and the process needed to use the services
satisfactorily.
Cross-buying Breadth of a relationship is reflected in the number of
behaviour (breadth) additional products or services purchased from a company
over time. Buying additional products or services from the
company provides customers with better knowledge of the
company, which leads to more accurate expectations and less
uncertainty as well as increases the number of points where the
customer and vendor connect.
SELF-CHECK 2.2
Explain three characteristics of relationship marketing.

ACTIVITY 2.1
With the characteristics of relationship marketing in mind, can you list a

few companies that carry out relationship marketing? Share you answer
for comparison purpose in the myINSPIRE forum.
2.3 THE RELATIONSHIP MARKETING

CONTINUUM
Did you know that the buyer-seller relationship functions at a variety of levels?
The three levels of relationship marketing continuum are financial stage, social
interaction and interdependent partnership. As individual or organisation
progresses from the lowest to the highest level on the relationship marketing
continuum, the strength of commitment between the parties grows. Marketers
want to move their customers along this continuum, converting them from the
financial stage to the structural stage. Let us look at Table 2.3 which summarises
the levels of relationship marketing continuum.
Table 2.3: Three Levels of Relationship Marketing Continuum
First Level: Second Level: Third Level:

Focus on Price Social Interactions Independent Partnership
• Very superficial • Interactions develop on • Relationships are
interactions and least a social level. transformed into
likely to lead to long- • Sellers have begun to structural changes that
term relationships. learn that social ensure buyer and seller
• Marketers use financial relationship with are true business
incentives to motivate buyers can be a very partners.
customers to enter into useful marketing tools. • Buyers and sellers build
buying relationships. • Customer service and dependence on each
communication is key. other and continue to
grow over time.
Source: Boone & Kurtz (2013)
The three levels of relationship marketing continuum are further explained in the
following subtopics.

2.3.1 Financial Stage

Interactions at this stage of relationship marketing are the most superficial and the
least likely to lead to a long-term relationship. The relationship marketing efforts
rely on pricing and other financial incentives to motivate customers to enter into
buying relationships with the seller. For example, fast-food chains use value and
menu promotion offerings to attract indecisive customers. This lower price
method makes the product attractive.
Although this method can be attractive to users or buyers, it may not create long-
term buyer relationships. Since the programmes are not customised to the needs
of individual buyers, they are easily duplicated by competitors (Boone & Kurtz,
2013).
2.3.2 Social Interaction Stage

When buyers and sellers reach this stage in the relationship marketing, their
interactions are developed based on a social level, that is, one that features deeper and
less superficial links than the financially motivated exchange. Sellers have begun to
learn that social relationship with buyers can be considered as a very effective
marketing tool. As stated earlier, customer service and communication are the key
factors at this stage.
Social interaction can take many forms as seen in the following examples:
(a) The owner of a local shoe store might chat with customers about local events;
(b) The service department of an auto dealership might contact customers after
providing services to check if the customers are satisfied or have any
questions; and
(c) The investment firm might send holiday cards to all customers.
Marketers are beginning to see the potential for more precise targeting through the
use of social networking (Boone & Kurtz, 2013).
2.3.3 Interdependent Partnership Stage

At the structural level of relationship marketing, the relationships are transformed
into structural changes that ensure buyers and sellers are true business partners.
As buyers and sellers work more closely together, they develop interdependency
and continue to grow over time (Boone & Kurtz, 2013).

SELF-CHECK 2.3
1. Identify the three levels of marketing relationship continuum.
2. Which level is the most complicated? Why?
ACTIVITY 2.2
Should a company attempt to have a relationship with all its customers?

Why? Discuss this matter in the myINSPIRE forum.
2.4 LEVELS OF RELATIONSHIP MARKETING

Let us look at the levels of relationship marketing in detail. Relationship marketing
can be practised at multiple levels depending on the types of bonds used to foster
customer loyalty (Berry, 1995). Business organisations can build customer
relationships by initiating one of these three bonds of relationships ranging from
financial, social and structural bonds (refer to Table 2.4).
Table 2.4: Three Levels of Relationship Marketing
Characteristic Level One Level Two Level Three

Primary bond Financial Social Structural
Degree of Low Medium Medium to high
customisation
Potential for sustained Low Moderate High
competitive advantage
Example American Harley- Federal ExpressÊ
AirlineÊs DavidsonÊs Harley Powership
Advantage Owners Group Programme
Programme (HOG)
Source: Berry (1995)

The following are further explanations for the three levels of relationship
marketing:
(a) Level One: Financial Bond

Financial incentives are one of the tools that can be offered by businesses to
enhance customer relationships. AirlinesÊ frequent flyer programmes are
examples of level one relationship marketing. If businesses only rely on
pricing to secure customer relationships, that means they only reach level
one of relationship marketing. There is no necessity for companies to
customised relationship according to customers.
Previous research shows that one of the motivation factors for customers to
engage in relational exchanges is to save money (Berry, 1995; Gwinner,
Gremler & Bitner, 1998). Customers who are prone to financial incentives
would normally be more vulnerable to competitorsÊ promotions and offers.
This level of relationship marketing is the least effective in the long term
because its price-based advantage is easily imitated by other competitors. As
such, financial incentives offer the lowest potential for sustainable
competitive advantage.
(b) Level Two: Social Bond or Interaction

When buyers and sellers reach level two of relationship marketing, their
interactions are said to be developed based on social level. Social bonding
involves personalisation and moderate customisation of the relationship. For
example, communicating with customers regularly through multiple means,
referring to customers by name during transactions, providing continuity of
service through the same representative and augmenting the core service
with educational or entertainment activities such as seminars or parties
(Berry, 1995). In another example, customers receive emotional rewards such
as easy recognition and greeting on special dates. Poh Kong, a jewellery
company, gives away birthday cards and discount coupons for its customers
to redeem on their birthdays.
Although social bonding is not a substitute for having a strong, up-to-date

core service (Crosby & Stephens, 1987), it can build customer loyalty when
competitive differences are not significant.
(c) Level Three: Structural Bond or Independent Partnership

At level three of relationship marketing, the relationship is transformed into
structural changes that will ensure buyers and sellers becoming true business
partners. As buyers and sellers work more closely together, they develop an
interdependency that continues to grow over time (Boone & Kurtz, 2006).

A strong foundation for maintaining and enhancing relationships is built

when the relationship marketer „offers target customer value-adding
benefits that are difficult or expensive for business to provide and that are
not readily available elsewhere‰ (Berry, 1995). For example, PetSmart (in the
US) offers a huge selection of pet supplies as well as services such as dog
training, grooming, boarding and veterinary care. These offerings help build
customer loyalty.
Another example, Maths Clinic tuition centre in Klang Valley offers not only
a reasonable price for its students but also provides them with transportation
services and free motivational sessions. Marketing programmes like this give
the organisation a strong potential for sustaining long-term relationships and
attracting more customers.
However, level three of relationship marketing is more suitable for business-

to-business relationships since it requires huge investments. Business-to-
business (B2B) marketing includes an organisationÊs purchase of goods
and services to support company operations or the production of other
products. Buyer–seller relationships between companies involve working
together to provide advantages that will benefit both parties.
What are the advantages? The advantages might include:
(i) Lower price for supplies;
(ii) Quicker delivery of inventory;
(iii) Improved quality and reliability;
(iv) Customised product features; and
(v) More favourable financing terms. Partnerships form the basis of

relationship marketing.
A partnership is an affiliation of two or more companies that help each other

achieve common goals. Partnerships cover a wide spectrum of relationships
from informal cooperative purchasing arrangements to formal production
and marketing agreements. Partnership motives include:
(i) Sharing resources;
(ii) Reducing costs;
(iii) Warding off threats of future competition;

(iv) Raising or creating barriers to entry; and
(v) Learning new skills.
SELF-CHECK 2.4
Describe the three levels of relationship marketing. Provide suitable

examples.
ACTIVITY 2.3
Create a plan for a car wash business to attract customers at level one of
the relationship marketing continuum. Then, move the customers to
level two based on social interactions. Lastly, move the customers to the
highest level (level three) with interdependent partnership. Compare
your plan by posting it on the myINSPIRE forum.
2.5 BENEFITS OF RELATIONSHIP MARKETING

Did you know that most businesses spend more money acquiring new customers
than keeping existing customers? This is a big mistake because of the following
reasons:
(a) It typically costs five times as much to acquire new customers than to retain
a current one (Peppers & Rogers, 1993). Therefore, a companyÊs effort in
acquiring and keeping customers must be distributed accordingly.
(b) It is proven that if a company retains just five per cent more of its customers,
profits will increase by 25 to 125 per cent. This is because loyal customers are
less likely to switch and make more purchases than non-loyal customers
(Reichheld, 1996). This is a strong case which supports organisations that
develop and use customer retention strategies to retain current customers.
(c) It is more effective to retain a customer than to acquire a new one; it is easier
and less costly to sell more products to one regular customer than to sell the
same amount to two new customers. In other words, it is easier to persuade
the existing customer than to persuade new customers. This is due to the
reason that current customers are normally more confident towards the
company compared to new customers.
(d) Happy customers would recommend stores, products or services to their

friends. Word-of-mouth communication among customers has been at the
heart of relationship marketing. One research reported that each satisfied
customer tells nine or 10 people about their happy experience while 13 per
cent of dissatisfied customers tell more than 20 people about how bad the
company or products were (Sonnenberg, 1994).
(e) It is also believed that relationship marketing is beneficial to companies

because it can foster customer loyalty and patronage behaviour. Because of
psychological comfort of purchasing from a similar company, customers
who are engaged in relational exchanges are more satisfied compared to
those in discrete transactions. Priluck (2003) has proven that relationship
marketing can also mitigate product or service failures. The good
relationship that the company has with the customers makes their customers
more forgiving of the companyÊs small mistakes or failures.
(f) Loyal customers are barriers to competitorsÊ market entry and/or market
share gain.
2.5.1 Types of Benefits

In this subtopic, we will discuss the various types of relational benefits. But before
that, what does relational benefit mean?
Relational benefits are defined as benefits that customers received from long-
term relationships above and beyond the core service performance.
(Gwinner, Gremler & Bitner, 1998)
For example, customerÊs anxiety is reduced as opposed to on-time package

delivery.
Specifically, these benefits result from engaging in long-term relational exchanges

with service companies and can be categorised into three distinct types of
relational benefits as shown in Figure 2.2.

Figure 2.2: Three distinct types of relational benefits
The three benefits are further explained as follows:
(a) Confidence Benefits

Confidence benefits are about customers having confidence and trust
regarding the quality of services that their service providers give (Morgan
& Hunt, 1994). Customers perceive a reduction in anxiety and an increase in
the comfort of knowing what to expect from service encounters (Gwinner et
al., 1998). Customers who perceive high confidence benefits are likely to have
a feeling of security and comfort in developing a relationship (Gwinner et al.,
1998), thus reducing anxiety and increasing confidence in the service
providerÊs ability to deliver on its promises. There are three confidence
benefits as shown in Figure 2.3.
Figure 2.3: Three confidence benefits

Source: Hennig-Thurau et al. (2002)
(b) Social Benefits

What are social benefits? Gwinner et al. (1998) defined social benefits as the
benefits that customers receive from the emotional aspects of the relationship
such as personal recognition, familiarity and friendship.

Since customer-employee interactions are central to the customerÊs

perception of quality in services (Reynolds & Beatty, 1999), it is
understandable that social benefits are important considerations to the
customer-provider relationship. The social benefits are listed in Figure 2.4.
Figure 2.4: Three social benefits

Source: Bitner (1995)
(c) Special Treatment Benefits

Special treatment benefits are the most tangible benefits that customers
receive from service companies. Special treatment benefits pertain to benefits
such as price breaks, faster service or individual service for customers with
an established relationship (Gwinner et al., 1998). It is about customers
getting economic (Peterson, 1995) and non-economic benefits (Soellner,
1994) due to their long-term relationship with the company.
For example, special treatment benefits may take the form of customisation
such as tailored service. Customers forego relationships with other service
providers with the expectation of receiving special treatment when needed
(Gwinner et al., 1998).
The customers also feel compelled to reciprocate, which fosters the

relationship commitment. In other words, customers with perceived special
treatment benefits from a company will experience the feel-good emotions
and/or will raise their cognitive switching barriers, and will ultimately be
more committed to the company (Gwinner et al., 1998).

As a conclusion, Gwinner et al. (1998) found that confidence benefits are received
and rated by customers as more important than the other relational benefits. This
is followed by social and special treatment benefits, respectively. These relational
benefits are part of customer relationship and are of particular interest to service
providers. This is because they provide evaluative criteria for consumers to
evaluate aspects of the service encounter such as providing trust, commitment and
reliability. The benefits are the key drivers that motivate both companies and
customers to interact with each other. Thinking about a new purchase, a buyer
evaluates all possible benefits that he may obtain. The same thing happens at the
sellerÊs end, where the benefits perspective dominates the decision-making
process (Hennig-Thurau et al., 2002).
SELF-CHECK 2.5
What benefits does relationship marketing provide to the customer?
ACTIVITY 2.4
The Numi Tea was started by a brother-sister team, Ahmed and Reem
Rahim. Every member of the TeaÊm, as they call it, is committed to the
companyÊs core values of sustainability, creativity and
quality organics. This extends to their corporate customers and their
producers as well. Like their teas, every relationship is carefully
cultivated and maintained. „We focus on sampling versus the traditional
marketing methods such as print or TV advertising because for us the
conversion happens when people taste Numi Tea. Aware that most of
their best marketing is done on a friend-to-friend basis, Numi started a
Tea Champions programme. Numi sends thank-you packages to fans
and provides them with free tea and educational literature on their
fair-trade producers and health benefits of natural and organic
teas so that they can share with their friends. Numi Tea is also committed
to sustainability, organic farming and events in their local community.
(Source: Boone & Kurtz, 2010)
Do you consider NumiÊs relationship with its producers as important to

their marketing as the relationship with its customers? Discuss this
matter in the myINSPIRE forum.

2.6 DISADVANTAGES OF RELATIONSHIP

MARKETING
Before we end this topic, let us find out the disadvantages of engaging in
relationship marketing. There are five possible disadvantages of engaging in
relationship marketing, which are explained in Table 2.5.
Table 2.5: Disadvantages of Engaging in Relationship Marketing
Disadvantage Description
Loss of control Developing a relationship inevitably results in some loss of
control over matters such as resources, activities and intentions.
Indeterminateness A relationship is subject to continuous change with an uncertain
future, which is in part determined by its history but also by
current events and the partiesÊ expectations of future events.
Resource Effort is required to build and maintain a relationship that can
demanding be viewed as an investment and a maintenance cost.
Preclusion from There is always a need to prioritise the use of limited resources;
other opportunities hence, it may not be possible to pursue all of the individually
attractive opportunities. Additionally, some relationships may
be irreconcilable with an existing relationship.
Unexpected Given that the two parties in a relationship will also have other
demands relationships, establishing a relationship means being linked, if
only passively, to a network of relationships. Such linkage or
membership of a network may bring with it obligations or
expectations by others of specific behaviours.
Source: Belois (1998)
SELF-CHECK 2.6
Elaborate the five possible disadvantages of relationship marketing.

• Transactional marketing and relationship marketing approaches have

different objectives and scopes.
• Generally, transactional marketing concentrates on getting new customers

from time to time while relationship marketing works on developing an ever-
improving relationship within the organisation and the customer, in addition
to having new prospects.
• Relationship marketing can increase the market share by attracting more new
customers, conducting more business with existing customers and reducing
the loss of customers.
• Relationship marketing allows for customisation which results in increasing

customersÊ commitment and satisfying their needs and wants better. There are
three types of relational benefits, namely:
– Confidence benefits;
– Social benefits; and
– Special treatment benefits.
• The characteristic of relationship marketing is based on the length, depth and

breadth of the time.
• The three levels in relationship continuum are:
– Financial stage;
– Social interactions stage; and
– Interdependent partnership stage.
• There are three levels of relationship marketing, which are:
– Level one: Financial bond;
– Level two: Social bond or interaction; and
– Level three: Structural bond or independent partnership.

• The five disadvantages in relationship marketing are:
– Loss of control;
– Indeterminateness;
– Resource demanding;
– Preclusion from other opportunities; and
– Unexpected demands.
Confidence benefits Resource demanding

Cross-buying behaviour (breadth) Service usage (depth)
Duration of the relationship (length) Social benefits
Financial bond Social bond or interaction
Financial stage Social interaction stage
Indeterminateness Special treatment benefits
Interdependent partnership stage Structural bond or independent
partnership
Loss of control
Transactional marketing
Preclusion from other opportunities
Unexpected demands
Relationship marketing
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Industrial Marketing, 13(3), 256–270.
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G. D. (Eds.), Emerging perspectives on services marketing (pp. 25–28).
Chicago, IL: American Marketing Association.

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emerging perspectives. Journal of the Academy of Marketing Science, 23(4),
236–245.
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of The Academy of Marketing Science, 23, 246–51.
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South-Western.
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(15th ed.). Cincinnati OH: South-Western College Publisher.
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marketing. Journal of Strategic Marketing, 6(3), 241–254.
Crosby, L. A., & Stephens, N. (1987). Effects of relationship marketing and

satisfaction, retention, and prices in the life insurance industry. Journal of
Marketing Research, 24(4), 404–411.
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industries: The customerÊs perspective. Journal of the Academy of Marketing
Science, 26(2), 101–114.
Hennig-Thurau, T., Gwinner, K. P., & Gremler, D. D. (2002). Understanding

relationship marketing outcomes: An integration of relational benefits and
relationship quality. Journal of Service Research, 4(3), 230–247.
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Prentice Hall.

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advantage. New Delhi, India: Prentice-Hall of India.
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customer at a time. New York, NY: Currency Doubleday.
Peterson, R. A. (1995). Relationship

marketing and the consumer.
Journal of the Academy of Marketing Science, 23(Fall), 278–281.

Priluck, R. (2003). Relationship marketing can mitigate product and service

failures. Journal of Services Marketing, 17(1), 37–52.
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consequences of customer-salesperson relationships in retailing. Journal of
Retailing, 75(1), 11–32.

Topic  Drivers of
Relationship
3 Marketing
LEARNING OUTCOMES

1. Identify the factors of customer satisfaction;
2. Explain the importance of relationship quality;
3. Describe the values that customers look for;
4. Explain the principle of loyalty; and
5. Discuss the importance of commitment and trust.
 INTRODUCTION
It is noted that the relationship marketing plays a very important role in the
success of a business strategy. The drivers of relationship marketing include
customer satisfaction, loyalty, trust and commitment to ensure the success of oneÊs
business.
Satisfaction, trust and commitment are three essential aspects of relationship

marketing (Wulf, Odekerken-Schröder & Iacobucci, 2001). Sometimes dissatisfied
customers might leave the brand if they believe they can get better value,
convenience or quality elsewhere (Egan, 2000). Satisfaction is only a proxy for
loyalty (Bennett & Rundle-Thiele, 2004) but it is still an important factor (Grönroos,
2000). Satisfaction is also needed to generate customer loyalty, trust and
commitment.

TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING  49
Therefore, this third topic will focus on the factors of customer satisfaction, the
importance of relationship quality, the values that customers look for, the principle
of loyalty and the importance of commitment and trust. So, let us continue with
the lesson!
3.1 SATISFACTION
What is satisfaction? Customers describe satisfaction in many ways. In fact,
customers can achieve satisfaction through the following:
(a) High value of the customer service;
(b) Value on the availability of the grocery items;
(c) Speed of Internet; or
(d) Size and design of the latest fashion that suit them.
According to Oliver (2015), satisfaction can best be described as the customerÊs

fulfilment response, where the judgement of a product or service feature, or the
product or service itself, provides (or is providing) a pleasurable level of
consumption-related fulfilment, including levels of under or over-fulfilment.
Each and everyone in the service industry (including retailing) needs to focus on
customer satisfaction as it is a very significant investment for the organisation.
Satisfaction also needs to be achieved in order to stay in business. How can this be
done? This can be done by:
(a) Gathering information from customers;
(b) Communicating with staff within the organisation; and
(c) Conducting marketing surveys.
3.1.1 Know Your Customer

Who is a customer?
A customer is a person who buys a product or obtains the service from an

organisation.

50  TOPIC 3 DRIVERS OF RELATIONSHIP MARKETING
That person can be categorised as either an internal or external customer. The idea
of internal customers suggests that every employee is both a supplier and a
customer to other employees within the organisation, who will need to establish a
good working relationship in order to provide product or service of good quality
to the organisationÊs external customers. Table 3.1 provides some examples of the
various types of focal groups and their respective internal customers.
Table 3.1: Examples of Types of Focal Groups and their Respective Internal and
External Customers
Type of Focal
Internal Customers External Customers
Group
School principal Teachers, clerks and parents Students
Cafe owner Management staff, cooks, waiters Customers of the cafe
and cashiers
Attorneys in law Secretaries, law and accounting Clients of law firms
firms clerks
Sports complex Senior management, accounting, Customers renting and using
maintenance, publicity and the facilities of the sports
grounds staff complex
Source: Gilbert (2004)
As for external customers, they are those whom we address as customers. They
are referred to as external customers because they are not involved in producing
the products or providing the services; they are merely the people who enjoy using
the products or services. Ultimately, they bring in all the gross revenues that keep
the company going.
3.1.2 Importance of Customer Satisfaction

Obtaining both the internal and external customer satisfaction may bring many
benefits to the organisation. Customer satisfaction is important as it is the key
indicator of future customer behaviour. Furthermore, it gives an indication of
company performance.
The satisfaction of internal customers such as workers of the organisation is vital

to the organisation. The organisation is responsible to gain internal customer
satisfaction by increasing employee commitment, resulting in increased job
satisfaction and performance. This in turn will reduce staff turnover. Satisfied
workers will ensure that the best quality of product or service will be delivered to

the external customers. According to the service profit chain, the following
elements highlighted in Figure 3.1 occur in a company when its internal customers
are satisfied.
Figure 3.1: The service profit chain

Source: Loveman (1998)
This logic seems indisputable – when everybody is happy, the company will do
well. Let us look at Table 3.2 which describes the satisfaction factors and the
elements in a supermarket.
Table 3.2: Satisfaction Factors and the Elements (Specific Attributes) in a Supermarket
Satisfaction Factor Elements (Specific Attributes)

Customer service • Friendliness of cashiers
• Services provided
• Speed of service
• Overall store service
• Accuracy of scanning prices at checkout counters
• Cleanliness of parking lots
Quality • Variety in produce department
• Quality in produce department
• Overall cleanliness in the store
• Variety of fresh meat items
• Quality of fresh meat items
• Availability of everyday grocery items
Value • Overall value for customer money
• Overall prices as compared to competition
• Prices of loyalty card specials
• Availability of loyalty card specials
• Variety of advertised loyalty card items
Source: Gomez, McLaughlin & Wittink (2004)

SELF-CHECK 3.1
1. Define customer.
2. Explain the service profit chain.
3. What are the factors of customer satisfaction?
ACTIVITY 3.1
In the myINSPIRE forum, discuss the following questions:
(a) Explain how companies can enhance customer satisfaction and

how it is measured.
(b) Some firms obtain customer feedback through means such as toll-
free phone numbers and websites. How effective are these
methods in improving customer satisfaction?
3.2 RELATIONSHIP QUALITY

Are you aware that quality represents the benefits that a customer derives from a
transaction? However, these benefits come at a cost to that customer. Benefits must
outweigh the costs so as to derive satisfaction. Thus, companies that provide the
greatest quality in return for the least cost will create the greatest satisfaction.
So what does relationship quality mean?
Relationship quality is defined as the overall assessment of the strength of a

relationship and the extent in which it meets the needs and expectations of the
parties based on a history of successful or unsuccessful encounters or events.
(Smith, 1998)

The quality of the relationship between the salesperson and the customer will
determine the probability of continued interchange between both parties in the
future (Crosby, Evans & Cowles, 1990). To deliver a good quality product, the
provider must constantly refer to the customer in order to know the criteria against
which the product quality will be judged.
There are five dimensions of quality based on Little and Marandi (2003)Ês findings
(see Figure 3.2).
Figure 3.2: Five dimensions of relationship quality

Source: Little & Marandi (2003)
In addition, Seider and Berry (1998) suggested that service fairness (which is a
customerÊs perception of the degree of justice in a service firmÊs behaviour) needs
to be included as the sixth dimension. This is because unfair service is likely to be
judged as substandard quality and customersÊ sensitivity to fairness increases with
purchase risk and customer vulnerability.
SELF-CHECK 3.2
Explain the six dimensions of relationship quality.

3.3 CUSTOMER VALUE

For a start, what does value mean?
Value can be defined as the balance between cost and quality.
According to Zeithaml (1988), value is the consumerÊs overall assessment of the

utility of a product based on a perception of what is received (quality) and what is
given (cost). Customer values are the advantages and benefits that a customer
gains from a product or service before and after making a purchase. Customer
value also means to have a continuous business relationship that outperforms
customer expectation. The value that has been established by a company will
differentiate itself from its competitors.
Companies need to understand the areas that will help them to increase the value
of their product or service to fulfil current market needs. How do companies
provide better quality product or service to their customers? The following are
some strategies to guide companies in providing better quality products or
services to the customers:
(a) Understand the demands of customers;
(b) Identify customer segments;
(c) Improve the quality of services and products;
(d) Strengthen the communication with customers;
(e) Build customer loyalty; and
(f) Develop strong customer relationship.
3.3.1 Values that Customers Look For

There are many factors, which influence a customerÊs decision to buy a product.
Certain values are very important in order to satisfy customersÊ needs and wants.
Research shows that the factors in Table 3.3 collectively influence a consumerÊs
decision to buy a durable product. Those factors may be termed as „values‰ that a
customer looks for (Saxena, 2009).

Table 3.3: Factors Influencing a ConsumerÊs Decision to Buy Products
Factors Description Example

Personal The demographics and lifestyle of A student may buy a simple
the customer are personal factors microwave oven to heat up food, while
that influence the customer to buy a housewife may need a microwave
a product. oven that can cook food in a shorter
time.
Esteem One of the significant factors in Luxury products or premium priced
the purchase of a product or products are often bought to enhance
service is its status value. the status of the buyer.
Utility Different target markets attach Younger customers may perceive
different utility values for the staying in continuous contact with
same product. friends as the major purpose of
purchasing a mobile phone whereas
senior customers may perceive a
mobile phoneÊs primary utility as a
means of communication only during
an emergency.
Social The customersÊ social needs A good neighbourhood or community
sometimes drive them to buy the is an important social value in the
product when the primary value purchase of an apartment or a house.
a product serves is social value.
Price An important value in the Moderate prices and product quality
purchase of a product is reflected draw customers to a big bazaar, while
in its price tag. the value of exclusivity attached to
premium priced products draws
customers to designer showrooms.
Emotional The customersÊ mental or When using a smartphone, the
psychological needs towards customers can send interesting
products or services drive them to pictures or jokes.
purchase the product.
Source: Saxena (2009)
3.3.2 Customer Value Chain (CVC)

All customers follow a series of steps when acquiring goods and services. For
example, if you want to purchase a fridge, you will visit a retailer, compare
options, test the product (if possible), choose a make and model, pay for it, secure
delivery, use it and eventually dispose of it. This is referred to as the customer
chain of activities.

A customer value chain (CVC) is a business concept that represents the

creation of value for the customer.
Large, established businesses try to do facilitate all the buying activities for their
customers. If you visit Walmart (a big retailer in the US), they fulfil all your
activities. The same goes for retailers in Malaysia such as HomePro, Mr DIY,
Harvey Norman and Courts Mammoth, just to name a few.
CVC puts the emphasis on steps taken by producers or retailers to retain existing
customers. They include design, production, marketing and distribution, in other
words, what businesses go through in order to bring the product or service from
conception to delivery to the customers. The CVC has been described as a
customerÊs activity cycle, relationship management chain and as a constellation of
values, which the customer buys. It involves taking care of the following elements
shown in Figure 3.3.
Figure 3.3: Customer value chain (CVC)

Source: Saxena (2009)
3.3.3 Process of Relationship Development

Since relationship marketing calls for developing, maintaining and enhancing
relationship between a marketer and his customers, therefore, the relationship
development process involves several stages as depicted in Figure 3.4.
Figure 3.4: Five stages in relationship development

Source: Dwyer, Schurr & Oh (1987)

Now, let us discuss the stages in a relationship development one by one (see
Table 3.4).
Table 3.4: Five Stages in Relationship Development
Stage Description
Awareness stage Customers become aware of local merchants and brands

advertised in frequently viewed media but there is no actual
interaction. A customer identifies which product or service suits his
needs. However, there is no formal pre-awareness stage in which the
party is unaware of the need to initiate the search for a relationship.
Exploration This is the search and trial phase whereby the customer explores the
stage possibility of testing and initiating trial purchases. Exploration stage
enables each party to gauge and test the goal compatibility,
integrity and performance of the other. At this stage, both parties
show some commitment to build a successful relationship by
initiating communication. The communication that takes place will
be used as a medium to convey issues, wants, needs and priority
needs; whilst the effort in showing commitment might provide the
momentum to bring the relationship to the next level. This stage is
also to initiate the acceptance of the parties to establish a stronger
bond between them (Musadiq, 2008).
Expansion stage Expansion refers to the continual increase in benefits obtained by the
exchange partners and to their increasing interdependence. This
stage helps the parties to understand each other through extended
interactions. This stage provides an opportunity to an organisation,
not only to understand the customer needs and expectations better,
but also to identify the means and ways to meet the growing
demands. The expansion stage calls for more commitment and effort
of the parties for a long-term relationship (Musadiq, 2008). The cost
of withdrawing from the relationship increases, as does the level of
trust and joint satisfaction. At the end of this stage, there is an
„implicit or explicit pledge of relational continuity between
exchange partners‰ (Broch, Maniscalco & Brinberg, 2003).

Commitment Commitment refers to an implicit or explicit pledge of relational

stage continuity between exchange partners. Both parties feel a sense of
responsibility to help each other in attaining their goals from the
relationship. This stage in fact reveals not only the contribution of
each party to a relationship, but also the degree of effort they have
put in to encourage future interactions (Musadiq, 2008).
The relationship at this stage is characterised by a greater range of

resources that are considered fungible/interchangeable (such as
material resources, status, emotional expression, services), durable
(remains functional over a period of time and environmental
uncertainty) and consistent (such as expectation of similar responses
over time and context) (Broch, Maniscalco & Brinberg, 2003).
This pressure to adjust rather than dissolve a relationship is fuelled

by the ongoing benefits accrued to each partner. These benefits
include the certainty from mutually anticipated roles and goals, the
efficiency stemming from the improvement in bargaining and the
confidence in exchange effectiveness that comes from trust.
Dissolution The possibility of disengaging of the parties from the relationship is

stage considered a normal phenomenon. The dissolution of the
relationship occurs if the desired outcome discussed for each stage is
not attained by the parties. The scenario happens if there is a loss of
commitment in the relationship by any party due to their own
reasons (Musadiq, 2008).
SELF-CHECK 3.3
1. What are the strategies to guide organisations in providing better

quality products or services to their customers?
2. State the factors that influence a consumerÊs decision to buy

products considered of value.
3. Name the four elements of the customer value chain.
4. Describe the five stages in relationship development.

3.4 LOYALTY
Now, let us move on to loyalty. What does customer loyalty mean?
Customer loyalty is defined as a buyerÊs deeply held commitment to stick to a

product, service, brand or organisation consistently in the future, despite new
situations or competitive overtures to induce the switching process.
(Oliver, 1999)
Getting customers to return to the product or service is the most crucial part in
every business. No business can achieve success by continually dealing with new
customers. Repeat customers are the source of profit that allows a business to grow
and prosper. Figure 3.5 provides some examples of statements indicating customer
loyalty.
Figure 3.5: Examples of statements indicating customer loyalty
3.4.1 Principles of Customer Loyalty

Customers should be happy and feel satisfied with the transaction, relationship,
products or services of a company in order for them to become loyal customers.
Customer loyalty generates income. There has been general acceptance that
customers who are loyal will improve an organisationÊs profits and strengthen its
competitive position (Day, 2000 as cited in Baines & Fill, 2014) because competitors
must work harder to dislodge or destabilise their loyalty.
Did you know that there are five principles that will create customer loyalty? The
principles are shown in Figure 3.6.

Figure 3.6: Five principles of customer loyalty

Source: Lawfer (2004)
Let us discuss the principles of customer loyalty one by one.
(a) People Do Business with Other People

It is important to know that customers share the mutual feeling of doing
business with people whom they like and with those who like them. In order
to become the customerÊs choice, we need to take the following steps listed
in Figure 3.7.
Figure 3.7: Steps to become the customerÊs choice

(b) Differentiation
A customerÊs selection from different products or suppliers is based on
product differentiation. The differentiations can highlight the unique
features of the products. Other attributes such as the payment term, the
service given and the function of the product can create a level of difference.
This can attract customersÊ attention, making the product the preferred one.
(c) Value and Assurance

The value of the product or service provides the true benefits to the customer,
for example, the extended warranty, better price and better service. Besides
adding value, customers should also be given the assurance of quality. The
only incentive the customers receive from purchasing on a repeat basis is the
assurance that they will consistently receive products with good value.
(d) Effective Communication

Did you know that communication is the largest single factor that determines
the relationship between you and your customers? This includes simple acts
like greeting customers with a smile or sending greeting cards on their
birthdays and special occasions.
(e) Focus
To create loyal customers and achieve customer retention, we need to focus
on customersÊ wants and needs. The customer satisfaction survey or the
customer loyalty programme will help companies to get to know their
customers better.
SELF-CHECK 3.4
1. State the five principles of customer loyalty.
2. What are the steps that companies need to take in order to become
the preferred customer choice?

ACTIVITY 3.2
What can you interpret from these words?
Source: Brooks (2010)
Discuss this quote in the myINSPIRE forum.
3.4.2 Benefits of Customer Loyalty

What are the benefits of loyal customers? Generally, the benefits of loyal customers
are similar for every business. Figure 3.8 lists the answer.
Figure 3.8: Benefits of loyal customer

Source: Lawfer (2004)
According to Zins (2001), behavioural, attitudinal and composite measurements

have generally been accepted as measurements of loyalty. Let us look at Table 3.5
which describes the three types of loyalty measurements.

Table 3.5: Types Of Loyalty Measurements
Measurement Description
Behavioural Behavioural measurements primarily focus on the customerÊs
measurements purchase history recency, frequency and monetary value.
Attitudinal Attitudinal measurements have the elements that underlie the
measurements purchasing motives and future actions where it will reflect the
emotional and the psychological attachment inherent in loyalty.
Composite Composite measurements are a combination of behavioural and
measurements attitudinal measurements.
Source: Zins (2001)
SELF-CHECK 3.5
1. What are the benefits of loyal customer?
2. How do we measure customer loyalty?
ACTIVITY 3.3

(a) Volvo, which started a long-term comprehensive relationship
marketing programme, had previously considered satisfied
customers to be loyal. At that time, Volvo discovered that there
was considerable leakage. In the Volvo relationship marketing
programme, steps were taken actively to provide incentives for
satisfied customers so that they will remain loyal. How do factors
of trust, satisfaction and loyalty influence each other?
(b) A customer loyalty programme is a rewards programme offered
by a company to customers who frequently make purchases. A
loyalty programme may give a customer free merchandise,
rewards, coupons or even released products in advance. What do
companies like Maybank2u, Petronas and Mydin do to retain their
customers?
(c) One of the leading software companies is thinking of designing a
customer loyalty programme based on coupon redemption.
Design a programme for the company. Share your programme for
comparison.

3.5 COMMITMENT AND TRUST

Commitment and trust are central to a successful relationship. When these two
elements are present, they produce outcomes that promote efficiency, productivity
and effectiveness (Brink & Berndt, 2008).
3.5.1 Commitment
Do you know the meaning of commitment? Do you think Figure 3.9 correctly
depicts commitment?
Figure 3.9: A cartoon sketch on commitment

Source: https://icscicomm.wordpress.com/2014/03/27/the-science-of-love/
Now, we will discuss the definition of commitment.
Commitment is an enduring desire to maintain a valued relationship.

(Morgan & Hunt, 1994)
Commitment involves loyalty, dependability and stability in a relationship.

Commitment is considered to be an important element in a successful relationship
marketing practice (Morgan & Hunt, 1994).
In addition, commitment is typically associated with notions of solidarity and

cohesion. Organisations that engender commitment in their employees exhibit
lower levels of employee turnover (John & Natalie, 1991).
There are three distinct components of commitment as shown in Figure 3.10.

Figure 3.10: Three components of commitment

Source: Bansal, Irving & Taylor (2004)
3.5.2 Trust
In your opinion, what is the meaning of trust in relationship marketing? Do you
think Figure 3.11 illustrates trust accurately?
Figure 3.11: A cartoon sketch on trust

Source: miriam-english.org
Now, let us look at the definition of trust according to Morgan and Hunt (1994).
Trust exists when one party has confidence in an exchange partnerÊs reliability
and integrity.
(Morgan & Hunt, 1994)

Another definition from Brink and Berndt (2008) states that:
Trust is the willingness to rely on an exchange partner in whom one has

confidence.
(Brink & Berndt, 2008)
It is the generalised expectancy held by an individual that the word of another

person can be relied upon. Relationship built on trust expects:
(a) Consistency;
(b) Competence;
(c) Honesty;
(d) Fairness;
(e) Responsibility;
(f) Helpfulness; and
(g) Benevolence.
Trust shows that the customers believe more in the organisationÊs capability in
meeting their demands and expectations as compared to the competitors.
Therefore, the organisation must provide the market offering and fulfil the
promises made to the customer.
How do we achieve trust? In order to achieve trust, an organisationÊs strategy

must:
(a) Be able to communicate effectively;
(b) Adopt the customerÊs relationship norms; and
(c) Avoid negative reputation.
According to Dalrymple and Cron (1995), there are a few organisational attributes
associated with achieving customersÊ trust by (see Figure 3.12).

Figure 3.12: Five attributes to achieve trust

Source: Dalrymple & Cron (1995)
Meanwhile, let us look at Figure 3.13 which illustrates the model of commitment
and trust.
Figure 3.13: Commitment and trust model

Source: Morgan & Hunt (1994)

As a conclusion, trust facilitates commitment to a relationship because

commitment creates a sense of vulnerability but this risk is reduced with trust. One
exchange partner will accept a lower immediate return with the expectation that
his exchange partner will allow him a larger future benefit.
SELF-CHECK 3.6
1. What is commitment? State its three components.
2. Define trust. What are the attributes to achieve trust?
ACTIVITY 3.4
(a) What are the main elements used to characterise inter-

organisational trust? Find the answer through online search.
(b) There may be high costs associated with customer retention as

some customers are far less attractive than others while some are
barely profitable. Should such relationship be retained?
(c) Suppose you work for a company that sells home appliances such
as refrigerators, microwave ovens and washing machines. Your
company has been slowly losing customers but no one seems to
know why. Employee morale is sliding as well. You believe that
the company is run by honest, dedicated employees who want to
please the customers. One day, you overheard an employee quietly
advising a potential customer to shop at another store. You realised
your companyÊs biggest problem may be the lack of employee
satisfaction, which is leading to external customer loss. What steps
do you think your employer could take to turn the situation
around?

(d) When Microsoft recently unveiled its own search engine, Bing,
sceptics said it would have a tough time making inroads due to
GoogleÊs dominance of the search industry where revenue is
generated by advertising. Microsoft is pinning its hopes for the
infant search engine on a new ten-year partnership with Yahoo!
MicrosoftÊs senior vice president of online audience business says,
„Really, now the goal is about share gain. If we grow share, we will
grow our way into profitability and we have confidence we can do
that.‰ Once approved by US regulators, the deal will give Microsoft
effective control of nearly 30 per cent share of the search market by
making Yahoo! the underlying search engine. „The nice thing is we
can say [to advertisers], you can be close to 30 per cent share in one
easy buy.‰
Some observers looking at Yahoo!Ês prospects are concerned

that the Bing-Yahoo! partnership may lower Yahoo!Ês stock value, at
least in the short term, and possibly complicate MicrosoftÊs attempts
to buy Yahoo!
Adding Bing may also hurt Yahoo!, they say, in its own continuing
challenge to GoogleÊs increasing online dominance.
(i) Which partner do you think has more to gain from the
Microsoft-Yahoo! Partnership - Microsoft or Yahoo!? Why?
(ii) What possible disadvantages could the partnership have for

the two companies? Which do you think has more to lose and
why?
Sources: Boone & Kurtz (2013)

• Customer satisfaction is related to the good experiences of using the products

or services. It also reflects the customerÊs level of positive feeling towards the
service provider or the manufacturer of the product.
• Among the factors influencing customer satisfaction are customer service,

quality and value.
• Relationship quality is defined as an overall assessment of the strength of a

relationship and the extent to which it meets the needs and expectations of the
parties based on a history of successful or unsuccessful encounters or events.
• Five dimensions of relationship quality are reliability, assurance, tangibility,

empathy and responsiveness.
• Value can be defined as the balance between cost and quality.
• Among the factors influencing a consumerÊs decision to buy products for value
are personal, esteem, utility and social.
• Customer value chain (CVC) is a business concept that represents the creation
of value for a customer.
• Customer loyalty is defined as a buyerÊs deeply held commitment to stick to a

product, service, brand or organisation consistently in the future, despite new
situations or competitive overtures to induce the switching process.
• There are five principles of customer loyalty, namely people do business with
other people, differentiation, value and assurance, effective communication
and focus.
• Commitment is an enduring desire to maintain a valued relationship.
• Three components of commitment are affective commitment, continuance

commitment and normative commitment.
• Trust is the willingness to rely on an exchange partner in whom one has

confidence.
• There are five attributes to achieve trust, namely dependability, competence,

customerÊs orientation, honesty and likeability.

Commitment Relationship development

Communication Relationship quality
Customer satisfaction Satisfaction
Customer value chain (CVC) Trust
Loyalty Value
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change in relationship development: An approach to create new customers.
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Topic  Planning a
Relationship
4 Marketing
Programme
LEARNING OUTCOMES

1. Describe the process of marketing planning;
2. Explain situational analysis;
3. Identify relationship strength;
4. Analyse customer potential;
5. Conduct company audit, ethical audit and social audit;
6. Distinguish between internal audit and external audit; and
7. Discuss the objectives of relationship marketing planning.
 INTRODUCTION
How do we develop a successful relationship marketing programme? To develop
a successful relationship marketing programme, a good and sensible way of
managing the programme is required. This process can be defined as marketing
planning, which is the planned application of marketing resources to achieve the
marketing objectives.

TOPIC 4 PLANNING A RELATIONSHIP MARKETING PROGRAMME  75
In other words, marketing planning is a logical sequence and a series of activities

leading to the setting of marketing objectives and the formulation of action plans
to achieve them.
This topic will explain the process of marketing planning, situational analysis,
relationship strength, customer potential, company audit, ethical audit and social
audit. This is followed by internal and external audit as well as the objectives of
relationship marketing planning. Happy reading!
4.1 RELATIONSHIP MARKETING PLANNING

In this subtopic, we will discuss the concept of marketing planning and the steps
involved in a relationship marketing planning process.
4.1.1 Marketing Planning

Firstly, what is planning?
Planning is a continuous process that includes identifying objectives and

determining the actions through which the company can attain those
objectives. It is classified based on the companyÊs scope and breadth.
Next, what is marketing planning?
Marketing planning is the process of organising and defining the marketing

aims of a company and determining strategies and tactics to achieve them.
A solid marketing plan should consist of (CFI, 2019):
(a) The companyÊs value proposition;
(b) Information regarding its target market or customers;
(c) A comparative positioning of its competitors in the market;
(d) Promotion strategies;

76  TOPIC 4 PLANNING A RELATIONSHIP MARKETING PROGRAMME
(e) Distribution channels; and
(f) Budget allocation for the plan.
Figure 4.1 explains two types of marketing planning, namely strategic planning
and tactical planning.
Figure 4.1: Two types of marketing planning
Strategic planning is an organisational management activity that is used to

(Balanced Scorecard Basics, 2019):
(a) Set priorities;
(b) Focus energy and resources;
(c) Strengthen operations;
(d) Ensure that employees and other stakeholders are working toward common
goals;
(e) Establish agreement around intended outcomes/results; and
(f) Assess and adjust the organisationÊs direction in response to a changing

environment.

As for tactical planning, it involves implementing the activities specified by the

strategic plans. Tactical planning outlines actions to achieve short-term goals,
generally within a year or less. They are much narrower in focus and can be broken
down to departmental or unit level. Tactical plans outline what each department
needs to achieve, how the department should do it and who has the responsibility
for implementation (SHRM, 2019).
What is the difference between strategic and tactical planning? The difference
between strategic and tactical planning resides in the time horizon and the
organisational scope of the plan. Strategy refers to the plan to achieve a goal while
the tactic is how you execute the plan. Take note that strategic plan and tactical
plan do not oppose each other; in fact, they complement the other.
It is necessary to position marketing planning firmly within the context of strategic

planning. This is because successful implementation of relationship marketing
requires a strategic approach (Little & Marandi, 2003). There are four important
factors in making strategic decisions as shown in Figure 4.2.
Figure 4.2: Four factors in strategic decisions
4.1.2 Steps in the Marketing Planning Process

The marketing planning process begins from the corporate level with the
definition of a companyÊs mission. It then determines its objectives, assesses its
resources and evaluates the environmental risks and opportunities. Figure 4.3
shows the basic steps in the process.

Figure 4.3: The marketing planning process
SELF-CHECK 4.1
1. In your own words, define marketing planning.
2. Describe the two types of marketing planning.
3. State the four steps of the marketing planning process.
ACTIVITY 4.1
Discuss the following questions in the myINSPIRE forum:
(a) A company has a sales strategy to negotiate for improved margins

on deals. An extremely large opportunity comes along and it is
clear from the negotiations that it is impossible to win the deal with
the current margin target. What would the tactical plan be?
(b) A fast moving consumer goods company launches an unusually

small but rich chocolate bar with a target market consisting of
women in their 20s and 30s. Commercials aimed at this group fail
to generate demand. The company looks at its data and finds that
both men and women in the age group of 40 to 65 are purchasing
the product more than the target market. What would be your
tactical plan?
(Source: Spacey, 2019)

4.2 SITUATIONAL ANALYSIS

How do we develop a relationship marketing programme? To develop a
relationship marketing programme, there is the need to ask questions and think
them out thoroughly. For example, the degree in which the relationship marketing
is appropriate for the organisation, product category and market conditions. This
calls for a situational analysis.
Situational analysis is a process that helps to assess the organisation and its
environment/marketplace. It is also known as strategic audit.
In other words, it helps the company answer the question, „Where are we now?‰
(see Figure 4.4).
Figure 4.4: Relationship marketing issues in a situational analysis


The situational analysis process is shown in Figure 4.5.
Figure 4.5: The situational analysis process
By analysing the internal and external environment of the companyÊs strengths,

weaknesses, opportunities and threats (SWOT), the planner can prioritise the
issues faced by the company and develop the aims or general direction of its
strategy.
4.2.1 Content of the Situational Analysis

As stated before, situational analysis involves the analysis of the organisation and
its environment. The relationship marketing audit needs to ascertain the degree in
which relationship marketing is appropriate to the organisation, product category
and market conditions. A comprehensive analysis commonly involves the SWOT
elements (see Table 4.1).

Table 4.1: Four Elements in Situational Analysis
Element Description
Strengths Identify the strong points of your product, brand image and marketing
programmes so that you know what to develop in your plan.
Weaknesses Identify the areas in which your product, brand image and marketing
programmes are relatively weak.
Opportunities Your situational analysis needs to look for opportunities such as new
growth market that you can participate in or an exciting new way to
reach out to prospective customers. Other examples are new products
that complement your own companyÊs products/services, new
laws/technologies that allows new ways to promote or sell, or new
markets.
Threats A threat is an external trend or change that can reduce your sales or
profits, or makes it harder for you to achieve your growth goals.
Common threats include new technologies that create new
competitors, large competitors that can outspend you and economic or
demographic shifts that cut into the size or growth rate of your
customer base. Your plan needs to respond to these threats effectively.
Strengths and weaknesses are the internal factors affecting a company while
opportunities and threats are the external factors affecting a company.
SELF-CHECK 4.2
1. State the five steps in the situational analysis process.
2. What are the four elements in a situational analysis?

ACTIVITY 4.2
1. Read the following excerpt and then discuss the questions in the
myINSPIRE forum.
Asda Stores Ltd, trading as Asda, is a British supermarket retailer,

headquartered in Leeds, West Yorkshire. The company was
founded in 1949 and the parent company is Walmart. According
to Andy Murray, AsdaÊs Chief Customer Officer, „Putting
customers first in our decision-making has ALWAYS been at the
forefront of our thinking in Asda. Early last year we held up a
mirror to see how we looked to our customers when they engage
with our brand.
Part of that work was a back to basics approach and improving

retail fundamentals. For my part, we reduced the amount of
marketing activity, which often became noise rather than offering
relevant solutions for customers. Firstly, is to become even more
relevant to more customersÊ needs. We have a wide range of
products across multiple categories and we must do a better job
going beyond the familiar to connect those categories and
products to the needs of our customers. Secondly, to help save
customersÊ time by becoming simpler and more seamless to shop
and finally, to increase our customersÊ trust that Asda does the
right thing in all areas that matter to them, from consistency of
experience, to how we support our local communities, to our
responsibilities to our shared planet.
As I look at trust, time and trips, I felt one of the things we could
do better is communicate in ways that more closely resemble
todayÊs customer journey. No longer is it good enough to have
discrete silo communications in channels. Customers move
fluidly across screens and channels today and expect us to do the
same.
Over the last year, we have built an internal customer and

marketing organisation that is less channel centric and aligned to
foster and launch ideas that are more salient to our customersÊ
needs.

The next step in our journey is to create an agency partner ecosystem

that helps us drive growth in a new way of working, where big
creative ideas come to life in ways that match how we want to
engage with customers across channels, both physical and digital.
I have kicked off a procurement process with a select group of

potential and current partners to see how we can achieve our
ambition of relevant, inspired and engaging content throughout the
customer journey.
I am truly excited about the work we are undertaking to build a team

of partners with a shared ambition for growth and the passion to
serve our customers.‰
(Source: Murray, 2018)
(a) Identify each element of AsdaÊs SWOT analysis.
(b) To what extent do you think that the mechanism outlined in

the case supports the development of long-term relationships
with customers?
2. Conduct a SWOT analysis for your company. Outline your ideas to

increase the companyÊs strengths, reduce its weaknesses, take
advantage of the opportunities available and minimise the threats
faced. Share your answer for discussion in the myINSPIRE forum.
4.2.2 Information Obtained from Situational Analysis

There are six major marketing factors which control the sales and profits of a
company. The factors are shown in Figure 4.5.
Figure 4.6: Six major marketing factors

We will discuss the marketing factors one by one.
(a) The Product

To analyse a product is to investigate the various aspects mentioned in
Table 4.2.
Table 4.2: Five Aspects that Needed to be Investigated When Analysing a Product
Aspect Description
Informal tests of The most important thing in analysing the product is to
the product in use obtain samples of the entire line and become thoroughly
familiar with them from the point of a prospective buyer.
The potential buyer may want to assess the features such as
quality, price, style and usage and buying convenience of the
product.
Technical tests These tests are about becoming familiar with the advantages
and disadvantages of the product itself. The tests indicate the
efficiency of the product in doing its job, as well as showing
its hidden merits and weaknesses or limitations.
The packaging The important aspects of the packaging are as follows:
• The convenience of the size and shape;
• The identification and recall purposes; and
• The product preservation through transportation,
storage and handling in the dealerÊs store.
History of the All available information regarding the history of the
product product should be studied by the analyst. Knowledge of the
general development of the business, of inventions and
patents involved and of the personality of the organisation
is important.
Specific uses of Most products are designed for one particular use.
the product Interestingly, it is frequently found that new uses may be
discovered, to the advantage of the product manufacturer.
(b) The Company, Industry and Competition

Let us look at Table 4.3 which explains the company, industry and
competition factor.

Table 4.3: The Company, Industry and Competition Factor
Aspect Description
General history of In studying the company pertaining to its relation to the
the industry industry and its competition, one becomes thoroughly
familiar with all phases of the industries in which the
company is involved in. An example is that of the meat
packing industry. The operations of individual packers are
standardised according to the general practices of the trade.
Competitive The selling points of each competitor should be determined
products and comparison of the competitorsÊ products with those of
the company should be undertaken. This is necessary to
determine the principal advantages and disadvantages of
the product over its competitors as well as to find possible
opportunities for product improvement.
(c) The Market

The market is influenced by two other factors as explained in Table 4.4.
Table 4.4: Two Factors that Influence the Market Factor
Factor Description
Influence of This includes all information which may provide clues to the
demographic influence of demographic factors (such as age, gender,
income and occupational status) on the purchase and use of
the product.
Basic Basic psychological, social and economic factors relating to
psychological, the purchase and use of the product should be given careful
social and consideration. The degree in which a purchase is based on
economic factors emotional or rational factors are important in determining
relationship marketing plans. Changes in habits, attitudes
and customs, which affect the position of the product in the
social structure should be taken into consideration as well.
(d) Channels of Distribution

What are channels of distribution?
Channels of distribution are the paths along which the products move
from the manufacturer to the customers.

There are several channels of distribution including wholesale distribution,

retail distribution, direct distribution and so on (see Figure 4.7).
Figure 4.7: Examples of some types of distribution channels

Source: https://fourweekmba.com/distribution-channels/
(e) Sales Organisation – General Structure of the Sales Organisation

An analysis of the sales organisation is conducted to obtain a clear picture of
the structure of the sales division. This includes an analysis of the number
and types of salesmen, their geographic distribution and the form of sales
supervision in the central headquarters and in district or branch offices.
(f) Advertising and Sales Promotion

Advertising and sales promotion involve the following aspects (see
Table 4.5).
Table 4.5: Two Aspects of Advertising and Sales Promotion Factor
Aspect Description
Advertising by The competitorsÊ advertisements should be thoroughly
competitors studied to understand their strategies. In addition to obtaining
copies of the published advertisement, it is possible to
determine the breakdown of a competitorÊs advertising
expenditures in different types of media across geographic
areas and individual markets through various services.
Special sales An analyst should study all special consumer merchandising
promotions methods employed and should become thoroughly familiar
with the records of the results of each effort wherever possible.
Among the more common strategies are:
• Samples;
• Booklets, premiums and gift offers;
• Contests; and
• Special devices such as one-dollar sales and trade-in deals.

SELF-CHECK 4.3
Describe the six marketing factors that affects the sales and profits of
companies.
4.3 ASSESSING RELATIONSHIP STRENGTH

In this subtopic, we will discuss the definition and measurement of relationship
strength.
4.3.1 Definition of Relationship Strength

What is the definition of relationship strength? Let us look at a definition from
Donaldson and OÊToole (2000).
Both the economic ties and the social bonding of partners: Belief in the spirit
of cooperation and trust, and actions taken indicates the strength of the
relationship.
(Donaldson & OÊToole, 2000)
Hausman (2001) saw the economic content of the relationship as an outcome rather
than a dimension of its strength. Relationship strength comprises the following:
(a) Shared commitment;
(b) Mutual trust; and
(c) Relationalism.
As such, Hausman suggested that the relationship strength can be measured

according to the extent in which both parties will:
(a) Make the effort to maintain the relationship (commitment);
(b) Have confidence in the otherÊs reliability and integrity (trust); and
(c) Believe that the relationship is important to the success of the organisation
(relationalism).

Relationalism consists of:
(a) Mutuality (the equity in the exchange relationship);
(b) Solidarity (the perception of one party regarding the importance of its
relationship with another);
(c) Flexibility (the willingness/ability to alter the terms of the relationship); and
(d) Duration.
4.3.2 Measuring Relationship Strength

We can say that relationship strength is the outcome measured using purchase
behaviour and communication behaviour (word-of-mouth, complaints).
The bond between the customer and the service supplier also affects the behaviour
(Egan, 2011). Several factors are commonly associated with strong relationships.
They are the criteria for assessing relationship strength (see Table 4.6).
Table 4.6: Criteria for Assessing Relationship Strength
Criteria Description
Economic • The most easily applied measure of relationship strength.
content • A supplier must measure the share of turnover of its customer or
profits arising from a customer.
Interaction • The amount of contact between customer and supplier such as
contact intensity, openness of communication as well as nature of
the contact (social or business).
Loyalty, trust • These important tools are required in retaining a customer.
and • Inferences can be made by monitoring customersÊ buying patterns,
commitment complaints information and various other factors.
Alignment • Characteristics relating to the ease with which the two parties
interact.
• The supplier and the customer share similarities in expectations of
the other party regarding values and behaviour such as
appearance, lifestyle, culture, value and goods.
Relationship • Care should be taken to interpret the significance of any past
history conflicts in the context of the relationship condition at the time.
Strong and mature relationship has higher conflicts due to mutual
interdependence.
• Relationship duration is also associated with relationship strength
– the longer the relationship, the stronger it is likely to be.

SELF-CHECK 4.4
Give the meaning of relationship strength and the criteria for assessing
it.
4.4 ASSESSING CUSTOMER POTENTIAL

The management of a relationship portfolio will require the marketer to make
decisions as to:
(a) Which relationships to develop;
(b) Which to continue; and
(c) Which to end.
As such, in this subtopic, we will be assessing the customer potential. We will

investigate the definition of a potential customer, learning the market, identifying
an attractive customer and customer buying behaviours.
4.4.1 Definition of Potential Customers

Firstly, what do potential customers mean?
Potential customers are people who are not yet your customers but are facing
some problems that your products and services can solve.
They are also considered as your future customers and represent new revenues for
the next year and the years after that (Stull, Myers & Scott, 2008).
You can also have broader levels of customers such as the following (Whitton, &
Hollingworth, 2002):
(a) Local, state or federal government departments or agencies;
(b) Advertising, marketing and human resource organisations;
(c) Small businesses, from health food stores to music stores;

(d) Larger companies such as insurance offices, banks and car manufacturers;
(e) Academic institutions, from schools to universities; and
(f) Clubs or associations related to sports, religion, culture or arts.
4.4.2 Identify Customers and Learn the Market

You can start by identifying prospective customers based on observations and
through research in aspects such as your target customersÊ buying habits, your
competitorsÊ current activities and important industrial trends (Pakroo, 2010).
Demographic profiles will also help to identify and define the target customersÊ
specific characteristics that you believe would most likely lead them to buy your
product or service. Common characteristics used to classify customers include:
(a) Age;
(b) Gender;
(c) Income level;
(d) Buying habits;
(e) Occupation or industry;
(f) Marital status;
(g) Family status (number of children);
(h) Geographic location;
(i) Ethnic group;
(j) Political affiliation or leanings; and
(k) Hobbies and interests.
What are some of the research tools used for identifying customers and learning
the market? Let us refer to Table 4.7 for explanations on various research tools.

Table 4.7: Research Tools
Subject Questions to Ask Methods

Customers • Who are your target • Primary research methods:
customers? – Surveys and questionnaires
• What products or services – Focus group
do they need or want?
– One-to-one interviews or
• Where and how do they inquiries of trusted contacts
buy these products or
• Secondary research methods:
services?
– Magazine or trade journal
• How much do they articles
typically pay for your type
of products or services? – Reports from previously
conducted studies
Competition • What do they offer? • Primary sources (such as
• What do they charge? marketing materials and
websites)
• How do they provide the
products or services? • Trade shows
• Who are their customers? • Networking
• What is their competitive • Magazine or trade journal
edge? articles
Industry • What are the standard • Magazine or trade journal

practices? articles
• What are the latest trends? • Trade shows
• What does the future hold? • Books
Source: Pakroo (2010)

ACTIVITY 4.3
Read the following excerpt and then discuss the question in the
myINSPIRE forum.
Over the Christmas period, retailer Borders ran a Facebook campaign

in which it challenged the wider Facebook community to create a
group of friends entitled „I want to win signed Quentin Blake artwork
from www.borders.co.uk.‰ The person who can create the biggest
group of friends will win the signed prints. As a result, Borders
attracted many new friends to its online community, creating a wider
audience for marketing messaging. Borders Digital Marketing
Manager Nick Atkinson described the word-of-mouth (WOM) as „a
bit of a minefield.‰ He feels that, even with recent changes to
regulations, many marketers are still not as clear and upfront about
their identity and intentions online as they should be. But putting
ethics to one side, Atkinson believes this kind of deceptive marketing
is lacklustre. „You get a much higher quality and more sustainable
response when you interact with people in a clear and honest way
because it gives them the chance to make a considered response to
your marketing,‰ he explains. „There are two important aspects to a
successful online campaign, and these are often the hardest things to
achieve,‰ he says. „One is to trigger a genuine emotional reaction in
your target audience, and the second is to be the most price-
competitive.‰
(Source: Gray, 2009)
What is your opinion of the method used by Borders to collect customer

data?
4.4.3 What Makes a Customer Attractive?

Customer attractiveness may depend on his financial condition, whether he is
being introduced to the latest and innovative products, the price of the products,
the ease of services and many more. Pricing the products and services may be the
most important component. You need to get a feel of what products and services
are being offered and how much the customers are willingly to pay for them.

The following are some relevant questions to guide you in identifying attractive
customers:
(a) What is the worth of your product or service to your prospective customers?
(b) Have you targeted the right market for your product or service?
(c) Are you providing the right product or service to your target market?
(d) How much are your prospective customers willing to pay (price)?
(e) Is the price low, high or somewhere in between?
4.4.4 Customer Buying Behaviour

Consumer behaviour can be broadly classified as the decisions and actions that
influence the purchasing behaviour of a consumer. What drives consumers to
choose a particular product with respect to others? There are several factors that
drive customer behaviour (see Figure 4.8).
Figure 4.8: Factors that drive customer behaviour

We can characterise consumers by using six psychological traits as explained in

Table 4.8.
Table 4.8: Six Psychological Traits of Consumers
Psychological
Description
Trait
Innovators Enjoy trying new products and are adventurous. They are the leading-
edge customers who are not afraid of the „bleeding edge‰ (new
products that could possibly bore high risk of being unreliable) of any
new product or service.
Forerunners Forerunners often comprise respected opinion leaders who are more
careful than innovators. Forerunners are customers or business customers
who are not very price-sensitive. They are ready to pay a premium in
order to be special.
Mainstream This type of customers will purchase a product not because it is
users innovative or different but because it fulfils a need such as saving time
or money. They choose the product because it is more practical or
reliable than the existing solution.
Followers Labelled as „conservatives‰, this group goes along with the majority
but at a much later time. They are under the influence of FUD (fear,
uncertainty and doubt) factor.
Traditionalists These types of customers are considered as „sceptics‰ who do not buy
a product or service until it has become a part of tradition. They are
very often old customers and ancient companies who do not like
change.
Rebels Rebels will always reject a product because of its very nature. These
people will not buy the product.
Source: Viardot (2004)
SELF-CHECK 4.5
1. Who are potential customers?
2. What are the common characteristics used to classify customers?
3. Briefly explain the six psychological traits of categorising

customers.

4.5 COMPANY AUDIT

The concept of customer value chain provides a valuable framework for analysing
a company. We will look at the definition of audit and PorterÊs value chain
framework (1985) to conduct company audit. PorterÊs value chain analysis is
recommended by Little and Marandi (2003) as an audit tool for relationship
marketing planning purposes. The planner can evaluate the extent in which an
organisation can service its customersÊ needs and identify synergies between the
processes of the customer and those of the supplier.
4.5.1 Origin of the Word “Audit”

The word „audit‰ is derived from the Latin word audire which means „to hear‰.
The origin of audit can be traced back to olden times but auditing as its existing
form was established only in the middle of the 19th century (Basu, 2009).
4.5.2 Definition of Audit

In ancient times, business transactions were mainly performed in cash and the
work of auditing was limited to details of cash inflow and outflow. The following
is the definition of marketing audit.
Marketing audit is a comprehensive, systematic, independent and periodic

examination of a company or a business unitÊs marketing environment,
objectives, strategies and activities with the view of determining problem
areas and opportunities, and recommending a plan of action to improve the
companyÊs marketing performance.
(Kotler & Keller, 2007)
In sum, auditing is a systematic examination of books and records of a business or

other organisations to ascertain or verify and to report upon the facts regarding its
financial operations and the results thereof.

ACTIVITY 4.4
Based on the definition of auditing, find out the objective(s) of auditing.

Share your answer for discussion in the myINSPIRE forum.
4.5.3 Essential Features of Auditing

The following are essential features of auditing:
(a) Audit is an instrument of accounting control. The truth and fairness of

accounting information is controlled and checked by auditing activities;
(b) Audit acts as a safeguard on behalf of proprietors against extravagance,

carelessness or fraud;
(c) Audit assures, on the proprietorÊs behalf, that the accounts maintained truly
represent facts and that expenditure has been incurred with due regularity
and propriety;
(d) Audit assesses the adequacy of the accounting system to ascertain its
effectiveness in maintaining accounting records of an organisation;
(e) Audit carries out a review of financial statements to know whether the
accounting records are in agreement with those statements; and
(f) Audit is a tool of reporting on financial statements as required by the terms

of the auditorÊs appointment and in compliance with the relevant statutory
obligations.
4.5.4 Ethical Audit

Little and Marandi (2003) recommended that an ethical audit is also carried out
because of the significance of trust and alignment to corporate values in the
development of relationships. According to Vinten (1998, as cited in Little &
Marandi, 2003), an organisation that creates a negative ethical impact may cause
the withdrawal of public approval and of its market for its products. An ethical
organisation is the only viable form of organisation in the long term. Organisations
following the ISO9000 and any brand quality awards, and hold high importance
of the well-being of its staff, customers and the wider community, would receive
significant impact on the sustainability of its business strategy as well as the
perceptions of organisational quality.

4.5.5 Social Audit

Another audit that Vinten (1998, as cited in Little & Marandi, 2003) suggested to
conduct is the social audit. This is a review of the organisationÊs social
responsibilities to those directly and indirectly affected by the organisationÊs
strategic decisions. There should be a balance in its corporate planning between
these aspects and the more traditional business-related objectives. Vinten further
suggested that social audit should cover the following:
(a) Organisation, management style, resource use and investment;
(b) Employee relations, pay conditions, job security;
(c) Customer relations and product benefits;
(d) Community relations; and
(e) Environment impact.
To ensure social audit is effective, planners should seek to engage the involvement
of all the stakeholders such as customers, suppliers, employees and the wider
community in analysing the companyÊs ethical performance and developing plans
for future improvements.
4.5.6 Classification of Audit

The functions of auditors depend on the job scope. Auditing can be of the
following types:
(a) External Audit

An independent external auditor conducts the external audit. This type of
audit is usually conducted to fulfil the requirements of the provision of law.
The auditor who conducts such an audit is „independent‰ of the enterprise
under audit and is an independent professional who does not have any
relationship with the company, as this might adversely affect his ability to
form an objective judgement about the company.
The following are the features of an external audit:
(i) External audit is usually conducted by an independent qualified

auditor;
(ii) External audit is conducted periodically; and

(iii) External audit is conducted mainly to safeguard the interest of the

owners, shareholders and other parties who do not have knowledge of
the day-to-day operations of the organisation.
(b) Internal Audit

Specially assigned staff within the organisation will conduct the internal
audit. Internal audit is conducted on a regular basis within the organisation.
It is an audit whereby a thorough examination of the companyÊs system
according to the procedures is conducted. It is undertaken to verify the
accuracy and authenticity of the records presented to the management.
The following are the features of an internal audit:
(i) The internal audit system is part of the management control system;
(ii) The scope of internal audit depends on the requirements of the

management;
(iii) The extent of checking also depends on the size and type of the business
organisation;
(iv) It embraces not only the operational audit of various operational

activities in the organisation but also includes the audit of management
itself;
(v) The function of internal audit can be considered as an integral part of

the internal control system;
(vi) Generally, the internal audit is conducted by the permanent staff of the
organisation; and
(vii) The existence of internal audit is helpful to the external auditor.
What are the differences between external audit and internal audit? Let us look at
Table 4.9 which explains the differences between external audit and internal audit.

Table 4.9: Differences between External Audit and Internal Audit
Difference External Audit Internal Audit

Nature It is conducted for reporting It is conducted with the purpose of
on the reliability and checking adherence to norms and
fairness of financial established procedures, and
statements. protecting the assets of the
organisation.
Qualification The external auditor must No specific qualification is
possess specific required to be possessed by the
qualifications as prescribed internal auditor.
by the respective statutes.
Scope of work This type of audit must be The scope of work is determined
complete in all respects. Its by the management.
scope cannot be curtailed in
any way by the
management.
Purpose The objective of this type of The basic objective of internal
audit is to protect the audit is to improve performance,
interests of the owners and efficiency and profitability of the
other parties related to the enterprise.
enterprise.
Appointment of The external auditors are The internal auditor is appointed
auditor usually appointed by the by the management.
owners and in some cases
by the government.
Status The auditor is an outsider The internal auditor is an
and independent person. He employee of the organisation. He
is not bound by any rules is bound by the rules and
and regulations of the regulations of the organisation.
organisation.
Continuity The external audit may be The internal audit is continuous in
periodical or continuous in nature. It is carried out throughout
nature. the year.
Advice or Giving advice or The internal auditor may give
recommendation recommendation is not part advice to the management to take
of the external auditorÊs corrective measures against
duty. He will only report on irregularities in the organisationÊs
the financial statement as accounts.
prepared by the
management.
Source: Basu (2009)

4.6 RELATIONSHIP MARKETING PLANNING

OBJECTIVES
Lastly, let us look at the definition of marketing objectives and relationship
marketing planning objectives in this subtopic.
4.6.1 Definition of Marketing Objectives

What is a marketing objective?
A marketing objective is a statement of what is to be accomplished through

marketing activities.
For objectives to be useful, the objectives should meet several criteria as explained
in Figure 4.9.
Figure 4.9: Several criteria in stated objectives

Source: Lamb, Hair & McDaniel (2010)

4.6.2 Relationship Marketing Planning Objectives

Objectives are the yardsticks by which a planÊs progress are measurable and can
serve a number of key functions as explained in Table 4.10.
Table 4.10: Key Functions in Relationship Marketing Planning Objectives
Key Function Description

Motivation Objectives provide a goal to work towards to in an organisation and
its constituent departments.
Monitoring Progress towards a given objective is the criterion by which the
success of an organisationÊs strategy can be judged.
Coordination Objectives ensure that all parts of a marketing organisation are
working together towards the same goal.
Communication Objectives are clear statements of what an organisation seeks to
achieve. Therefore, they communicate the strategic direction for the
whole organisation.
Control Objectives enable managers to control the activities in the
organisation. In some companies, corporate objectives are directly
linked to senior managersÊ appraisal targets and are used as a basis
for salary review.
As a conclusion, objectives should not relate solely to the outputs of a plan but also
the inputs and process elements. Objectives need to measure the target share of
customer spending, enabling objectives (such as customer satisfaction, service
quality and other important components of relationship performance) that direct
how the outcome should be achieved as well as input objectives that enable the
strategy implementation.
SELF-CHECK 4.6
1. Define marketing objective and its criterion.
2. State the key functions in relationship marketing planning

objectives.

ACTIVITY 4.5
Search the Internet to find out the importance of drawing up relationship

marketing objectives for companies. Share your findings for discussion
in the myINSPIRE forum.
• Marketing planning is the process of organising and defining the marketing

aims of a company and gathering strategies and tactics to achieve them.
• There are two types of marketing planning, namely strategic planning and
tactical planning.
• The situational analysis covers the strengths, weaknesses, opportunities and

threats (SWOT) analysis.
• Six major marketing factors are:
– The product;
– The company, industry and competition;
– The market;
– Channels of distribution;
– Sales organisation; and
– Advertising and sales promotion.
• Relationship strength is the outcome measured using purchase behaviour and

communication behaviour (word-of-mouth, complaints).
• The criteria of relationship strength are economic contents, interactions,

loyalty, trust and commitment, alignment and relationship history.
• Potential customers are people who are not yet your customers but are facing
some problems that your products and services can solve.
• Consumer behaviour is influenced by psychosocial, personal and

psychological factors.

• Relationship marketing audit analyses where the company is at in terms of

relationship with its stakeholders.
• PorterÊs value chain presents the marketing channel as a set of processes

through which the product passes, each of which adds value in the eyes of the
customer and as such, the customer is willing to pay a higher price for the
finished product.
• PorterÊs value chain is a tool that can be used to conduct the company audit.
• Ethical audit and social audit need to be conducted to ensure the effectiveness
of relationship marketing in a company.
• External audit is an assessment, which must be conducted after a certain period

of time by a qualified, independent auditor from outside the organisation.
• The internal audit is a process of auditing that is conducted by a permanent

staff of the organisation based on documented risk assessments.
• A marketing objective is a statement of what is to be accomplished through

marketing activities.
• For objectives to be useful, the objectives should meet several criteria, namely
realistic, measurable, time specific and compared to a benchmark.
Audit Potential customer

Ethical audit Relationship marketing planning
External audit Relationship strength
Internal audit Situational analysis
Marketing planning Social audit
Objectives Strategic planning
PorterÊs value chain Tactical planning

Balanced Scorecard Institute. (2019). Strategy planning basics. Retrieved from

https://www.balancedscorecard.org/BSC-Basics/Strategic-Planning-
Basics
Basu, S. K. (2009). Fundamentals of auditing. Upper Saddle River, NJ: Pearson

Education International.
CFI Education Inc. (2020). Market planning. Retrieved from

https://corporatefinanceinstitute.com/resources/knowledge/strategy/
market-planning/
Donaldson, B., & OÊToole, T. (2000). Classifying relationship structures:

Relationship strength in industrial market. Journal of Business and Industrial
Marketing, 15(7), 491–506.
Egan, J. (2011). Relationship marketing: Exploring relational in marketing (4th ed.).

Essex, England: Prentice Hall.
Gray, R. (2009). Word of mouth in the digital era. Retrieved from

https://ragulan.wordpress.com/2009/03/04/word-of-mouth-in-the-
digital-era/
Hausman, A. (2001). Variations on relationship strength and its impact on

performance and satisfaction in business relationships. Journal of Business
and Industrial Marketing, 16(7), 600–616.
Kotler, P., & Keller, K. L. (2007). Marketing management. Prague, Czech: Grada
Publishing.
Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2010). MKTG4 (student ed.). Mason,
OH: South-Western Cengage Learning.

Murray, A. (2018). Putting customers first in our communications. Retrieved from

https://corporate.asda.com/article/putting-customers-first-in-our-
communications
Pakroo, P. (2010). Small business start-up kit for California. Valencia, CA: Delta
Printing Solutions.

Porter, M. E. (1985). Competitive advantage. New York, NY: The Free Press.
SHRM. (2019). What is the difference between a strategic plan and a tactical plan?
Retrieved from https://www.shrm.org/resourcesandtools/tools-and-
samples/hr-qa/pages/couldyouexplainthedifferencebetweenstrategicand
tacticalplansandgiveexamplesofeach.aspx
Spacey, J. (2019). Four examples of tactical planning. Simplicable. Retrieved from

https://simplicable.com/new/tactical-planning
Stull, C., Myers, P., & Scott, D. M. (2008). Tuned in: Uncover the extraordinary
opportunities that lead to business breakthroughs. Hoboken, NJ: John Wiley
& Sons.
Viardot, E. (2004). Successful marketing strategy for high-tech firms. Boston, MA:
Artech House.
Whitton, R., & Hollingworth, S. (2002). Mission possible: How to make money from
your writing. Altona, VIC: Common Ground.

Topic  Implementing
Relationship
5 Marketing
Programmes:
Strategy,
Structure and
System
LEARNING OUTCOMES

1. Identify the types of marketing strategies, the frameworks and
components that constitute a successful relationship as well as the
tools in relationship marketing;
2. Describe the factors affecting the selection of an appropriate
organisational structure as well as the dimensions of organisational
structure in implementing relationship marketing; and
3. Explain the system used in implementing relationship marketing.

TOPIC 5 IMPLEMENTING RELATIONSHIP MARKETING PROGRAMMES:  107
STRATEGY, STRUCTURE AND SYSTEM
 INTRODUCTION
From a transactional programme to a relational paradigm, organisations have
taken a big step in maintaining the consumer relationship in an effort to ensure the
organisationÊs financial and long-term survival (Palmatier, Dant, Grewal & Evans,
2006).
The key point in relationship programme is that traditional mass marketing

(transactional marketing) which involves sending messages about a standard
product offering to an anonymous person progresses to personalised marketing
(relational marketing) with messages and offerings tailored to a specific individual
(Shajahan, 2004).
In this topic, we will look into the strategies, structures and system in
implementing relationship marketing programmes. Let us continue with the
lesson!
5.1 IMPLEMENTING RELATIONSHIP

MARKETING STRATEGY
What does strategy mean? The following is the definition of strategy:
A strategy is a senior managementÊs plan of action in which the efforts of the

staff are coordinated to ensure a long-term relationship in business.
You will learn more about strategy as the next subtopics will explain the types of
marketing strategies, the frameworks and components that constitute a successful
relationship as well as the tools in relationship marketing.
5.1.1 Types of Strategies

Did you know that there are two types of strategies used in implementing
relationship marketing? They are depicted in Figure 5.1.
Figure 5.1: Two types of strategies in implementing relationship marketing

108  TOPIC 5 IMPLEMENTING RELATIONSHIP MARKETING PROGRAMMES:
These two types are further explained as follows:
(a) Company-to-Company
According to Ballantyne (2000), relationship marketing signals a strategic
shift in managerial thinking from extracting transactional value to
developing mutual value through relationships.
Hard work, resources and patience to face all new acquaintances who long
to be part of a new close relationship and network are involved (Zineldin,
2002). Each phase of the relationship life cycle forms a high level of
cooperative effort and differences in information, expectations, experiences,
needs, wishes, strategy requirements and consequences.
The phases of relationship development and the duration of each phase may
vary considerably depending on the following:
(a) Involved partners;
(b) Nature of potential relationship; and
(c) Nature of values to be exchanged.
Therefore, a good strategy needs to be applied so as to develop a strong bond

within the companies. Companies must consider each relationship as part of a
portfolio of relationships and develop separate strategies and expectations
(Zineldin, 2002).
According to Zineldin (2002), relationship life cycle (ZLC) consists of four

different phases. These phases are discovery phase, development phase,
commitment phase and loyalty phase (see Figure 5.2).

Figure 5.2: ZineldinÊs phases of relationship life cycle (ZLC)

Source: Zineldin (2002)
Later in 2012, Zineldin added a fifth phase into the relationship life cycle,
namely the dissolution phase. Now, let us learn more about these phases in
Table 5.1.
Table 5.1: Relationship Life Cycle (ZLC) Phases
Phase Description
Discovery During this phase, the companies identify their needs and
phase willingness to start a strategic relationship arrangement. If, at
this phase, the parties discover that they failed to understand
each otherÊs needs and wants, not able to develop an
appropriate offering or act in a manner inconsistent with
expectations, then the next phase will probably not occur
(Zineldin, 2012).
Since uncertainties are greater in the earlier phases, it is very

important for marketers to highlight the objectives of the
business, its strengths and the key strategic implications such
as the following:
• To identify potential customers;
• To create interest in the company and its product/service
packages;
• To deliver a wide range of product/service package
options;
• To talk and listen to customers or intermediaries;

• To precisely understand the customersÊ needs and wants

and to what extent these needs are being met, what do they
use to manage their needs at the present time; and
• To emphasise the most appealing feature of a companyÊs
competence and product/service.
Development According to Ellram (1991), the objective of the development
phase stage is to formulate a relationship and explore whether a
mutually beneficial relationship is possible. At this stage, the
parties are becoming familiar with each other and they are sure
about the object-related value. They will acquire some more
knowledge of each otherÊs norms and values as a result of their
interactions (Zineldin, 2012).
The key strategic implications and the effective mix elements in

the development phase are for marketers to function in the
following ways:
• To convince the customers that their requirements will be
fulfilled by the benefits of the product/service on offer;
• To identify future customer needs and wishes more
efficiently and effectively;
• To identify the level of satisfaction currently obtained by
customers;
• To monitor customer queries or complaints;
• To identify trends in attitudes to the company; and
• To identify current and future key clients by conducting a
customer analysis.
Commitment Commitment refers to an implicit or explicit pledge of relational
phase continuity between the exchange partners. At this phase,
maintaining product/service quality and performance are the
most important marketing task. The degree of customer loyalty
and retention is higher at this phase (Zineldin, 2012).
Some key relationship mix elements and strategic implications

for sustained advantage are as follows:
• Adaptation, innovation and product/service attractiveness
are more important;
• Professional/individual contact is most important to
„clientising‰ the relationships;
• Marketers should be able to reduce deficiencies; and
• Marketers have better opportunity to talk to clients and to
understand how they view the company and its ability to
solve their problems and satisfy their specific needs and
wishes.

Loyalty phase The relationship is now a strong, loyal relationship.

Commitment, experiences, expectations, flexibility,
adaptations, capability and ability to create added value are
very high. The main goal of this phase is to maintain and
stabilise the strategic business relationship while each partner
achieves the benefits of close cooperation and association
(Zineldin, 2012).
The loyal partners develop mechanisms – structure, processes

and skills – for bridging organisational and interpersonal
differences and achieving real value from the strategic business
relationship. These mechanisms and processes ensure
interdependence.
Some key strategic implications at this phase are as follows

(Zineldin, 2012):
• Loyal clients feel that they are receiving values/meanings
and are willing to pay premium price for the benefits of the
products/service offerings and the mutually beneficial
relationship;
• The organisation is expected to use the latest IT tools to
gather and store data about every individual client;
• Trust, ethical values and mutual dependence increase
rapidly as the relationship gains strength;
• Flexibility and high ability of commitment and problem-
solving must always exist; and
• The ability to create new/additional value together is
higher.
Dissolution Dwyer, Schurr and Oh (1987) stated that the dissolution phase
phase may occur in any of the previously mentioned phases. Zineldin
(2012) also agreed that it is the final phase of the relationship
life cycle.
Source: Zineldin (2002)
(b) Company-to-Employee/Organisation (Staff)

Internal marketing focuses on employees in the organisation. According to
Brink and Bernt (2008), internal marketing refers to the relationship that
develops between the employees of an organisation and the organisation
itself, to facilitate the implementation of a customer relationship
management (CRM) programme.

Why is internal marketing so important? Firstly, because it is the best way to

help employees make a powerful emotional connection to the products and
services that your organisation sells. Without that connection, employees are
likely to undermine the expectations set by your organisationÊs advertising.
In some cases, this is because the employees simply do not understand what
your organisation have promised the public, so they end up working at cross-
purposes.
In other cases, it may be that they do not actually believe in the brand and
feel disengaged or, worse, hostile toward the organisation. When people care
about and believe in the brand, they would be motivated to work harder and
their loyalty to the company increases. Employees are united and inspired
by a common sense of purpose and identity.
Most quality experts agree that a strong leadership by the senior

management is critical in developing and sustaining a quality-based culture in
an organisation. Good leadership and innovation will establish and
communicate the purpose, vision and goals of the organisation and determine
core business strategies with its workers (Shams-ur Rahman, 2002).
According to Ballantyne (2000), this strategy is known as „happy staff equals to

happy customers.‰ This staff climate/customer satisfaction link is also
emphasised by others. Staff will be more committed when they believe that they
(as staff) are needed to increase the customer value.
Therefore, „staff satisfaction‰ becomes a possible indicator of the process of

internal marketing in action rather than its goal. Whatever strategies used,
the goal is to enhance the customer consciousness of employees or customer
perceived performance, or more broadly, stakeholder value (Ballantyne,
2000).
SELF-CHECK 5.1
1. Name two types of strategies in implementing relationship

marketing.
2. Describe the phases of ZineldinÊs relationship life cycle (ZLC).

ACTIVITY 5.1
Read the following case study and discuss the questions in the
myINSPIRE forum.
Ericsson (formerly known as Rifa) manufactures electronic components,

which are of strategic importance to EricssonÊs telephone switches. After
a long life of internal deliveries without competition, the business area
was required to prove its ability to meet the competition from other
manufacturers, among them the successful Motorola. A transition to a
more business-like and market-oriented culture was called for, and
internal marketing is one way of contributing to a new corporate culture.
After a survey of possible means of reaching out to the staff, a
publication was made to explain the new situation. It became an
unsophisticated pamphlet with short sentences and simple drawings,
which presented essential facts and strategies (see Figure 5.3).
Figure 5.3: Two pages from a pamphlet used in RifaÊs internal marketing
(Rifa, 1983). Drawing by Bengt Mellberg
Source: Gummerson (2002)
In internal marketing, as in everything else, management commitment

is crucial. It was important for the head of the business area and his
divisional managers to show that they stood behind the message. After
discussions and tests, it was concluded that the best way would be to
appear in person, even if that would take time. How did they do this
with 2,000 people working in three towns far apart? Fifty-six
appearances by the head of the business area and his management team
were called for.

Most executives claimed they could not spare the time. Groups of 40
employees participated in half-day programmes, which ended with lunch
or dinner with management. Considering that many of them worked
shifts, several programmes had to be conducted at night, ending with
coffee and cake. The management team presented ongoing changes and
made comments, followed by the participants working in groups around
a number of themes with a subsequent plenary discussion. The
publication was distributed as documentation when the participants left.
(a) What do you think of EricssonÊs tactic of having face-to-face

programmes with their staff?
(b) Discuss the importance of internal marketing.
5.1.2 Strategy Frameworks and Components of

Successful Relationships
Let us discuss more about marketing strategy. Research conducted by Paswan,
Blankson and Guzman (2011) relied on the strategy frameworks suggested by
Porter (1980) as well as Slater and Olson (2002) to operationalise the notion of
marketing strategy as shown in Figure 5.4.
Figure 5.4: Three strategy frameworks suggested in operationalising the notion of

marketing strategy
Source: Paswan, Blankson & Guzman (2011)

According to Conway and Swift (2000), there are several components are involved
in the implementation of a successful relationship marketing strategy. The main
components of successful relationships are shown in Figure 5.5.
Figure 5.5: Five components of successful relationships
The components of successful relationships are described in detail in Table 5.2.
Table 5.2: Five Components of Successful Relationships
Component Description
Commitment • It is of central importance in developing relationships.
• It is the strongest predictor of voluntary decisions to remain in the
relationship (Rusbult, 1983).
• Influenced by social bonding, which is the degree of mutual
personal friendship and liking shared by partners who have a
strong personal relationship. They are more committed to
maintain the relationship than less socially bonded partners.
• The greater the level of investment made by a manufacturer in a
relationship, the greater the increase in that manufacturer's
commitment to its relationship with its distributor.
Trust • The precondition for increased commitment.
• As a generalised expectancy held by an individual that the word
of another can be relied upon.
• Ali and Birley (1998) identified two types of trust:
– Characteristic-based trust because of who they are, which
pertains only to individuals; and
– Process-based trust because of how they behave, which
refers to the associations between "trust and long-term
relationships".
• Established through interactions and combined with other
external factors such as word-of-mouth opinions and media
reports about the seller to form an overall perception of trust on
the seller.

Customer • It refers to the understanding or the ability to see a situation from

orientation or someone else's point of view although many use the term
empathy synonymously with affinity and liking.
• The greater the degree of empathy or "liking" between the parties
concerned, the fewer the barriers to relationship building.
• Liking a particular individual (or group of people) projects a more
positive outlook towards that person.
Experience or • The more satisfied the customer, the more durable the
satisfaction relationship (Buchanan & Gillies, 1990).
Communication • According to Schramm (1954), communication is a process of
establishing a commonness or oneness of thought between a
sender and a receiver.
• In the field of marketing communication, a new trend towards
integrating communication elements such as advertising, direct
marketing, sales promotion and public relations into a two-way
integrated marketing communication perspective emerges.
In relationship management, it is necessary to focus on (Zineldin, 2012):
(a) Managing both growing and declining relationships;
(b) Identifying the relationship stages; and
(c) Taking necessary actions based on the desire to either maintain the
relationship or to let it go.
SELF-CHECK 5.2
1. Describe three strategy frameworks suggested in operationalising

the notion of marketing strategy.
2. Elaborate the four components of successful relationships.
ACTIVITY 5.2
How does the implementation of relationship marketing bring good

business benefit to the company? Discuss this matter in the myINSPIRE
forum.

5.1.3 Tools in Relationship Marketing Strategy

Relationship marketing strategies are intentionally designed to gather information
to assist the organisation in identifying and retaining their best practices and to
optimise customer value and profitability (Ashley, Noble, Donthu & Lemon, 2011).
It is also best described as „the ongoing process of engaging in cooperative and
collaborative activities and programmes with immediate and end-user customers
to create or enhance mutual economic value at reduced cost‰ (Parvatiyar & Sheth,
1998).
There are many tools used in relationship marketing strategy including those
Figure 5.6: Tools in relationship marketing strategy
Let us now look at the tools in relationship marketing strategy one by one.
(a) Loyalty Card Programmes

Do you have loyalty cards? AEON card, TGV card, Mesra card, Metrojaya
card, Bonuslink card or SOGO card perhaps? What is the main goal for
loyalty card programmes? The main goal for loyalty card programmes is to
build a long-term relationship with customers. Loyalty card programme also
plays a role in attracting new customers. For example, Bonuslink card allows
you to collect points that can be used to exchange for products or vouchers
while MAS Enrich card allows members to redeem points for flights.
Satisfied loyalty programme members increase their word-of-mouth

advertising because of the programmeÊs activities. Through the programmeÊs
benefits, the customers have something to talk about and this will increase
the number of contacts between the customers and the manufacturer or
dealer. The loyalty programme communication ensures that the product has
a higher profile in the membersÊ minds. Furthermore, this may increase the
number of times they refer to the product or recommend it to their friends
(Stephan, 2002).

What are the advantages of a loyalty programme? Customer loyalty

programme can benefit an organisation in different ways (see Figure 5.7).
Figure 5.7: Benefits of a customer loyalty programme
(b) Company Credit Cards

Most banks offer credit card redemption rewards. For example, Maybank
BerhadÊs TreatsPoints reward programme allows consumers to experience
the flexibility and freedom of cash-free shopping. Through this programme,
the customers are able to shop by using the points that they have earned
when they use the card.
Meanwhile, Citibank provides their customers with five reward categories

that suit their lifestyle − shopping, entertainment, driving, home and travel.
Each time the members use their credit cards for any of the five categories,
customers will be rewarded with five times worth of points, bonus coupons
upon renewal and automatic protection for every purchase.
(c) Rebate Offers

Purchasing is made on a daily basis. Marketers increase price salience and
incentive purchases by making coupons and rebate offers available to
consumers (McCall, Bruneau, Dars Ellis & Mian, 2009). Both approaches
have considerable appeal since they can be used to encourage purchasing by
price-sensitive customers and increase overall sales. For example, Perodua in

Malaysia is offering up to RM1,200 in rebates for selected car models and

variants while Tenaga Nasional Berhad offers RM40 Electric
Bill Rebate Programme to those who are underprivileged and registered in
the e-Kasih system.
SELF-CHECK 5.3
1. What are some of the tools used in relationship marketing strategy?
2. State the advantages of a customer loyalty programme.
ACTIVITY 5.3
In your opinion, what are the disadvantages of a relationship marketing

programme? Discuss this question in the myINSPIRE forum.
5.2 STRUCTURE IN RELATIONSHIP

MARKETING
What does the structure in relationship marketing refer to? The following is the
definition of structure in relationship marketing:
The structure in relationship marketing denotes the way in which resources

and responsibilities are allocated.
It is important to adapt the structure of the organisation to reflect the changes in

strategy. The structure that is developed within the organisation is one that needs
to support the strategy. Much has been written concerning the strategy-structure
relationship as well as the nature and types of structures that can be used.
The selection of an organisational structure under certain circumstances may

require necessary adjustments to be made to the strategy to increase its
effectiveness (Brink & Bernt, 2008). There are various factors that affect the
selection of an appropriate organisational structure. These factors can be divided
into three main categories as explained in Table 5.3.

Table 5.3: Three Main Categories of Factors Affecting the Selection of an Appropriate
Organisational Structure
Category Definition
Internal factors Refer to issues found within the organisation that can affect its
structure. These include the skill levels of the staff, the motivation
and leadership styles as well as the culture of the organisation.
External factors Refer to the environment of the area/city, region and country in
which the organisation operates as well as the international
environment in which it operates; for example, PESTLE (politic,
economic, socio-culture, technology, law and rules, and
environment).
Market factors Refer to the competitors in the environment, the organisationÊs
customers, the product (or service) complexity and the technological
changes that can be identified.
The trend in industry nowadays is towards flatter and more fluid structures, with
less defined differences in levels and functional areas.
5.2.1 Dimensions of Organisational Structure

Implemented in Relationship Marketing
Consistent with the relationship marketing programme, the dimensions of an
organisational structure are as shown in Figure 5.8.
Figure 5.8: Three dimensions in organisational structure
Let us now discuss the dimensions of an organisational structure one by one (see
Table 5.4).

Table 5.4: Dimensions in Organisational Structure
Dimension Description
Centralisation Centralisation is one of the basic dimensions of organisational
structure and captures the extent in which decision-making is
concentrated in the hands of the few, often people at the top of the
power hierarchy (Paswan, Guzman & Blankson, 2012).
Centralisation is to inverse the amount of delegation of decision-

making authority throughout an organisation and the extent of
participation by organisational members in decision-making
(Jaworski & Kohli, 1993). Managerial attention would end up being
focussed on the struggle between departments for resources and
prestige, and less on relationship marketing.
Formalisation Formalisation is the degree in which rules define roles, authority,
relations, communications, norms, sanctions and procedures
(Jaworski & Kohli, 1993).
Firms high on formalisation seek to control behaviours and processes

by setting rules and standards. This provides control and guidelines
to problem solving and enhances organisational commitment by
reducing role ambiguity and conflict and enhancing transparency in
the work environment (Auh & Menguc, 2007). Unfortunately, this
hierarchy would create communication barriers between customers
and senior management. It also creates the impression that the
responsibility for satisfying customers resides with a defined group
of staff.
Participation Participation is the extent in which everyone in the organisation is
free to participate and be involved in the decision-making process
(Paswan, Guzman & Blankson, 2012). This method will encourage
close and speedy support to customers. Business can respond
immediately to changing customer needs. It will also improve staff
motivation and productivity.
SELF-CHECK 5.4
1. What are the three main categories of factors affecting the selection
of an appropriate organisational structure?
2. Describe the three dimensions in organisational structure.

ACTIVITY 5.4
Discuss in the myINSPIRE forum which dimension of organisational

structure is relevant for your organisation and why.
5.3 IMPLEMENTING RELATIONSHIP

MARKETING SYSTEM
Lastly, let us look at how to implement the relationship marketing system. The
development of a customerÊs trust in a supplier requires the reliable fulfilment of
promises over time. Relationship marketing requires careful attention to be paid
to the design, maintenance of systems and processes. In this subtopic, we will
discuss the system in implementing relationship marketing.
But first, what does a system mean? The following is the definition of a system:
A system is a mechanism, procedure and process by which tasks are

completed.
Next, let us look at a system used in decision-making situations known as decision-

support system (DSS).
5.3.1 Decision-support System (DSS): System in

The advancement in computer technology and computer-based techniques for
handling information allows for the development of a decision-support system
(DSS) which plays a crucial role in the progress of a organisation (Alexuoda, 2005).
A DSS is an interactive computer-based system that is designed to help in decision-

making situations by utilising data to solve unstructured problems (Noori &
Salimi, 2005). In other words,

A decision-support system (DSS) is a coordinated collection of data, system

tools and techniques with supporting software and hardware by which an
organisation gathers and interprets relevant information from its business and
environment, and turns it into a basis for making management decisions.
What is the aim of DSS? The aim of DSS is to improve and expedite the processes
by which the management makes and communicates decisions.
The relevant information can consist of:
(a) Primary information (such as the sales and cost information from company
records, or subjective judgements by managers about the likely impact of
increased advertising spending); and/or
(b) Secondary information (such as sales of competitorsÊ products from a

syndicated database constructed via store audits).
The DSS is divided into four main parts (see Figure 5.9).
Figure 5.9: Four main parts in a DSS
As such, DSS allows for more informed decision-making, timely problem-solving

and improved efficiency for dealing with problems involving rapidly changing
variables.

5.3.2 The Structure of Proposed Marketing DSS

TodayÊs customers have such diverse tastes and preferences that it is not possible
to group them into a large homogenous population that would help marketers to
develop marketing strategies. The system through which database marketing is
characterised by marketing strategies is based on a great deal of information
available from the transaction database and the customer database. This has
become popular and most organisations have built up a massive database of their
customers and their purchase transactions (Noori & Salimi, 2005). In this database,
customer profiling data is kept. It contains six components as stated in Figure 5.10.
Figure 5.10: Six components of customer profiling in DSS

Source: Noori & Salimi (2005)
The most important information about a customer is his profile. A customer profile
is a model of the customer the marketer bases on when deciding on the right
strategies and tactics to meet the needs of that customer.

Let us discuss the components of customer profiling in DSS one by one as shown
in Table 5.5.
Table 5.5: Six Components of Customer Profiling in DSS
Component Description
Prospecting Customer profiles, especially their buying patterns, provide clues on
prospective customers to the marketer. DSS helps you to understand,
anticipate and respond to your customers' needs in a consistent way,
right across your organisation.
Identifying The characteristics of each group can be obtained by class
typical identification or concept description. Knowing the customers and
customer targeting them with the right deal gets a far better response rate than
groups a general message.
Computing With customer profiling supported by data mining and knowledge
customer discovery systems, several marketing activities can be enhanced such
lifetime values as computing customer lifetime values, prospecting and evaluating
success or failure of marketing programmes.
Size of How much does the customer spend on a typical transaction? This
purchase information helps the marketer to devote appropriate resources to
customers who spend more.
Frequency of How often does the customer buy your product or service? This
purchase information will help the marketer (or manager) to build targeted
promotions such as frequent buyer programmes.
Recency of How long has it been since this customer last placed an order? The
purchase marketer may investigate the reasons why a customer or group has
not purchased over a long period of time and take appropriate steps.
Source: Noori & Salimi (2005)
SELF-CHECK 5.5
1. What is a system?
2. What are the four main parts in a DSS?
3. Elaborate the six components of customer profiling in DSS.

ACTIVITY 5.5
How does the IT element help in ensuring the success of a relationship

marketing programme? Discuss this matter in the myINSPIRE forum.
• Two types of strategies in implementing relationship marketing are company-

to-company and company-to-employee/organisation (staff).
• The life cycle of relationship marketing consists of five phases - the discovery
phase, development phase, commitment phase and loyalty phase, and
subsequently, the dissolution phase.
• Three strategy frameworks suggested in operationalising the notion of

marketing strategy are agressive marketing, price leadership and product
specialisation.
• Factors involved in the implementation of relationship marketing are

commitment, trust, customer orientation/empathy, experience/satisfaction
and communication.
• Tools in relationship marketing strategy are loyalty card programmes,

company credit cards and rebate offers, among others.
• Three dimensions of organisational structure implemented in relationship

marketing are centralisation, formalisation and participation.
• A decision-support system (DSS) is an interactive computer-based system

designed to help in decision-making situations by utilising data to solve
unstructured problems in relationship marketing.
• Four main parts in a DSS are input, processing, output and user.
• The structure of customer profiling in relationship marketing includes

prospecting, identification of typical customer groups, computation of
customer lifetime value, size of purchases, frequency of purchases and recency
of purchases.

Centralisation Implementation
Company-to-company Life cycle of relationship marketing
Company-to-employee/organisation Marketing strategy
(staff)
Participation
Customer profiling
Strategy
Decision-support system (DSS)
Structure
Dimensions
System
Formalisation
Tools
Frameworks
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relate: Obstacle to relationship marketing engagement. Journal of Business
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Auh, S., & Menguc, B. (2007). Performance implications of the direct and
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Ballantyne, D. (1997). Internal networks for internal marketing. Journal of

Marketing Management, 13(5), 343–66.
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Topic  Implementing
Relationship
6 Marketing
Programmes –
Shared Value,
Staff, Styles
and Skills
LEARNING OUTCOMES

1. Elaborate the concept of internal marketing in relationship
marketing;
2. Describe the functions of shared value and culture in relationship
marketing;
3. Explain the virtuous cycle of how staff and internal service quality
affects external service quality; and
4. Discuss the influence of style and skills on the successful
implementation of relationship marketing.

TOPIC 6 IMPLEMENTING RELATIONSHIP MARKETING PROGRAMMES –  131
SHARED VALUE, STAFF, STYLES AND SKILLS
 INTRODUCTION
How do we implement relationship marketing programme? Well, let us explore
this topic to examine the concept of internal marketing in relationship marketing
as well as the roles of shared value, culture, staff, internal service quality, style and
skills in implementing relationship marketing in an organisation. So are you ready
to discover these matters? Let us continue with the lesson!
6.1 INTERNAL MARKETING

Did you know that people with good social skills are important in relationship-
oriented organisations? This is because to maintain contact with customers every
now and then, organisation needs sufficient and competent people to handle the
customers. This involves call centres, representatives, service counter staff as well
as staff in the administration department.
According to Kumar and Reinartz (2006), an employeeÊs behaviour can either

enhance or reduce the product or service value to the customers. Satisfied
employees at work are likely to drive customer satisfaction particularly in service-
based business. In other words, winning and keeping good employees should be
like winning and keeping good customers.
Moreover, to obtain employee commitment in relationship marketing, the

company needs to market the strategy to the employees as if it was a product that
the employees were expected to buy. Hence, a companyÊs relationship marketing
strategy must effectively address employee satisfaction in order to increase
customer satisfaction. An effective way of improving employee satisfaction is
through the process of internal marketing.
6.1.1 Employees as Customers

The concept of internal marketing has been in existence for more than 20 years.
Berry (1981) suggested applying marketing-like strategies to people management
and treating employees as „internal customers‰. The focus of BerryÊs conception
of internal marketing was on employee recruitment and motivation, with a view
of the employee as the customer and the job as the product. Internal marketing
enables an organisation to recruit, motivate and retain customer-conscious
employees to boost employee retention and customer satisfaction level (Clark,
2000).

132  TOPIC 6 IMPLEMENTING RELATIONSHIP MARKETING PROGRAMMES –
6.1.2 Internal Marketing as a Change Management

Tool
As stated earlier, internal marketing is used to motivate and satisfy employees,
hence leading to greater productivity and external service quality. It also helps to
align the efforts of the various functions within an organisation.
In addition, internal marketing helps in the implementation of strategic change. It

generates greater understanding and support, and removes barriers such as
complacency, misallocation of resources and internal politics.
Rafiq and Ahmed (2000) have recognised five elements of internal marketing as
listed in Figure 6.1.
Figure 6.1: Five elements of internal marketing

Source: Rafiq & Ahmed (2000)
In summary, internal marketing as a change management tool can be defined as

follows:
Internal marketing is „a planned effort to overcome organisational resistance

to change and to align, motivate and integrate employees towards the effective
implementation of corporate and functional strategies.‰
(Ahmed & Rafiq, 2000)

6.1.3 Internal Marketing as a Social Process

The new paradigm for internal marketing by Varey and Lewis (1999) calls for a
model of internal marketing based exclusively on the 4Ps (place, product,
promotion and price). The establishment of internal marketing is to create the
conditions in which the organisation can work with its internal and external
stakeholders towards organisational goals.
According to Varey and Lewis (1999), internal marketing is not seen as a means of
effecting change but as an end in itself. It creates conditions whereby the
organisation can have partnership with its internal and external stakeholders.
Thus, internal marketing or internal relationship marketing as a social process is
defined as follows:
Internal marketing, seen as internal relationship marketing, is „an integrative

process within a system towards fostering positive working relationship in a
developmental way in a climate of cooperation and achievement.‰
(Varey & Lewis, 1999)
Varey and Lewis (1999)Ês approach of internal relationship marketing have

somehow blurred the internal-external boundary of the organisation through the
following:
(a) Customer involvement;
(b) Supplier and customer partnership;
(c) Relationship as enterprise assets;
(d) Exchange of ideas as mutual gains; and
(e) Collection and dissemination of customer information.

6.1.4 Internal Relationship Marketing as Knowledge

Renewal
There is a clear distinction between internal transaction marketing and internal
relationship marketing. Internal transaction marketing involves the capture of
knowledge through measurement, control, research methods and knowledge
coordination in the form of new product information, policy and strategy.
On the other hand, internal relationship marketing is related to knowledge

generation through cross-functional teams, creative approaches to problem
solving, knowledge circulation team-based learning programmes, feedback
system and skills development workshops.
To ensure that internal relationship marketing works, trust among the

organisationÊs employees as well as between the employees and the management
is a prerequisite for the relationship.
Based on this perspective, the following is another definition of internal marketing

based on knowledge renewal:
Internal marketing is „a relationship development process in which staff

autonomy and know-how combine to create and circulate new organisational
knowledge.‰
(Ballantyne, 1997)
6.1.5 Internal Marketing as Implementation Tool and

Business Philosophy
Based on marketing literature, the following are the two distinct approaches to
internal marketing:
(a) Internal marketing as an enabling device for the implementation of a given

initiative such as relationship marketing; and
(b) Internal marketing as a radical rethink of the organisation, its systems and
structures.

According to Gummesson (2002), the objective of internal marketing within

relationship marketing is to create relationships between management and
employees and between departmental functions. Employees should be viewed as
part-time marketers who can create value for customers when the customer,
employee, process and system converge. Therefore, internal marketing may
involve several activities and processes at both strategic and tactical levels as
Figure 6.2: Some activities and processes in internal marketing
SELF-CHECK 6.1
1. What is internal marketing and its objective?
2. State the difference between internal transaction marketing and

internal relationship marketing.
3. What are the activities and processes in internal marketing?

ACTIVITY 6.1
1. Read the following excerpt and discuss in the myINSPIRE forum

whether you agree with the companyÊs view of what contributed
to its success.
Syarikat Zohar, a leading food delivery organisation, found that

implementing a relationship marketing strategy required a great
deal of participation, commitment and reinforcement from the
employees. Before the strategy was implemented, the company
extensively tested the new sales force automation system with the
employees involved in sales and customer service to seek their
opinions about the features they felt should be included and how
it should be used.
After the trial period, the system was successfully deployed in

many of ZoharÊs markets and was widely adopted by sales staff.
The new system was credited with an increase in the sales
performance of sales representatives by over 75 per cent. The
company believed that the success was largely attributed to the
initial involvement in designing the system.
2. Read the following excerpt.
Most people have limited tolerance for change initiatives; branding

and visioning exercises are no exception. However, at certain
turning points when the company is experiencing some
fundamental challenge or change, employees will be seeking
direction and will be relatively receptive to these initiatives.
British Petroleum seized such an opportunity when it merged with

Amoco and then ARCO. It rebranded itself as BP, redesigned its
logo and launched a campaign simultaneously to staff and to the
public declaring that it was going „beyond petroleum.‰ The
company repositioned its brand and put aside its identity as an oil
company to become an energy company, moving from an old-
styled and closed corporation to an open, collaborative and new
economic venture. This break with the past gave employees from
each of the original companies a new and distinctive identity.

A survey taken after the internal branding campaign was launched

showed that 76 per cent of employees felt favourable towards the new
brand, 80 per cent were aware of the brand values that constituted the
new brand messages and 90 per cent thought the company was going in
the right direction.
Source: Mitchell (2002)
Can you identify which internal marketing exercise has BP followed?

6.2 SHARED VALUE AND CULTURE

Now, let us discuss how shared value and culture help in the implementation of
relationship marketing programmes. Organisational culture has been recognised
as one of the foundations of long-term marketing effectiveness (Egan, 2004). What
do you define culture? Culture can be defined as follows:
Culture is the „deep-seated, unwritten system of shared values and norms

within the organisation which in turn dictates its climate.‰
(Egan, 2004)
To ensure optimal relationship marketing success, the right culture must be

created to get the maximum benefit from the organisation and its people. The
culture must shift from an organisation where top management directs, controls
and instructs staff to one where staff are encouraged to participate and become
proactive in contributing to the achievement of the relationship marketing vision.
To achieve this, the presence of a set of shared values for the development of a
culture conducive to relationship marketing is vital. What do shared values mean?
Shared values are „those ideas of what is right and desirable (in corporate
and/or individual behaviour), which are typical of the organisation and
common to most of its members.‰
(Christopher, Payne & Ballantyne, 1991)

According to Christopher et al. (1991), commitment to quality and customer

service are among the elements to be included in shared values.
The following are several important elements in the implementation of

relationship marketing programmes:
(a) Ethics and Relationship Management

Fair culture and shared values help organisations gain customer satisfaction
and loyalty. For example, when customers feel that they are getting fair
treatment from the organisation, in return, they will feel satisfied and become
loyal customers (Omar, Alam, Abd Aziz & Nazri, 2011).
(b) Mission Statement

Most mission statements answer the two simple questions of, „What
business we are in?‰ and „What business we should be in?‰ (Wilson &
Gillighan, 1997). Mission is crucial to the success of a relationship-oriented
organisation. The mission statement will not have a significant effect on
employee behaviour unless there is commitment from staff throughout the
organisation, particularly senior management. The chances of relationship
marketing being implemented are low if top management does the following
(Peelen, Verbeke, & Ouwerkerk, 1996):
(i) Focuses too much on short-term success and the cost;
(ii) Is composed of „number crunchers‰;
(iii) Does not dare to take much risk;
(iv) Displays too much reactive behaviour;
(v) Does not have enough entrepreneurial spirit; and
(vi) Does not have enough vision.
Hence, the mission statement needs to be supplemented by the following

three values (ASDA, 2010):
(i) Respect for the individual;
(ii) Service to the customer; and
(iii) Strive for excellence.
Employees will only commit to the mission if their individual values coincide
with those of the organisation as a whole. Moreover, having a clear,
meaningful mission statement and support from top management provides

guidance to employees, increasing their satisfaction, motivation and

effectiveness. Based on past studies, there is a strong correlation between
employeesÊ perceptions of organisational commitment to the mission and the
alignment of their behaviour with the mission contents.
(c) Marketing Communication and Shared Values

A mission in and of itself does not provide enough guidance for the
relationship-oriented organisation. Relationships are impossible without
communication, in which trust and commitment are products of
communication. The key to successful relationship marketing
communication is the shared values that provide the basis for the integration
of the various messages transmitted and received by the organisation.
The quality of a relationship-oriented organisation depends largely on the

quality of mutual communication (Peelan, 2005). Furthermore, sharing of
internal and external information is also crucial to cultivate the relationship.
The following are a few elements that are important in marketing

communication:
(i) Audience Diversity: External and Internal Audiences

External audiences include suppliers, intermediaries, shareholders, the
press, government, industries, professional bodies and societies who
have an interest in what the organisation says, does or produces.
Sometimes, they are called stakeholders. Internal audiences are the
organisationÊs employees. In a relationship-oriented organisation, the
communication system encompasses internal and external audiences.
(ii) Medium and Message Diversity

Most early stages of relationships depend on personal or independent
sources in developing trust (Murray, 1991). However, as the
relationship grows, organisations can use planned promotional
activities such as advertising, public relations and direct marketing to
maintain the relationship. To ensure repeat purchase by customers, the
communication strategies must also include messages regarding
customersÊ gains from the experience of using the products or services.
There are five types of message sources as shown in Figure 6.3
(Gronroos, 2000).

Figure 6.3: Five types of message sources

Source: Gronroos (2000)
In planned messages, the traditional communication media are

advertising, telephone sales, mail-shots (sending promotional materials
to a large number of people) and personal selling.
Examples of product messages include the product design, durability,

firmness for use and reliability of the product.
Unplanned messages are word-of-mouth communication, news articles

and product reviews whereas service messages are messages obtained
from interactions with sales staff, delivery or invoicing, processes and
complaints handling.
Absence of communication could reflect the care (or rather the lack of
care) with which the organisation treats its customers. For example,
failure by the organisation to notify the customer of delivery delays or to
respond to a complaint.

(d) Importance of Integrated Communication

Relationship-oriented organisations need to integrate both planned
communication process and interaction process as one strategy in making
relationship marketing successful (Gronroos, 2000). Planned communication
is the deliberate delivery of planned messages and receipt of responses,
which include the recruitment of new customers and the development of
relationships with existing customers.
On the other hand, the integration process includes the customers giving and
receiving the message through the consumption experience.
The planned messages will create expectations against which the customers
will evaluate the quality of the organisationÊs products or services. Hence,
failure to meet these expectations will destroy the customersÊ trust towards
the organisation. It is suggested that organisations need to treat planned
communication as an extension of its internal policies, processes and values
(Gronroos, 2000). For example, in creating the corporate image, the
consistency of messages between suppliers and customers is essential so that
various messages transmitted by the organisation do not conflict with one
another regardless of the various tools used.
SELF-CHECK 6.2
1. What is culture and shared value?
2. State the elements that are important in the implementation of

relationship marketing programmes.
6.3 STAFF AND INTERNAL SERVICE QUALITY

Now, let us move on to discuss staff and internal service quality. How do they
relate to each other? Let us find out the answer.

6.3.1 Staff
The staff is an important supporting condition for successful relationship
marketing implementation. Many commentators believe that the staff is the most
important element in the performance of a relationship marketing strategy (Buttle,
2004). There are several reasons that support the importance of the staff in
implementing relationship marketing strategies (see Figure 6.4).
Figure 6.4: Some reasons that support the importance of staff in implementing
relationship marketing strategy
Moreover, staff who are rewarded with incentives for high quality work (praise
from customers and management, bonus pay due to customer satisfaction and
customer-oriented remuneration) are more motivated. This recognition provides
a boost to the staff, which in turn enhances staff satisfaction and willingness to
make a commitment.
The virtuous circle model proposed by Reichheld, Markey and Hopton (2000) and
the service-profit chain model proposed by Heskett and Schlesinger (1994) support
the argument that employee retention is related to profitability.

The virtuous circle advocates that organisations must focus on internal service
quality to promote profit growth. Based on Reichheld et al. (2000), profitability can
be enhanced through a virtuous circle in the following ways:
(a) Profitable growth arises from loyal customers as loyal customers will
recommend the products or services to others;
(b) Customer loyalty arises from customer satisfaction as the organisation

meets or exceeds customer expectations;
(c) Customer satisfaction arises from high product value as the product benefits
exceed the costs;
(d) High product value is the result of satisfied and motivated staff who know
their job well;
(e) Employee retention arises from satisfied employees; and
(f) Employee satisfaction is due to the presence of internal service quality such
as staff benefits that includes pay, status and promotion.
However, it should be noted that recent research has found that satisfaction alone
does not guarantee customer retention as trust and commitment are key
prerequisites of loyalty (Omar et al., 2011).
The key implication of the virtuous circle model is the assumption that
organisations have an environment within which members of staff are motivated
and empowered to deliver good customer service. To promote growth and
employee satisfaction, organisations need to focus on internal service quality,
especially in terms of monitoring and control mechanisms.
6.3.2 Internal Service Quality

Understanding the employeesÊ perspective is a critical tool in managing customer
satisfaction as it enables managers to exercise internal marketing, in effect, meeting
the needs of employees so that they can meet the needs of customers. According
to Horovitz and Panak (1992), employees who subscribe to the norms, values and
culture which apply within an organisation may become emotionally involved in
the organisation and are prepared to make extra efforts in the interest of the
relationships.

Similarly, Berry and Parasuraman (1991) emphasised the value of treating staff the
way you would want them to treat customers, in the belief that this would provide
an ideal climate for changing marketing behaviour – „happy staff equals happy
customers.‰
Hallowell, Schlesinger and Zornitsky (1996) suggested eight components in

internal service quality, which can improve external service quality and create
satisfaction. The eight components are shown in Figure 6.5.
Figure 6.5: Components of internal service quality

Source: Hallowell, Schlesinger & Zornitsky (1996)
If the eight components are well managed, internal service quality will be
enhanced and external service quality improved, thereby creating satisfaction and
bringing about a successful relationship.

It should be noted that the eight components of internal quality depend on the
nature of the service. Lovelock (1983) suggested that the scope of service personnel
to exercise discretion in tailoring and customising the service to individual needs
should be considered.
According to Lovelock (1983), there are four types of services as shown in

Figure 6.6.
Figure 6.6: Four types of services

Source: Lovelock (1983)
The four types of services are described in Table 6.1.

Table 6.1: Four Types of Services

Type Description
Service This refers to standardised services and consistent standards. The role of
production the service staff requires relatively little initiative. To ensure the staff
line understands the process and is able to perform the service, the emphasis
of human resource management is on the training of service providers,
external monitoring and control. Example: fast food, public
transportation and cinema.
Menu Based on the range of choice, customers can control the design of the
service product by selecting standardised options from a set of products at the
customerÊs request. Example: restaurant menu and personal banking.
To deliver menu service, the service provider needs to be familiar with
the range of products and procedures. For example, CIMB Bank Bhd
offering savings account, current account with varying rates of interest
and facilities attached, credit cards, mortgages, loans and so on.
However, the service provider has no authority to change the nature of
the product to better suit the customer or make the final choice as to
which product is offered to the customer. Thus, the emphasis is still on
staff training, monitoring and control in delivering a pre-set range of
products to customers.
Performance This involves high level of discretion on the part of the service provider
service but with the same service to all customers. For examples, education and
ante-natal healthcare courses.
In ante-natal courses, the specific programme will be the same for all
participants but the tone and content of the sessions are determined to a
large degree by the health officer delivering the course. Provider
contributions as well as organisation management are important to the
service design. Level of external control is low as management is not in
a position to specify performance standards. However, control
mechanisms will rely on the education of the individual towards values
and standards of the organisation.
To deliver performance service, delegation and empowerment are given
to the customer-facing employee to create customer satisfaction. Thus,
training and development will emphasise general skills, knowledge and
confidence.
Professional The professional service involves a high degree of complexity and
service discretion on the part of the service provider. For example, professional
services like wedding planners and legal advice require low external
control.
As employeeÊs ability and skills are vital, organisations need to focus on
the recruitment process with detailed specification of job requirements
and specifications.
Source: Lovelock (1983)

Since trust and commitment are vital in relationship marketing, the classification
of the types of services discussed in Table 6.1 suggests that employee retention
assumes a different level of importance in different service types or situations. For
instance, in the case of high discretion service (performance service and
professional service), employee retention takes on a greater role.
On the other hand, for production line and menu services, which involve simple
service product, the perceived level of risk in the recruitment of new staff is lower
as the new staff can be trained more quickly and cheaply.
Although employee retention assumes different levels of importance for various

service situations, the aim of the organisation should be to reduce staff turnover at
all levels. Hence, to develop relationship marketing, empowerment of the service
provider in terms of resources, authority or knowledge will minimise staff
turnover and enable the staff to deliver quality service and build relationship
quality.
According to Bowen and Lawler (1992), the more enduring the relationship, the
stronger the case of empowerment. Creating an intra-organisational environment
in which employees are flexible and prepared to take decisions without referring
to management will help to promote organisational growth (Chaston, Badger, &
Sadler-Smith, 2000).
SELF-CHECK 6.3
1. List the four types of services.
2. Explain the virtuous circle.

ACTIVITY 6.2
Read the following excerpt.
Zappos employees are empowered to effectively use the element of

surprise with customers. This story is told by a customer of Zappos:
When I came home recently, I had an e-mail from Zappos asking about
the (returned) shoes, since Zappos had not received them. I was just back
and not ready to deal with that, so I replied that my mom had just died
but I will send the shoes as soon as I can. The company e-mailed back to
say that the staff has arranged with UPS to pick up the shoes, so I would
not have to take the time to do it myself. I was so touched. That was
against corporate policy.
Yesterday, when I came home from town, a florist delivery man was just
about to leave. It was a beautiful arrangement of white lilies, roses and
carnations in a basket – big, lush and fragrant. I opened the card and it
was from Zappos. I burst into tears. I am a sucker for kindness, and if
that was not one of the nicest things that I have ever had happened to
me, I do not know what is.
Such examples are justified by almost any cost because the cost that hit
Zappos by doing this is paid back multiple times over through the
customer loyalty that the company generates from making their
customers happy.
Source: Schoultz (2020)
Discuss the effect of the employee initiative towards the customer on the
companyÊs brand in the myINSPIRE forum.

6.4 STYLE
Managers at all levels of the organisation play a significant role in ensuring
successful implementation of the relationship marketing strategy through their
own management style. Do you know what style is? The following is the definition
of style:
Christopher et al. (1991) defined style as „the way managers collectively act
with respect to use of time, attention and symbolic actions.‰
Hence, style in this context is closely related to the management style of an

organisation. According to Gronroos (1981), the way managers behave will have a
big impact on the behaviour of the staff. Thus, having a supportive management
style is one of the key elements of strategic internal marketing.
Managers can exert influence on the staff in implementing relationship marketing

in various ways. Among them are through reward systems. Reward practices can
have significant effect on the implementation of total quality management (TQM)
(Allen & Kilmann, 2001), which according to Little and Marandi (2003), is an
important part of relationship marketing. TQM system involves the development
of quality specification for the product or service, thus it must be developed with
reference to the customer. The following are two types of reward systems:
(a) Non-monetary Rewards

Non-monetary rewards are better implemented in the early stages of the
introduction of TQM. Non-monetary rewards deliver appropriate
reinforcement without involving a fundamental change in the organisationÊs
systems and structures (Allen & Kilmann, 2001). Examples of non-monetary
rewards that are often used by organisations are shown in Figure 6.7.

Figure 6.7: Four examples of non-monetary rewards

Source: Allen & Kilmann (2001)
The four examples are further explained in the following:
(i) Rewards in kind are gifts certificates, merchandise or any other tangible
rewards;
(ii) Celebrations include holding special events, parties or dinners;
(iii) Advancement such as promotion criteria is based on quality

achievements; and
(iv) Staff development includes training, education or experience that will

increase the individualÊs employability.
(b) Monetary Rewards

To ensure TQM is embedded in the organisation culture, appropriate
monetary rewards are important. Allen and Kilmann (2001) suggested that
monetary reward systems are positively correlated with high quality
performance. Examples of such monetary rewards are shown Figure 6.8.

Figure 6.8: Six examples of monetary rewards

Source: Allen & Kilmann (2001)
These examples are further explained as follows (Little and Marandi, 2003):
(i) Profit sharing is where employes are awarded a proportion of

corporate profits;
(ii) Gain sharing is bonus paid to employees based on gains in productivity

or profitability;
(iii) Quantity-based performance appraisals are rewards given to staff

based on quantity-based targets rather than quality-based targets;
(iv) Employment security is about staff being rewarded by agreement to

safeguard job;
(v) Individual reward system refers to rewards given based on individual

attainment rather than departmental or unit performance; and
(vi) Compensatory time is where the employee is rewarded with time-off

rather than monetary reward.

SELF-CHECK 6.4
What are the types of rewards that can be used by management to exert
influence on staff in implementing relationship marketing?
6.5 SKILLS
Lastly, let us look at the aspect of skills in relationship marketing. PeopleÊs skills
and knowledge required for successful relationship marketing performance may
need to be reviewed and upgraded as they are the ones who actually develop
relationships, not the IT applications. People with excellent social skills are vital in
relationship-oriented organisations.
According to Tracy (2015), a relationship marketing personnel should have

interpersonal skill, be pro-active, willingness to consult customers, knowledgeable
of products or services, equipped with good selling skills coupled with highly
effective problem-solving and negotiating competencies for effectiveness.
The realisation of customer-centric practices requires fundamental changes in the

competencies of an organisationÊs resources, particularly those who are involved
in the sales process directly or indirectly.
Furthermore, most staff rely upon a wide array of technologies to keep abreast of
changes in the marketplace and to identify trends leading to new business
opportunities. This requires company staff to be proficient in technology and to be
supplied with up-to-date hardware systems and applications. Training and
retraining of staff are no longer confined to employee orientation, but rather it has
become a continuous, ongoing process. Relationship marketing managers should
question whether existing skills and practices support the adoption of relational
approaches.
Training serves two key functions in relationship marketing, which are as follows:
(a) To motivate and empower staff in enhancing internal as well as external

relationships; and
(b) To maintain relationships with external customers by making the staff more
efficient and skilful.

Based on Little and Marandi (2003), the training process (derived from TQM
principles) comprises three levels, which are:
(a) Training Needs Assessment

This level is also known as skills audit. The main function of training needs
assessment is to identify the purpose and nature of training. To ensure the
training meets the organisationÊs skills gap, the organisation can refer to
various sources of information to produce relevant training to their staff. For
instance, the organisation can refer to external consultants, managerÊs
assessment, employee and customer feedback, and analysis of relationship
marketing plans to gather information.
(b) Delivering the Programme

The delivery of the training programmes can draw on outside expertise,
external training programmes or internal training. In-house training through
a workplace mentor or supervisor is useful for transmission of corporate
values, culture and routines to new staff.
On the other hand, external training programmes are vital for organisational
change particularly in bringing new ideas or practices. Thus, the use of
external training or education is usually dictated by necessity.
(c) Evaluating the Effectiveness of Training

According to Kirkpatrick (1998), there are several ways of evaluating the
effectiveness of training programmes (see Figure 6.9).
Figure 6.9: Several ways of evaluating the effectiveness of training programmes

Source: Kirkpatrick (1998)

In addition, there are various sources of information that you can refer to in
order to understand the effectiveness of training (see Figure 6.10).
Figure 6.10: Sources of information to understand the effectiveness of training

SELF-CHECK 6.5
1. What are the three levels of training process in the context of

relationship marketing?
2. How do we evaluate the effectiveness of training programmes?
3. Identify the sources of information in understanding the

effectiveness of training.

• Satisfied employees at work are likely to drive customer satisfaction

particularly for businesses that involve services.
• A companyÊs relationship marketing strategy must effectively address

employee satisfaction in order to increase customer satisfaction.
• An effective way of improving employee satisfaction is through the process of

internal marketing.
• Internal marketing focuses on employee recruitment and motivation, with the

view of the employee as the customer and the job as the product.
• Five elements of internal marketing are employee motivation and satisfaction,

customer orientation and customer satisfaction, inter-functional coordination
and integration, marketing principles and practices approach, and
implementation of specific corporate or functional strategies.
• Internal marketing can be viewed as a change management tool, a social

process, knowledge renewal, implementation tool and business philosophy.
• To ensure optimal relationship marketing success, the right culture and shared
values must be created to get the maximum benefit from the organisation and
its people.
• Shared values are those ideas of what is right and desirable (in corporate
and/or individual behaviour) which are typical of the organisation and
common to most of its members.
• Culture is the deep-seated, unwritten system of shared values and norms

within the organisation, which in turn dictates its climate.
• There are several important elements to the implementation of relationship

marketing programmes, which are:
– Ethics and relationship management;
– The mission statement;
– Marketing communication and shared values; and
– The importance of integrated communication.

• The staff of an organisation is an important supporting condition for successful

relationship marketing implementation.
• There are four types of services, namely the production line service, the menu
service, the performance service and the professional service.
• In the context of relationship marketing implementation, style as defined as

the way managers collectively act with respect to the use of time, attention and
symbolic actions.
• Two types of reward systems are non-monetary rewards and monetary

rewards.
• PeopleÊs skills and knowledge required for successful relationship marketing

performance may need to be reviewed and upgraded. Needless to say, training
is important in relationship marketing.
• Training process comprises three levels, namely training needs assessment,

programme delivery and evaluation.
Culture Mission statement

Empowerment Monetary rewards
Ethics Non-monetary rewards
Integrated communication Performance service
Internal and external training Production line service
Internal marketing Professional service
Internal service quality Shared values
Level of discretion Virtuous circle
Menu service

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Topic  Monitoring
and
7 Controlling
Relationship
LEARNING OUTCOMES

1. Identify the three major approaches of monitoring and controlling;
2. Elaborate the measures of relationship success;
3. Explain the importance of complaints analysis and handling in
customer relationship management (CRM); and
4. Discuss the Gaps model of service quality.
 INTRODUCTION
This topic will explain the strategic methods of monitoring and controlling
relationships at all levels, regardless strategic or tactical. Monitoring and
controlling relationships are becoming an important part of planning and
implementation. In fact, controlling is one of four management functions, which
refer to monitoring the performance, comparing it against goals and taking
corrective actions when needed.
Hence, monitoring systems provide the information that informs the planning
process while control mechanisms ensure the plan is implemented accordingly.
Let us find out more about monitoring and controlling. Happy reading!

TOPIC 7 MONITORING AND CONTROLLING RELATIONSHIP  161
7.1 APPROACHES TO MONITORING AND

CONTROLLING
What are the approaches to monitoring and controlling? Little and Marandi (2003)
classified monitoring and controlling approaches of customer relationship
management (CRM) into three major approaches as shown in Figure 7.1.
Figure 7.1: Three major approaches to monitoring and controlling of CRM

The three approaches are further explained in the next subtopics.
7.1.1 Hard versus Soft Monitoring and Controlling

Mechanisms
Hard monitoring and controlling mechanisms involve measuring activity or
achievement quantitatively. This mechanism is adopted in situations where an
employeeÊs critical output or performance level is easily defined and measured.
This mechanism is based on the principle that employees must be closely
monitored and their good performance will be rewarded. For example,
promotional budgets where employees spend money to achieve sales targets must
be monitored to ensure no overspending.
On the other hand, soft monitoring and control mechanisms are based on the
principle that an employee does not require constant attention and monitoring.
This mechanism is appropriate when an employeeÊs output and achievements are
not easy to define, or where variations in activity or output are not critical. For
example, let us look at the customer service unit in maintaining customer
satisfaction. Although customer satisfaction can be monitored and linked to
employee reward schemes, an adversarial relationship between customers and
service staff will often exist. Better results can be achieved by relying on the
employeeÊs natural predisposition (through training programmes) in offering
good service.

162  TOPIC 7 MONITORING AND CONTROLLING RELATIONSHIP
7.1.2 Performance versus Diagnostic Monitoring

Performance indicators are also used as indicators of corporate performance. For
example, profitability and customer satisfaction measure the effects of a
companyÊs actions, providing feedback on its success or failure. Performance is a
useful indicator as to whether a companyÊs objective is successful or if a change of
strategy is needed.
Diagnostic monitoring is used as a diagnostic tool in service quality measurement

and cost-benefit analysis. This approach allows a more in-depth look at the
companyÊs actions and their effects on customers. This allows managers to learn
from failures and identify causes of success.
A comprehensive monitoring system must include both diagnostic and

performance monitoring mechanisms; diagnostic monitoring provides
information to remedy problems and effect continuous improvement while
performance monitoring provides a summary for senior managers and
shareholders.
7.1.3 The Balanced Scorecard Approach

The balanced scorecard approach was advocated by Kaplan and Norton (1992).
This approach offers guidance on the development of corporate performance
measures. This approach not only ensures that a range of strengths and
weaknesses to be identified and managed, but also prevents the organisation from
becoming fixated on a single aspect of its business.
According to Kaplan and Norton (1992), balanced scorecard performance

indicators can be categorised into four aspects (see Figure 7.2).
Figure 7.2: Four aspects of balanced scorecard performance indicators

Source: Kaplan & Norton (1992)

The four aspects of the balanced scorecard performance indicators are discussed
in more detail in Table 7.1.
Table 7.1: Four Aspects of Balanced Scorecard Performance Indicators
Aspect Description
Financial Typical financial goals have to do with profitability, growth and
perspective shareholder value. For example, sales by value or volume, market share
and growth are indicators of the financial aspect. Financial measures
such as quarterly sales have been criticised as being shortsighted and not
reflecting contemporary value-creating activities. Moreover, critics say
that traditional financial measures do not improve customer satisfaction,
quality or employee motivation.
Customer This could include measures of retention (customer loyalty), satisfaction
perspective levels and the balance of existing and new business or cooperative
projects. Many organisations consider taking care of the customer as its
utmost priority. The balanced scorecard translates into specific measures
of concerns that really matter to customers. Thus, retention of customers
can be viewed from the income of existing customers versus income from
new customers when measuring performance.
For customer satisfaction, we can look at the satisfaction level and
number of complaints and compliments while the level of
communication with customers can be monitored by looking at the
average number of contacts and feedback from customers.
Internal This perspective focuses on operational effectiveness and measurement
business of factor characteristics such as production costs, cycle times, reliability
perspective and defects. It also refers to human resources and competencies
developed by the organisation. Some of the examples of indicators of
internal business are:
(a) Keeping promises (i.e. number of defects, number of complaints,
number of returns);
(b) Efficiency (i.e. waste reduction targets and costs); and
(c) Staff satisfaction (i.e. staff satisfaction level, retention or turnover).
Innovation Due to global competition which may force a company to constantly
and learning change the targets for success, continual improvements to existing
perspective products and processes as well as introducing new products periodically
must be made.
Therefore, an organisation must measure its research and development
(R&D) efforts as well as its efficiencies in manufacturing and delivery.
For example, customer involvement in R&D projects is an indicator of
customer input. Other examples are the number of new products or
improvements made.
Source: Kaplan & Norton (1992)

For relationship management-focused organisations, the balanced scorecard

measures should reflect the relational perspective rather than being confined to a
single aspect of the business such as product development. In monitoring
relationship management organisations, more detailed information on individual
or group contributions to the overall performance of the organisation is vital.
Thus, the manager of a relationship management organisation needs to have

access to information about the profitability of each customer, segment, type of
customer and low value market. This information should be sufficiently detailed
in order to identify and rectify specific problems. An example would be to
recognise and prioritise customers who offer profitable relationships.
SELF-CHECK 7.1
1. State the three approaches to monitoring and control.
2. Explain the four indicators of the balanced scorecard approach.
ACTIVITY 7.1
Which type of monitoring and controlling approach is being

implemented in your organisation? Share your answer for discussion in
the myINSPIRE forum.
7.2 MEASURES OF RELATIONSHIP SUCCESS

The three main areas in measuring relationship success are relationship
facilitators, relationship features and relationship returns (see Figure 7.3).
Figure 7.3: Relationship-level monitoring


These three areas of relationship-level monitoring are further explained in the

following subtopics.
7.2.1 Relationship Facilitators

What do relationship facilitators refer to?
Relationship facilitators refer to factors that contribute to the development of

a strong, long-term relationship.
Factors such as satisfaction, quality and trust are prerequisites of customer loyalty.
Thus, these factors will be a valuable measure of relationship marketing
performance. Now, let us discuss more about customer satisfaction.
(a) Customer Satisfaction

Consumers develop feelings of satisfaction or dissatisfaction during and
after the consumption of a service or product. Do you know what satisfaction
is? The following is the definition of satisfaction:
Oliver and Swan (1989) defined satisfaction as „a total psychological

state when there is an existed discrepancy between the emerging
emotion and expectation, and such an expectation is a consumersÊ
feeling anticipated and accumulated from their previous purchases.‰
This definition has two important elements, namely that satisfaction results
from an emotional state and expectations influence satisfaction.
The expectancy disconfirmation theory developed by Oliver (1997) on

satisfaction refers to the consumerÊs comparison of the service performance
to an expectation. This is illustrated in the following equation:
Satisfaction = f (Perception – Expectation), where f is function

There are two stages of customer expectation:
(i) First, the consumer develops expectation about the company during
the customerÊs first encounter with the service company via advertising
and customer word-of-mouth; and
(ii) Second, after a previous encounter with the company, the consumer
compares his expectation against the actual product performance.
The expectancy disconfirmation theory describes the mental processes that

lead to attitude change in consumers. It asserts that an individualÊs attitude
towards a product or service will only change if his experience disconfirms
(differs from) his expectation of the experience. The role of expectation
explains the difference between satisfaction and delight. Customers are
satisfied when the consumption experience meets their expectation. They are
delighted when their consumption experience exceeds their expectation.
Customer satisfaction not only measures how happy a customer is with
his transaction but also his overall experience with the company.
Generally, consumer satisfaction is the most efficient and least expensive

source of marketing communication because consumers who are satisfied
with a product or service will be more likely to disseminate their favourable
experience to others. However, if they are dissatisfied, they will spread
unfavourable appraisal of the product or service they encountered
(Dubroski, 2001).
(b) Employee Satisfaction

Given the importance of employees in implementing the relationship
marketing programme, it is believed that measuring employee satisfaction is
crucial. Reichheld, Markey and Hopton (2000) claimed that the relationship
between satisfaction and loyalty works in the same way for internal
customers as for external customers. Employee satisfaction leads to company
loyalty, staff retention, lowering training costs and increasing experience,
skills, motivation and productivity.
Heskett and Schlesinger (1994) recommended measuring staff satisfaction

with internal service quality. However, the idea of using satisfaction as a key
performance indicator has received a number of criticisms (Reichheld et al.,
2000).

(c) Service Quality

Based on literature, satisfaction occurs from a positive judgment of service
quality received over cost incurred. According to Gronroos (1990), there are
two dimensions of service quality, namely technical quality and functional
quality – the quality of what is delivered and how it is delivered, respectively.
Rust and Oliver (1994) developed another conceptual model in measuring

service quality, which consists of three dimensions:
(i) Service product (refers to the technical quality of the service);
(ii) Service delivery (refers to the functional quality of the service); and
(iii) Service environment.
Based on the work by Bloemer, Ruyter and Wetzels (1999), service quality is
often conceptualised as the comparison of service expectation against actual
performance perception.
However, Brady and Cronin (2001) developed new thoughts on

conceptualising perceived service quality where the hierarchical and
multilevel conceptualisation of the service quality model was adopted as the
overall perception of service. As a result, the two main models of service
quality are developed, as explained in Table 7.2.
Table 7.2: Two Main Models of Service Quality
Model Description
SERVQUAL Based on the work by Parasuraman, Zeithaml and Berry (1985),
research on service quality has been dominated by the SERVQUAL
instrument, which consists of the Gap model. Parasuraman et al.
(1985) identified 10 dimensions that customers use to evaluate the
service and develop perceived service quality. The factors include
access, communication, competence, courtesy, credibility, reliability,
responsiveness, security, tangibles and understanding.
Therefore, if the customerÊs performance perception (based on the 10
dimensions) exceed the customerÊs expectation, the service provider
has provided quality service. The difference in scores determines the
level of service quality. The following is the formula used to calculate
service quality:
Service quality = Perceived service – Expected service
Subsequently, these 10 factors were summarised into five generic
dimensions which consisted of tangibles, reliability, responsiveness,
assurance and empathy (Parasuraman, Zeithaml & Berry, 1988).

SERVPERF Another aspect of service quality which was introduced by Cronin

and Taylor (1992) stated that conceptualised service quality is similar
to an attitude. Cronin and Taylor (1992) maintained that performance
instead of performance-expectation determines service quality. They
suggested that the disconfirmation theory is intended to be a measure
of satisfaction, but not service quality. This produces an alternative
measurement tool which is called SERVPERF.
There are several criticisms on SERVQUAL that makes SERVPERF
more favourable such as expectations are often poorly defined in
customersÊ minds and not a reliable benchmark in measuring service
quality (Omar & Musa, 2011) and the lack of universal applicability of
the scale across industries (Carman, 1990; Omar & Musa, 2011).
Suppliers should use focus groups to explore the dimensions on
which their customers form quality expectations before embarking on
a monitoring programme at regular intervals to ensure the
dimensions used for measuring remain relevant and comprehensive.
SELF-CHECK 7.2
1. What are the three main areas in measuring relationship success?
2. Discuss two types of models that can be used to measure service

quality.
7.2.2 Relationship Features

What do relationship features refer to?
Relationship features refer to the factors that describe the nature of the
relationship itself, as is evident in the behaviour of the customer towards the
supplier.
This measure will include various indicators of customer loyalty, fidelity and
commitment.

Loyalty has been used to describe a customerÊs willingness to continue patronising

a company over the long term and recommending the products and services to
friends and associates (Lovelock & Wirtz, 2004). Jones and Sasser (1995) pointed
out that customer loyalty is the customer repeat purchase intention of some
specific product or service in the future, which are classified into long-term and
short-term loyalty.
Long-term loyalty refers to the customerÊs long-term purchase which is not easy
to change, whereas, short-term loyalty refers to customers who may change their
minds immediately once they find a better merchant or product choice (Dick &
Basu, 1994). Loyalty can be measured in different ways, the relevance of which
depends on the nature of the product and its market (see Figure 7.4).
Figure 7.4: Three measurements of loyalty

7.2.3 Relationship Returns

Lastly, what do relationship returns mean?
Relationship returns refer to the monetary rewards accruing to the supplier

from the relationship.
Most of the relationship marketing organisations focus on long-term gains, which

require a significant investment in the early stages of relationship. In terms of
financial benefits, it is concerned with the long-term focus and indirect relationship
benefits.

Justification for focusing on long-term gain is because relationship requires

significant investment in the early stages and is recouped as the relationship
matures. One of the reasons for focusing on indirect benefits is due to the
possibility of increases in income arising from cross-selling and referral business.
In addition, there are cost reductions from savings on promotional spending and
the ability to plan and develop products and processes with greater certainty.
According to Little and Marandi (2003), there are six measures that can be used in
measuring financial performance (see Table 7.3).
Table 7.3: Six Measures of Financial Performance
Measure Description
Income Relationship marketing manager must continuously monitor to
ensure cash flow constraints are met.
Profitability It is necessary to monitor net profit from each relationship (return
on relationship or ROR) because profitability is a performance
indicator, not a diagnostic tool.
Referral There is a tendency for loyal customers to become advocates and
generate new business to the organisation through positive word-
of-mouth.
Cross-purchasing Income from cross-selling and up-selling must be taken into
account.
Customer lifetime It is necessary to assess the total net income arising from a
value particular customer over the relationship life cycle.
Servicing cost Shaw and Reed (1999) recommended using activity-based costing
(ABC) to help a company record the benefits, cost and time spent
on a particular activity by each customer so that it can be used to
determine the cost of servicing a particular customer.
SELF-CHECK 7.3
State the differences between relationship features and relationship

returns.

7.3 COMPLAINT ANALYSIS AND HANDLING

The first law of service productivity and quality should be, „Do it right the first
time.‰ However, failures might continue to occur due to reasons beyond the
organisationÊs control. How well an organisation handles complaints and resolves
problems may determine whether it builds customer loyalty or watches former
customers move their business elsewhere.
In general, studies of consumer complaining behaviour have identified the

following four main purposes for complaining:
(a) Consumers complain to recover some economic loss by seeking a refund,

compensation, and/or to have the service performed again;
(b) Some customers complain to rebuild self-esteem and/or to vent their anger
and frustration;
(c) When customers are highly involved with a service, they give feedback to try
and contribute toward service improvements; and
(d) Customers want to spare other customers from experiencing the same
problem(s) and they feel bad if a problem is not highlighted.
After the complaint has been lodged, the next stage is service recovery. Complaint
handling is about service recovery. Service recovery is an umbrella term for
systematic efforts by a firm to correct a problem following service failure and to
retain a customerÊs goodwill. The service recovery mechanism is also becoming a
vital part of relationship marketing strategy by facilitating customer retention.
According to Little and Marandi (2003), service recovery is based on four basic
principles (see Table 7.4).

Table 7.4: Four Basic Principles in Service Recovery
Principle Description
Make it easy How can managers overcome unhappy customersÊ reluctance to
for customers complain about service failures? The best way is to directly address
to complain the reasons for their reluctance. Many organisations have improved
and give their complaint collection procedures by adding special toll-free
feedback phone lines and links on their websites, displaying customer
comment card in their branches and providing video terminals for
recording complaints.
Establish the Customers will be more willing to complain if they are confident that
grounds for they will be successful. For example, provide a simple,
complaint comprehensive warranty.
Offer The more quickly the complaint is resolved, the lower the negative
immediate impact on the customerÊs attitudes. Where possible, it is advisable to
redress where delegate authority and responsibility for resolving complaints to
possible customer-facing staff so that problems can be resolved as they arise.
Communicate Often, all that is needed in order to diffuse customer dissatisfaction
is an apology, together with an explanation of why the failure
occurred and the steps that have been or will be taken to ensure that
it does not recur.
Customer complaint is part of a diagnostic tool, which delivers valuable

information towards organisational improvement. The following are some useful
information for organisations arising from customersÊ complaints (see Figure 7.5).
Figure 7.5: Useful information from customersÊ complaints


SELF-CHECK 7.4
1. Why do customers complain?
2. Describe the four principles of service recovery mechanism.
ACTIVITY 7.2
How do you resolve complaints in your organisation or department?

What is your service recovery plan? Share your answer for discussion in
the myINSPIRE forum.
7.4 CONTROLLING SERVICE QUALITY

Before we end this topic, let us look at service quality. Based on the work by
Parasuraman, Zeithaml and Berry (1985), research on service quality has been
dominated by the SERVQUAL instrument, which is based on the Gaps model of
service quality as illustrated in Figure 7.6.

Figure 7.6: Gaps model

Source: Parasuraman, Zeithaml & Berry (1988)
According to Parasuraman, Zeithaml and Berry (1985), perceived service quality

is defined in the model as the difference between consumer expectations and
perceptions, which in turn depends on the size and direction of the four gaps
associated with the delivery of service quality on the marketerÊs side.
Let us look at Table 7.5 for the description of the Gaps model.

Table 7.5: Descriptions of the Gaps Model
Gaps Model Description

Gap 1 Difference between consumer expectations and management
perceptions of consumer expectations.
Gap 2 Difference between management perceptions of consumer expectations
and service quality specifications.
Gap 3 Difference between service quality specifications and the service actually
delivered.
Gap 4 Difference between service delivery and what is communicated about
the service to the consumer.
Gap 5 Difference between consumer expectations and perceptions.
Gap 1, Gap 2, Gap 3 and Gap 4 are identified as functions of the way in which
service is delivered, whereas Gap 5 pertains to the customer and as such is
considered to be the true measure of service quality (Shahin, 2006). If the
customerÊs performance perceptions (based on the service quality dimensions)
exceed the customer expectations, then the service provider is said to provide
quality service. The difference in scores determines the level of service quality. The
following is the formula used to calculate service quality.
Service quality = f (Perceived service − Expected service)
Marketing information systems will help organisations to be aware of the

customerÊs level of expectation. Hence, appropriate levels of service quality are
designed to meet customer expectations.
In understanding the Gaps model of service quality, the following are two issues
that need to be considered (see Table 7.6).

Table 7.6: Two Issues That Need to Be Considered in Understanding the Gaps Model of
Service Quality
Issue Description
Hard The intangibility and heterogeneity of service products mean that it is
control difficult to define how the service should be delivered and harder still to
techniques develop mechanisms that ensure that delivery is consistent. As a result,
the closure of Gap 2 and Gap 3 produces particular problems. Hard
control technique attempts to define service delivery with sufficient
clarity to allow for monitoring and control. This can be done by analysing
the service blueprinting and critical incident analysis.
(a) Service Blueprinting
This technique involves the development of a flow chart that
describes the service encounter from a customerÊs point of view. The
design process will be documented and codified to map the
sequence of events in a service and its essential functions in an
objective and explicit manner. Timings or other performance
standards can be placed on each element of the process.
(b) Critical Incident Analysis
This is an adaptation of the service blueprint which focuses only on
the events or interactions that are crucial in shaping the customerÊs
perceptions of service quality. It involves a set of procedures to
collect direct observations of human behaviour that have critical
significance and meet methodically defined criteria. These
observations are then kept track of as incidents, which are then used
to solve practical problems. Mystery shoppers are commonly used
to monitor conformance to the specification.
Soft control Although the Gaps model provides a prescriptive and clearly defined
techniques framework for managing service and relationship quality, there is still
some debate about the practicality of implementing it. Reichheld (1993)
has suggested that external service quality is too dynamic and subjective
for organisations to gauge correctly. Thus, senior managers should
concentrate on internal service quality, ensuring that staff is competent,
motivated and supported by a customer-centred culture. The internal
service quality can be monitored through measures such as staff
satisfaction and retention.
As a conclusion, a prudent organisation will use both the hard and soft control
techniques, though it must be noted that relationship marketing strategies lies in
the human elements of service quality – the personal relationship between
individuals. Even though hard monitoring and control has an important place in
reassuring managers and other stakeholders regarding corporate performance, it
is proposed by Little and Marandi (2003) that soft monitoring and control
techniques are more appropriate for a relationship marketing strategy.

• The three classified monitoring and controlling approaches of customer

relationship management (CRM) are:
– Hard versus soft monitoring and controlling mechanisms;
– Performance versus diagnostic monitoring; and
– The balanced scorecard approach.
• The balanced scorecard performance indicators can be categorised into four

aspects, namely:
– Financial perspective;
– Customer perspective;
– Internal business perspective; and
– Innovation and learning perspective.
• Measures of relationship monitoring centre on the following:
– Relationship facilitators;
– Relationship features; and
– Relationship returns.
• The importance of complaint analysis and handling in CRM are:
– To recover some economic loss;
– To rebuild self-esteem and/or to vent their anger and frustration;
– To give feedback to try and contribute toward service improvements; and
– To spare other customers from experiencing the same problems.
• Service recovery is based on four basic principles:
– To make it easy for customers to complain and give feedback;
– To establish the grounds for complaint;
– To offer immediate redress where possible; and
– To communicate.
• From customer complaints, we can obtain useful information relating to the

following:
– Company weaknesses;
– Changing customer expectations; and
– Key product attributes.
• Research on service quality has been dominated by the SERVQUAL

instrument, which is based on the Gaps model.
• Two issues that need to be considered in understanding the Gaps model of

service quality are hard control techniques and soft control techniques.
Balance scorecard Performance monitoring

Complaint analysis and handling Relationship facilitators
Controlling service quality Relationship features
Customer satisfaction Relationship returns
Diagnostic monitoring Relationship success
Employee satisfaction Service quality
Expected service Service recovery
Gaps model SERVPERF
Hard control techniques SERVQUAL
Hard monitoring and controlling Soft control techniques
mechanism
Soft monitoring and controlling
Perceived service mechanism

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Reichheld, F., Markey, Jr. R., & Hopton, C. (2000). The loyalty effect – The
relationship between loyalty and profits. European Business Journal, 12(3),
134–139.
Rust, R. T., & Oliver, R. L. (1994). Service quality: Insights and managerial
implications from the frontier. In R. T. Rust & R. L. Oliver (Eds.), Service
quality: New directions in theory and practice (pp. 1-19). Thousand Oaks,
CA: Sage Publications.
Shahin, A. (2006). SERVQUAL and model of service quality gaps: A framework

for determining and prioritizing critical factors in delivering quality services.
In V. Partha Sarathy (Ed), Service quality – An introduction (pp. 117-131).
Andhra Pradesh, India: ICFAI University Press.
Shaw, R., & Reed, D. (1999). Measuring and valuing customer relationships: How
to develop the measures that drive profitable CRM strategies. London,
England: Business Intelligence.

Topic  Ethical
Considerations
8 in Relationship
Marketing
LEARNING OUTCOMES

1. Describe ethical criticisms of marketing;
2. Explain the concepts of consumerism, social responsibility and ethics;
3. Discuss the five approaches to ethical decision-making; and
4. Review the role of ethics with reference to the characteristics of
relationship marketing.
 INTRODUCTION
Ethics has always been an ongoing issue in the field of business. Prior to 1960, there
were some discussions about ethics in businesses such as:
(a) The rights of workers to just wages;
(b) Truth in advertising; and
(c) Honesty in business dealings.

182  TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING
The increasing attention to ethics has called upon the marketers to include the social
and ethical considerations in their marketing practices. The need for marketers to
incorporate ethical and social considerations into marketing practices is also
consistent with relationship marketing.
In terms of relationship marketing, ethics plays an important role in planning,

implementing and the monitoring of relationship marketing. Most traditional
marketing activities create conflicts between customers and companies as these
activities focus on short-run tactics of increasing sales.
However, in relationship marketing, the concept of customers as co-producers and

members of various marketing programmes allows long-term interactions based
on fairness and value creation. Given that trust is a very important element in
relationship marketing, most important trends in current marketing thinking
emphasise the practice of ethical behaviour.
In understanding relationship marketing and ethics, this topic will start with the
general criticism of marketing, the concept of consumerism, social responsibility
and ethics. The various approaches of ethical decision-making will also be
discussed. This is followed by an examination of the role of ethics with reference
to the characteristics of relationship marketing. Happy reading!
8.1 ETHICS AND MARKETING

Generally, ethics are moral standards of behaviour expected by a society. Another
definition states that:
Ethics is the study of what is good and evil, right and wrong as well as just
and unjust.
(Steiner & Steiner, 1997)
An ethical manager will always try to do well and avoid doing evil. Ethics relate
to carefully thought out rules of moral values that guide individual and group
decision-making (Dibb, Ferrell, Pride & Simkin, 2001) whereas social
responsibility is a contract with the society as a whole. Let us look as some
practices deemed unethical by society (Kurtz, 2012):

TOPIC 8 ETHICAL CONSIDERATIONS IN RELATIONSHIP MARKETING  183
(a) When the Houston-based energy giant Enron collapsed, it took with it the
retirement savings of its employees and investors;
(b) Executives from Tyco were convicted of using millions of company dollars
for their personal benefit; and
(c) Chemical manufacturer Monsanto was convicted of not only polluting water
sources and soil in a rural Alabama area for decades but of ignoring evidence
that its own scientists had gathered indicating the extent and severity of the
pollution.
The application of ethics in business is an art that requires judgement about both
the motivations behind an act and the actÊs consequences. According to Steiner and
Steiner (1997), managers in every society are influenced by four great repositories
of ethical values, namely:
(a) Religion;
(b) Philosophy;
(c) Cultural experiences; and
(d) Law.
Next, we will look at some criticisms of marketing practices.
8.1.1 Criticisms of Marketing

There has been a continuous intervention by consumer organisations, pressure groups
and government in monitoring the activities of marketers. Continued attention is
necessary as there have been reports of unsatisfactory and poor quality products
offered by companies. Promotional activities for unwholesome products such as
cigarettes and selling high-priced products in less-developed countries indicate a need
for greater knowledge of ethical practices and judgements.
Little and Marandi (2003) suggested that marketers have been criticised from
several perspectives including the following:
(a) Charging high prices;
(b) Deceptive practices relating to promotion, pricing and packaging;
(c) High pressure selling and marketing of shoddy or unsafe goods; and
(d) Planned obsolescence.

The following are some of the specific criticisms directed towards marketers:
(a) Mis-selling of personal pensions;
(b) Mis-selling of endowment mortgages; and
(c) The use of child labour in Asia by companies like Nike and Adidas.
In view of these criticisms, there is continuous intervention by consumer

organisations, pressure groups and government through legislation and the
monitoring of marketing activities. For example, in 2002 the government of Britain
imposed a big shake-up in the mortgage and savings industry. This is an industry
where suppliers have often been accused of charging excessive fees and creating
complex products which customers find difficult to understand (Little & Marandi,
2003).
8.1.2 Consumerism, Social Responsibility and Ethics

Firstly, what is consumerism?
Consumerism is a movement to improve the rights and powers of consumers

in relation to the sellers of products and services.
(Steiner & Steiner, 1997)
Another definition from Kotler, Armstrong, Saunders and Wong (2001) states that:
Consumerism is an organised movement of citizens and government agencies

to improve the rights and power of buyers in relation to sellers.
(Kotler, Armstrong, Saunders & Wong, 2001)
Consumerism is also seen as a protest movement of consumers against what they

or their advocates see as unfair, discriminatory and arbitrary treatment.

According to Little and Marandi (2003), the consumer movement seeks to improve
the rights of traditional buyers in the following aspects:
(a) To expect the product to be preserved;
(b) To expect the product to perform as claimed by the seller;
(c) To be well informed about important aspects of the products offered for sale;
(d) To be protected against products and marketing practices which are

questionable; and
(e) To improve the „quality of life‰ through influencing products and marketing
practices.
The concept of social responsibility is partly a response to consumerism. It covers

both production and consumption effects on the environment and consumers. The
social responsibility of business encompasses the economic, legal, ethical and
philanthropic expectations placed on organisations by society (Carroll, 1991).
What is social responsibility? Dibb et al. (2001) defined social responsibility as
follows:
Social responsibility is an organisationÊs obligation to maximise its positive

impact and minimise its negative impact on society.
(Dibb et al., 2001)
Ethical issues constitute a dimension of the concept of social responsibility. Social

responsibility is a contract with society while ethics relate to carefully thought out
rules and moral values that guide individual and group decision-making
(Dibb et al. 2001). In marketing, ethics refer to the moral principles that guide
marketing decisions. Some organisations attempt to adhere to ethical standards of
behaviour in order to gain a competitive advantage over their rivals.
For example, Body ShopÊs policy of not testing their products on animals and
contributing a portion of its profits back into the communities from whose land
they draw their raw materials has helped the organisation to expand its business
and benefit from a loyal customer base.

In contrast, Nestle, which has long been accused of exploiting a loophole in the
Health Star Rating system, has dropped MiloÊs 4.5 health star rating after receiving
criticisms from health experts for „deceiving‰ consumers into thinking Milo is a
healthy beverage. According to the Sydney Morning Herald, the brandÊs 4.5-star
rating was initially based on the condition that consumers consume just three
teaspoons of Milo with a glass of skim or low fat milk (Han, 2018).
SELF-CHECK 8.1
1. Define consumerism.
2. Explain how consumer movement seeks to improve the rights of

traditional buyers.
3. Discuss the criticisms of marketing from an ethical perspective.
8.2 APPROACHES TO ETHICAL DECISION-

MAKING
Most issues relating to marketersÊ marketing activities have to be tackled from an
ethical perspective. Generally, there are five ethical theories that marketers can refer
to when addressing ethical dilemmas related to their marketing activities
(Schlegelmilch, 1998). The five ethical theories that affect ethical decision-making are

Figure 8.1: Five theories related to ethical decision-making

Source: Schlegelmilch (1998)
Now, let us discuss the five theories one by one in the following subtopics.
8.2.1 Relativism
This theory suggests that each situation is judged according to its own merits and
universal standards cannot be applied to judge the morality of a decision. Morality
is relative to the norms of oneÊs culture. That is, whether an action is right or wrong
depends on the moral norms of the society in which it is practiced. The same action
may be morally right in one society but be morally wrong in another. If the
rightness or wrongness of an action depends on a societyÊs norms, then it follows
that one must obey the norms of oneÊs society. In other words, to diverge from
those norms is to act immorally.

As a theory for justifying moral practices and beliefs, ethical relativism fails to
recognise that some societies have better reasons for holding their views than
others. Even if the theory of ethical relativism is rejected, it must be acknowledged
that the concept raises important issues. Ethical relativism reminds us that
different societies have different moral beliefs and that our beliefs are deeply
influenced by culture (Velasquez et al., 1992).
8.2.2 Utilitarianism
Utilitarianism is an ethical theory that determines right from wrong by focusing on
outcomes. It proposes that the moral merits of a decision lie in whether it serves the
greatest good for the greatest number of people.
Thus, the answer to the question of, „What makes a moral act right?‰ is when the act
serves the greatest number of people. In making a decision using this principle, one
must determine whether the harm in an action is outweighed by the good. If an
action maximises benefits, then that is the optimum choice among other alternatives
that provide less benefit. This moral reasoning is used in business because of the
way in which it accounts for costs and benefits.
However, it is difficult to know with certainty whether the consequences of our

actions will be good or bad. This is the limitation of utilitarianism.
8.2.3 Universalism or Deontology

This theory is a duty-based approach (Weiss, 2009). It advocates that the ends or
successful results do not justify a decision that is unethical. In other words, we
should „do unto others as you would have them do unto you.‰
What is the strength of universalism theory? The strength of universalism theory

is its consistency. With this approach, there is no question about the decision to be
made, that is, what is right for one should be right for all. This theory focuses on
the intentions of the decision maker, thus making himself his own moral agent and
motivating himself to practise respect for those he encounters during his decision-
making process.
However, this theory is difficult to apply in practice because stakeholders often have
conflicting interests, for example, customers want lowest cost while shareholders
want maximum profit and thus maximum dividend.

8.2.4 Justice Theory

Did you know that this theory is the opposite of the utilitarian theory? What does
justice mean?
Justice means giving each person what he deserves or, in more traditional
terms, giving each person his due.
Justice and fairness are closely related and are often used interchangeably. The loss
of individual liberty nullifies any gains made in economic efficiency and
prosperity. Based on the justice theory, society would at least conform to two rules,
which are:
(a) Each person is to have an equal right to the most extensive basic liberties
compatible with similar liberties for others; and
(b) Social and economic inequalities are to be managed so that they are both
reasonable and open to all.
There are three types of justice as highlighted in Table 8.1.
Table 8.1: Three Types of Justice
Type Definition
Distributive The extent in which societyÊs institutions ensure that benefits and
justice burdens are distributed among societyÊs members in ways that are
fair and just.
Retributive The extent in which punishments are fair and just. In general,
justice punishments are held to be just to the extent that they take into
account relevant criteria such as the seriousness of the crime and the
intent of the criminal, and to discount irrelevant criteria such as race.
Compensatory The extent in which people are fairly compensated for their injuries
justice by those who have injured them. Just compensation is proportional
to the loss inflicted on a person.
In evaluating any moral decisions, we must ask whether our actions treat all
persons equally. If not, we must determine whether the difference in treatment is
justified – are the criteria used relevant to the situation at hand?

However, justice is not the only principle to consider in making ethical decisions.
Sometimes, principles of justice may need to be over-ridden in favour of other
kinds of moral claims such as the rights or societyÊs welfare.
Nevertheless, justice is an expression of our mutual recognition of each otherÊs

basic dignity and an acknowledgement that if we are to live together in an
interdependent community we must treat each other as equals (Velasquez et al.,
1994).
8.2.5 Virtue Theory

The virtue theory (or virtue ethics) advocates acting in the true spirit of virtuousness
and going beyond mere duty and self-interest in doing so. This theory states that
moral behaviour is not limited to rules or guidelines adherence. Rather, moral
behaviour involves the individual who rationally pursue moral excellence as a
goal in and of itself.
In essence, ethics becomes central to the rationality concept as an objective rather

than a constraint – something that is positively good is something to be sought
after (Ladd, 1991 as cited in Dobson, 2007).
The virtuous agent or person is involved in a continual quest to find balance in

decision-making. Such an agent does not apply any specific rules in making
decisions but rather attempts to make decisions that are consistent with the pursuit
of a particular kind of excellence that in turn entails exercising sound moral
judgement guided by virtues such as:
(a) Courage;
(b) Wisdom;
(c) Temperance;
(d) Fairness;
(e) Integrity; and
(f) Consistency.
In order to successfully apply the virtue theory to business, the business activity
must be viewed as a practice where it depends less on the type of activity and more
on the character and motivations of the people who are engaged in it. The
challenge that any organisation faces, therefore, is to educate its managers towards
the desirability of virtue-based behaviour.

As a true professional, the good manager will strive to achieve a certain specific
type of morally inclusive excellence. One critical feature of this excellence is that
its achievement entails adherence to certain virtues of character such as:
(a) Honesty;
(b) Fairness;
(c) Prudence; and
(d) Courage.
The excellence pursued by the true professional, therefore, is not something that
can be measured strictly in material terms; it is a moral as well as economic
excellence. Albeit hard to quantify, individuals or exemplars who have achieved
this excellence are generally identifiable by their predisposition to place personal
integrity over and above any material considerations (Dobson, 2007).
Due to the ethical dilemma of acting in the interest of various stakeholders and the
possibility of clashes between personal and organisational ethics, most
organisations are actively establishing ethical statement and codes of conduct as
point of reference for employees.
SELF-CHECK 8.2
1. Explain the five theoretical approaches to ethical decision-making.
2. State the differences between utilitarianism and universalism.

ACTIVITY 8.1
A financial accountant may be able to enhance her companyÊs reported

operational results of operations by crafting a sale-leaseback
arrangement whereby some of the companyÊs assets are sold and, a gain
is recorded. In addition, all the appropriate accounting pronouncements
are adhered to, and the company still has use of its assets. The intent of
the transaction was never to rid the company of unwanted assets, but
rather to record a gain and thus possibly avoid breaching debt-covenant
agreements or circumvent regulatory requirements.
Is the financial accountantÊs ethical in her practice doing the above?

Discuss your perspective of this act based on the five different ethical
theories in the myINSPIRE forum.
8.3 ETHICS AND RELATIONSHIP MARKETING

Before we end this topic, let us look at how ethics and relationship marketing are
related. Successful relationship marketing strategy relies on two-way
communication and a series of dialogues between the customer and his supplier,
especially to identify customer needs and wants. Keeping promises and generating
trust and long-term commitment by both parties are essential in relationship
marketing. Successful relationship marketing can only be possible on a platform
of ethical behaviour by both parties involved. Unethical behaviour would ruin
trust and the chance of developing a long-term relationship.
8.3.1 Relationship Marketing and Ethical Issues in

Communication
Advancement in technology such as smart cards, Internet-enabled
communication, web-based applications and call centres makes it possible for
companies to obtain substantial information from customers. Technology-based
collection of information is a prerequisite for the application of relationship
marketing in retailing and consumer service markets (Little & Marandi, 2003).

Ethical issues in communication are shown in Figure 8.2.
Figure 8.2: Five ethical issues in communication

Exchange of up-to-date information between customers and suppliers is

important. The type of information collected is strictly for maintaining the
relationship between the organisation and its customers. Information about
customers can take the form of structured transactional data such as contact
history and account balances as well as unstructured information such as letters
and e-mails from customers.
The purpose of information gathering must be told to the customers. Information

collected is not be used for other purposes and not to be shared with other
organisations without the consent of the customers. The success of relationship
marketing depends largely on how well this information is converted into
organisation-wide knowledge and customer insight. This depends on the
completeness, currency, accessibility and relevance of the information.
Most customers will provide information when they are in a long-term

relationship based on the understanding that the information will be kept safe by
the organisation. The development of trust is an investment in the relationship,
which delivers long-term payoffs. When trust exists between partners, risks and
doubts are reduced. Moreover, both partners will be motivated to make
investments in the relationship such as sharing of sensitive personal information.

ACTIVITY 8.2
The Malaysian Personal Data Protection Act 2010 („the Act‰) came into
force on 15 November 2013. As a result, businesses in Malaysia are now
faced with additional responsibilities and requirements when it comes
to dealing with the personal data of their employees, suppliers and
customers.
The Act applies to any person who processes and has control over or
authorises the processing of any personal data with respect to
commercial transactions („data user‰). The Act even applies to persons
not established in Malaysia (for example, foreign companies) if they use
equipment in Malaysia for processing the personal data other than for
the purpose of transit through Malaysia.
Certain classes of data users (such as licensed insurers; legal, auditing,

accounting, engineering and architecture companies; housing
developers; medical and dental clinics) are required to register
themselves with the Department of Personal Data Protection.
Source: Cheah (2020)
What is your opinion of the impact of the Act on businesses in Malaysia?

Discuss this in the myINSPIRE forum.
8.3.2 Relationship Marketing and the Ethics of

Keeping Promises
Trust and commitment are essential ingredients for successful, long-term
relationship marketing (Buttle, 2004). Commitment arises from trust, shared value
and the belief that partners will be difficult to replace. Evidence of commitment is
found in the investment that one party makes in the other. The investment includes
time and money. A partnerÊs trust and commitment to a relationship is directly
related to the aspect of keeping promises. The breach in promise can lead to bad
publicity, damage of trustworthy image and can destroy a long-term relationship.
Thus, it is vital that the promises made include clear statements regarding quality,
refunds and delivery times. Unethical behaviours of stakeholders (other than
customers) are not favourable in building relationship with customers. For
example, the lock-in tactic and exit barriers are not genuine relationship building
tactics, and neither are exaggerated promises and over persuasive communication.
At the same time, customers should respect the time and resources invested in the
relationship by suppliers and avoid opportunistic behaviours. Customers should
only consider exiting from a relationship after their complaints or requests have
not been attended to satisfactorily. The supplier ought to be given the opportunity
to put matters right, just as the customer has the right to seek redress.
8.3.3 Legal Implications of Unethical Relationship

Marketing
The application of relationship marketing strategies in consumer markets requires
the continuous utilisation of databases for analysis of customer data, profiling of
customers and communication with customers. There are various laws imposed to
protect consumersÊ rights. Personal information such as race, health and religion
must be handled with care and needs total consent from the customers. Moreover,
the information gathered must not be used for purposes other than its original
purpose.
Generally, there are eight principles that govern the utilisation of information
collected form customers (see Figure 8.3, which is the Data Protection Act of
United Kingdom (1998) based on the EU Data Protection Directive, 1995).

Figure 8.3: Eight principles that govern the utilisation of the information collected
Data protection act of a country is normally based on the eight principles

highlighted in Figure 8.3. The act would be reviewed from time to time in order
for it to stay aligned with new developments.
There are several implications from these principles. For example, the information
about customer and employee health, race and religion must be handled delicately
and obtained with full consent of the data subject (customer, employee). The
information may not be used for purposes other than those for which it is collected,
making the combining of databases for customer profiling and managing customer
relationship questionable. Additional information for profiling purposes, which
may be of questionable relevance to customer files such as hobbies, religion,
inclinations towards other products/services, may also pose problems.

SELF-CHECK 8.3
1. State the ethical issues and relationship marketing with respect to

communication.
2. Explain the relationship between ethics and maintaining a long-

term commitment.
ACTIVITY 8.3
Are you worried about receiving unsolicited mail? Why? What should
you do when you received one? Discuss this issue in the myINSPIRE
forum.
• Marketers have been criticised regarding some of their marketing activities.
• Generally, ethics are moral standards of behaviour expected by a society.
• There has been an increasing awareness towards consumerism, ethical

behaviour and social responsibility among citizens and government agencies
to improve the rights and power of buyers and suppliers.
• Consumerism is a protest movement of consumers against what they or their

advocates see as unfair, discriminatory and arbitrary treatment.
• Social responsibility is an organisationÊs obligation to maximise its positive

impact while minimising its negative impact on society.
• The five theoretical approaches to ethical decision-making are relativism,

utilitarianism, universalism/deontology, justice theory and virtue theory.
• Some of the ethical issues in communication include the nature of the

information gathered, methods of gathering information and privacy of
information.

• There are eight principles that govern the utilisation of the information
collected – processed for limited purposes, adequate, relevant and not
excessive, accurate and secure, among others.
Consumerism Relativism
Ethical issues Social responsibility
Ethics Universalism/deontology
Justice theory Utilitarianism
Principles Virtue theory

Carroll, A. (1991). The pyramid of corporate social responsibility: Toward the

moral management of organizational stakeholders. Business Horizons, 34(4),
39–48.
Cheah, D. (2020). Up close and personal: The Malaysian personal data protection
act. Retrieved from https://www.hg.org/legal-articles/up-close-and-
personal-the-malaysian-personal-data-protection-act-33273
Dibb, S., Ferrell, O. C., Pride, W. M., & Simkin, L. (2001). Marketing: Concepts and
strategies. Boston, MA: Houghton Mifflin.
Dobson, J. (2007). Applying virtue ethics to business: The agent-based approach.

Retrieved from https://jyx.jyu.fi/bitstream/handle/123456789/25350/1/
2004_Vol_9_No_1_Dobson.pdf
Han, E. (2018, March 1). Nestle wipes Â4.5Ê health star rating off flagship Milo
product. The Sydney Morning Herald. Retrieved from https://www.
smh.com.au/healthcare/nestle-wipes-4-5-health-star-rating-off-flagship-
milo-product-20180301-p4z295.html

Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of marketing.
Harlow, England: Pearson Education.
Kurtz, D. L. (2012). Contemporary marketing (15th ed.). Mason, OH: South-

Western Cengage Learning
Little, E., & Marandi, E. (2003). Relationship marketing management. Hampshire,

Schlegelmilch, B. (1998). Marketing ethics: An international perspective. London,

England: Thomson Business Press.
Steiner, G. A., & Steiner, J. F. (1997). Business, government and society. New York,
NY: McGraw Hill.
Velasquez, M., Andre, C. Thomas Shanks, S. J., & Meyer, M. J. (1992). Ethical
relativism. Retrieved from https://www.scu.edu/ethics/ethics-resources/
ethical-decision-making/ethical-relativism/
Velasquez, M., Andre, C. Thomas Shanks, S. J., & Meyer, M. J. (1994). Justice and
fairness. Retrieved from https://www.scu.edu/ethics/ethics-resources/
ethical-decision-making/justice-and-fairness/
Weiss, J. W. (2009). Business ethics: A stakeholder & issues management approach.

Mason, OH: South-Western Cengage Learning.

Topic  Key Account
Management
9 (KAM)
LEARNING OUTCOMES

1. Explain key account management (KAM);
2. Describe key account development cycle;
3. Identify range of criteria for key accounts;
4. Describe key decisions and activities in designing key account
management; and
5. Explain the relevance of key account management to relationship
marketing.
 INTRODUCTION
Companies do not exist in isolation; they are positioned within a chain network. It
is the performance of the network that determines whether companies can achieve
their goals. Relationships with suppliers and customers are critical to the delivery
of value for the company and its customers. For example, Toyota only
manufactures about 20 per cent of the value of its cars. It relies on a network of
approximately 50,000 supplier relationships to create and supply the input
required for ToyotaÊs car manufacturing activities. The relationships enable the
delivery of what Toyota requires and at the same time, enable them to meet their
customersÊ demands.

TOPIC 9 KEY ACCOUNT MANAGEMENT (KAM)  201
Relationships are useful to companies. Suppliers may have ideas for product
improvements, new product development and process improvements. For
instance, Boeing cooperates with major international airlines in developing new
aircrafts. This ensures that its product innovations meet customer requirements
and create high acceptance for the new aircrafts.
Meeting customer requirements through the improvement of relationship

between suppliers and customers offer the prospect of reduction in direct input
cost (Buttle, 2004). This is characterised as a shift from a win-lose approach to a
win-win approach in supplier management.
Thus, many companies today co-operate closely with their suppliers in a number
of activities such as product development and process improvements. The
complete relationship between your business and the customers you are selling to
is called key account management (KAM). Generally, KAM describes the
individual approach of sales people to their customers in order to create a long
everlasting business relationship.
In this topic, we will discuss the key account development cycle, the criteria for
key accounts and major decisions in designing KAM. Last but not least, we will
also discuss the relevance of KAM to relationship marketing.
9.1 WHAT IS KEY ACCOUNT MANAGEMENT

(KAM)?
Did you know that key account management (KAM) is also known as strategic
account management (SAM)? It is a concept that emerged in the 1970s. As a
business discipline, it refers to the process of identifying or targeting key accounts
that have strategic value and developing a deeper, more meaningful and mutually
beneficial relationship with them.
Key account management (KAM) is often used interchangeably with national

account management (NAM), strategic account management (SAM) and account
management (AM). The following is the definition of key account management
(KAM):

202  TOPIC 9 KEY ACCOUNT MANAGEMENT (KAM)
Key account management (KAM) is „the process of building and maintaining

relationships over an extended period, which cuts across multiple levels,
functions and operating units in both the selling organisation and in carefully
selected customers (accounts) that contribute to the companyÊs objectives now
and in the future.‰
(Kempeners & Van Der Hart, 1999)
Thus, KAM is a management practice aimed at optimising the relationship

between a supplying organisation and a buying organisation. According to Little
and Marandi (2003), the following are the three characteristics of KAM (see
Table 9.1).
Table 9.1: Three Characteristics of KAM
Characteristic Description
Conscious selection The starting point of KAM is the identification of customers who
of key accounts are seen as potential strategic partners.
Development and Having identified the key customers, the organisation must have
maintenance of strategies and systems in place to build and maintain business
long-term relationships with the customers.
relationships
Establishment of In order to enable the other two features of KAM, the
cross-functional organisational structure and system must enable
processes for multifunctional processes that are focused on individual
servicing accounts accounts.
KAM can also be described according to the key activities that the suppliers
undertake in building and maintaining the relationship (Homburg, Workman &
Jensen, 2002). The key activities include the following:
(a) Special pricing;
(b) Customisation of products and services;
(c) Development of special products or services;
(d) Joint coordination of workflow;
(e) Information sharing; and
(f) Taking over the customerÊs business processes.

Let us look at an example. The following are Wal-MartÊs commitments to its key
vendors:
(a) Wal-Mart looks for a very close relationship and strong commitment with its
key vendors like Warner-Lambert − highly valued trust and integrity;
(b) Wal-Mart is willing to listen to new solutions, opinions and ideas;
(c) Analytical skills are essential when dealing with Wal-Mart because it will
provide its key vendors access to all kinds of data. Wal-Mart uses the data to
build a win-win relationship;
(d) Wal-Mart hungers for consumer insights. It places great value on any
information that can improve its understanding of the people who shop at
Wal-Mart stores; and
(e) Prepare to engage the management − Wal-Mart management is as keen as

anyone to hear what their business partners have to say. This engagement is
not bound by hierarchy nor category.
KAM may occur at the individual as well as the organisational level. Therefore,
the benefits of KAM can be classified into supplier, mutual and buyer benefits.
Table 9.2 shows the major benefits of KAM.
Table 9.2: Major Benefits of KAM
Supplier Benefits Mutual Benefits Buyer Benefits

• Increased turnover • Risk reduction in • Fit the offer to the
due to proper introducing new requirements of the
selection and products or services. customers through
development of high • Shared resources such product or service
value customer as sharing of customisation.
accounts. information among • Price reduction
• Lower production companies and through efficiency
and transaction costs. suppliers in developing gains between both
• Increased new products, processes companies.
profitability. or strategies.
• Innovation and learning
about market needs.
• Social relations among
individuals in the two
companies may lead to
employee satisfaction
and motivation.

SELF-CHECK 9.1
1. What is KAM?
2. What are the benefits of implementing the KAM practice?
9.2 KEY ACCOUNT DEVELOPMENT CYCLE

The selection and maintenance of KAM relationship is vital to the long-term
profitability of a KAM programme. According to Little and Marandi (2003), key
account relationships develop over time and require different treatment at
different stages of development. Generally, there are four stages in the key account
development cycle (see Figure 9.1).
Figure 9.1: Four stages in key account development cycle
Now, let us discuss the stages one by one (see Table 9.3).
Table 9.3: Four Stages in the Key Account Development Cycle
Stage Description
Pre and McDonald, Millman and Rogers (1997) described this stage as the
early KAM scanning and attraction stage. The supplier will identify potential key
accounts (potential customers) and gain information to make a selection.
At this stage, the suppliers are willing to make adjustments to its standard
offerings and customers are of relatively low importance to the
organisation. At this stage, the need is to build on the initial order and
find ways to keep the account. The sales representatives play a central
role in this process, with the focus on the product or service offered.
Mid-KAM At this stage, the relationship between the supplier and the customer
begins to shift to a process where trust and commitment start to develop
between both parties. Reassurance of responsiveness and flexibility are
now more important and the objective is to seek and reinforce preferred
supplier status. The supplier begins to feel the importance of offering the
customer value-added services in addition to its product and price. The
number of contact points between both parties will increase and senior
staff level of the organisation realises the importance of managing the
account.

Partnership At this stage, the structural and social bonds between both parties
and strengthen as boundaries break down. There will be a series of regular
synergistic formal and informal contacts. Sharing of sensitive information and joint
KAM problem solving become common practice. Both parties still operate as
(mature independent businesses but they see it in their interests to acknowledge
KAM) the interdependency and seek economies in operations and market
development. The superior returns from this stage can fund the
development of those in the early and mid-KAM stages.
Uncoupling A breach of trust may lead to relationship disintegration at any stage of
KAM the relationship. However, Millman and Wilson (1999) suggested that
relationship dissolution should not necessarily be viewed as a failure,
since it may be in the interest of one party to terminate the relationship.
Whether intentional or not, the uncoupling stage should be managed
carefully to reduce the social and economic impacts on the organisation.
Take note that not all relationships develop through all the stages. Some remain
forever market-based, adversarial and at armsÊ length. Others develop only up to
early or mid stage and never beyond that. Some develop very rapidly or even skip
certain stages. Some relationships last for a short time while others for a very long
time. Some business relationships studied by researchers in Europe have lasted for
over 200 years, with one, observed in the iron and steel industry in Sweden, tracing
back to over 900 years (Wilson, 2019).
SELF-CHECK 9.2
Describe the four stages in the key account development cycle.
ACTIVITY 9.1
Based on Subtopic 9.2, identify the benefits of KAM to an organisation.


9.3 IDENTIFYING KEY ACCOUNTS

The companies that explicitly define and identify key accounts are most successful
in targeting resources. These entities also show a more sophisticated
understanding of their customers (Millman & Wilson, 1999). What are the criteria
for key account selection? The criteria for key account selection are as shown in
Figure 9.2.
Figure 9.2: Seven criteria for key account selection
Let us now discuss the criteria for key account selection in more detail (see
Table 9.4).

Table 9.4: Seven Criteria for Key Account Selection
Criteria Description
Relationship Longevity of the relationship can be an indicator of the strategic
history importance of an account, constituting commitment and trust between
both parties. However, Ojasalo (2001) pointed out that longevity is no
guarantee of profitability.
Sales volume This particular criterion is commonly accepted by an organisation in the
selection of key account as it is easily quantified and readily accepted by
players within the organisation. It should be stressed that potential sales
volume is as important as current sales volume. An organisation should
consider linking fast-growing companies or companies in developing
markets as important.
Profitability Ojasalo (2001) stressed that high sales volume does not always lead to
profitability. Total revenue must exceed its service costs within a given
time frame. The quantification of profitability needs to consider the
major costs as well as benefits. Qualitative/subjective judgments should
be taken into consideration.
Status Association with prestige and good reputation of an organisation such
as national, multinational or blue-chip companies often helps in
winning future customers. Ojasalo (2001) identified the fact that
organisations often benefit from association with a reputable partner.
Companies with good reputation focus on long-term value creating
activities and more receptive to KAM initiatives.
Strategic The compatibility between present and intended strategic fit, which
compatibility includes product as well as market arenas, should be taken into account,
for example, the alignment of goals, modus operandi, culture and
relational norms between organisations.
Resource The ability of the organisation to leverage its resources or competences
synergy effectively will distinguish it from its competitors.
Ease of Krapfel, Salmond and Spekman (1991) recommended that by
replacement calculating the cost of replacing an existing customer or supplier, an
organisation can obtain useful quantitative measure of the relationshipÊs
value.
Similarly, McDonald et al. (1997) highlighted three factors in developing strategic

partners among companies. These factors are explained in Table 9.5.

Table 9.5: Three Factors in Developing Strategic Partners among Companies
Factor Description
Product quality Includes products as well as services.
Ease of doing business Having a reliable and skilful purchasing officer.
People quality Personality and skills of key contacts in the company.
Source: McDonald et al. (1997)
Last but not least, compatibility between present and intended product, market
arenas and physical location should also be considered.
SELF-CHECK 9.3
Elaborate the seven criteria for key account selection.

ACTIVITY 9.2
Read the following case study.
ABC sells chemicals to the oil industry. It is a joint venture between a

major chemical company and an engineering conglomerate in Europe.
ABC managed to wrest over 40 per cent of the market share from their
major competitors in just five years.
ABC reasoned that its products are commodities and therefore, could
not compete on price. However, the company had identified that there
were major opportunities for streamlining the testing and treatment
processes both at extraction and refinement stages in the production
process. By expediently moving the test facilities from remote sites to the
rigs and to the refineries, they were able to reduce time and costly
mistakes from the process.
Addressing these process-related problems gave them access to oil

companyÊs senior management who were then prepared to discuss some
of their long-term plans. As a result, ABC was able to address a number
of facilitation-related problems. In partnership with the oil companies,
ABC began work on driving costs out of the total system. They now
enjoy long-term exclusive supply arrangements with those customers
and perform a wide range of managerial tasks on their behalf for which
the company is compensated with a management fee and a share of the
profits.
Extracted from Wilson (2019)
Discuss in the myINSPIRE forum the change in the stages of the

relationship between ABC and its customer as they move from solving
product-related problems to process related problems.

9.4 SERVICING KEY ACCOUNTS: KAM

ACTIVITIES
After understanding the key account selection criteria, the company needs to
identify the means in which the relationship can be developed and enhanced.
Based on the criteria for key account selection, the activities that may be employed
are as shown in Figure 9.3, presented in a hierarchical manner.
Figure 9.3: Adding value to key accounts

Take note that even though the hierarchy is not definitive, it serves as a rough
guide for the prerequisites of any strategic relationship and partnership. Let us
discuss the KAM activities in more detail (refer to Table 9.6).

Table 9.6: KAM Activities
Activity Description
Quality In the earliest stage of the relationship, the supplierÊs total offering
improvement involves a significant service element, i.e. even supplier of
manufactured goods must be able to reassure buyers of the quality of
their processes and people as well as its manufacturing capability
(McDonald et al., 1997). Hence, organisations should focus on
internal process quality rather than product quality. McDonald et al.
(1997), and Millman and Wilson (1999) believed that quality
improvement becomes the fundamental element of KAM and the
prerequisite of a strategic relationship. It is vital for an organisation
to continuously develop products in response to the market and
buyersÊ needs as well as competitor activity.
Customisation This is the second prerequisite in any relationship. Customisation
means the physical modification of the product or tailored service
and the supplier must be able to offer products which are not offered
by competitors.
Conflict The flexibility of the supplier in accepting responsibility to resolve
resolution and the buyerÊs problem is a key determinant of a buyerÊs trust in his
problem- supplier (Selnes, 1998). In addition, the supplier must be able to
solving respond and tackle the difficulties faced by the buyer, which can lead
to repeat purchase over time (Parasuraman, Zeithaml & Berry, 1998).
Information According to Selnes (1998), sharing of information can improve the
sharing relationship because information is a valuable resource, which is able
to expedite the buyerÊs operation plan. Sharing sensitive information
is seen as an expression of trust by the buyer.
Resource This refers to the ability to share resources for mutual advantage
sharing whether for a temporary joint venture or the development of a
permanent system or resources. This is the pinnacle of key account
relationship building.
Communication Communication underpins all other tactics and is critical to the
initiation, development and maintenance of key accounts. Schultz
and Evans (2002) suggested that customers are concerned about
efficient interaction in which they feel that informal communication
is less cumbersome than formal channels. In addition, two-way
communication and personal touch from companies are also
important elements of communication.

SELF-CHECK 9.4
1. Describe the KAM activities.
2. What is the main reason for KAM activities?
9.5 SERVICING KEY ACCOUNTS: DEVELOPING

A KAM INFRASTRUCTURE
According to Shapiro and Moriarty (1984), there are five major types of key
account development programmes (see Figure 9.4).
Figure 9.4: Five major types of key account development programmes

Source: Shapiro & Moriarty (1984)
In addition, Homburg et al. (2002) identified eight types of KAM systems (see
Figure 9.5).

Figure 9.5: Eight types of KAM systems

Source: Homburg et al. (2002)
Let us discuss further the types of KAM system activities by Homburg et al. (2002)
in Table 9.7.
Table 9.7: Eight Types of KAM System
Type of KAM Description

Top-management It involves top management and the activity is centralised at the
KAM organisationÊs headquarters. Most have dedicated sales managers
who are responsible for key accounts and fully utilise key account
teams. Collaborative activities are carried out by proactive
suppliers. However, access to functional resources is low.
Middle- It is a highly formalised programme but with less involvement
management from senior management. KAM managers tend to be locally-based
KAM and enjoy less prominent positions in the corporate hierarchy.
Access to functional resources is low.
Operating-level It is a relatively formalised programme, which involves
KAM standardised procedures and contributes value to the key account
significantly. A large proportion of account managers are based
locally. However, senior management involvement is low and
access to functional resources is also low.
Cross-functional, It is the most positive programme in which access to resources is
dominant KAM high, processes and structures are well developed, senior
management involvement is significant and key account managerÊs
role is prominent as well as proactive. The intensity of collaboration
is high and the key account manager spends the greatest
proportion of his time on external activities.
Unstructured This system lacks formality and standardisation, with a reactive
KAM stance to collaborative activity. There is little top-management
involvement and the key account manager spends the least amount
of time on external activities.

Isolated KAM It is a system in which KAM activities are instigated by sales effort
locally. However, the support from the central business units is
low. In addition to that, the access to the functional resources is
limited, selling centreÊs esprit de corps is low and involvement
from senior management is moderate.
Country-club It is a system with high degree of involvement from senior
KAM management. However, structures and processes are poorly
developed, with teams hardly ever formed. In addition, special
activities are not intense nor proactive. The KAM activities are just
representations by senior managers.
No KAM The supplier may pay lip service to KAM system. No special
activities are undertaken for the key customers.
Source: Homburg et al. (2002)
Remember, the no KAM and isolated KAM systems perform the worst. Cross-
functional and dominant KAM systems perform well, whilst top management
system produces the most profit.
Based on past studies, key account managers play an important role in

determining the effectiveness of KAM programme (McDonald et al., 1997;
Millman & Wilson, 1999). In general, we can classify the role of key account
managers into five functions:
(a) Maintaining the sales and profitability of key accounts;
(b) Customising the sellerÊs total offering;
(c) Facilitating inter-level or inter-functional processes that add value to the total
offering;
(d) Promoting the KAM concept within the organisation; and
(e) Promoting the interests of the account within the organisation.
Furthermore, Schultz and Evans (2002) suggested the importance of

communication skills as the key competence for key account managers and have
also highlighted the use of key account teams. Key account teams enable frequent
contacts with the customer and help in the flow of information in the selling
organisation. They ensure that all relevant information about the customer and the
account is transferred to all points of the customer contact.

In addition, McDonald et al. (1997) mentioned four skills and competences in the
implementation of KAM:
(a) Integrity;
(b) Product service knowledge;
(c) Understanding of the suppliersÊ business and the environment; and
(d) Selling and negotiation skills.
SELF-CHECK 9.5
1. Describe the eight types of KAM systems.
2. What are the roles of key account managers?
9.6 RELEVANCE OF KAM TO RELATIONSHIP

MARKETING
Before we end this topic, let us look at the relevance of KAM to relationship
management. KAM and relationship management are considered as key
marketing and sales functions within the company. This is because KAM and
relationship management work hand-in-hand, focusing on relationships, network
and interactivity. Table 9.8 illustrates the important general principles of
relationship management in relation to the KAM.
Table 9.8: General Principles of Relationship Marketing in Relation to KAM
Principles Description
Active support of senior Relationship marketing initiatives must be supported by
management influential members of the organisation if they are to
succeed.
The need for cross- The development of KAM relationships works better
functional coordination when they are supported by teams arranged around
customers rather than functional areas.
The importance of Communication plays an important role in building and
communication maintaining relationship with key accounts.

ACTIVITY 9.3
Customer relationship management (CRM) software was originally

introduced to help pharma sales representatives log calls and comply
with the Association of the British Pharmaceutical Industry (ABPI)
requirements on contact frequency. Since then, CRM systems have
attempted to move on from being a standard reporting function to
providing key account management (KAM) tools that can form a
strategic link between sales teams, sales liaison staff and marketing
department, helping them to work in a more cohesive manner.
These cutting-edge KAM tools enable pharma companies to keep a

centralised record of all types of customer interactions and activities,
from sales calls to research programmes and marketing campaigns. This
helps to provide a 360-degree view of all the contacts made with an
individual customer across all the different potential interactions.
A KAM system can also keep track of the changing roles and
responsibilities of key National Health System of Britain (NHS) decision
makers and stakeholders, record details of how new NHS units work
and provide an overview of the needs and priorities of regional NHS
organisations. The ability to access this level of detail on a KAM system
is critical as restructuring continues rapidly in the NHS with non-
legislated bodies such as sustainability and transformation partnerships
(STPs), becoming increasingly influential and moving towards
integrated care systems (ICSs).
Cutting-edge KAM systems enable pharma companies to delegate

marketing and communications responsibilities down from a central
office to regional account managers. This empowers regional account
managers to control (within appropriate guidelines) the types of
communication that will be sent to different customers as well as when
and how this will happen, enabling them to take an even more tailored
approach.
A good KAM system will allow them to view all of these interactions
against key performance metrics, enabling them to see the impact of each
contact and as a result, transfer best practice throughout the company.
Sophisticated KAM systems incorporate a wealth of customer
information as well as form a strategic link between sales and marketing
functions.

This enables disparate teams to work together more effectively, take more
responsibility for customer interactions within their regions and develop
tailored and personalised multichannel campaigns that resonate with
outcome-focused NHS.
Source: Cox (2018)
Critically appraise the KAM system used in the UK health sector. Share
your answer for discussion in the myINSPIRE forum.
• Key account management (KAM) is often used interchangeably with national

account management (NAM), strategic account management (SAM) and
account management (AM).
• KAM is defined as the process of building and maintaining relationships over

an extended period. It cuts across multiple levels, functions and operating
units in both the selling organisation and in carefully selected customers
(accounts) who contribute to the companyÊs objectives now and in the future.
• The four stages in key account development cycle are:
– Pre and early KAM;
– Mid-KAM;
– Partnership and synergistic KAM (mature KAM); and
– Uncoupling KAM.
• The seven criteria for key account selection are:
– Relationship history;
– Sales volume;
– Profitability;
– Status;

– Strategic compatibility;
– Resource synergy; and
– Ease of replacement.
• The six activities in servicing key accounts are:
– Quality improvement;
– Customisation;
– Information sharing;
– Conflict resolution and problem-solving;
– Resource sharing; and
– Communication.
• The five major types of key account development programme are:
– No programme;
– Part-time programme;
– Full-time programme (unit level);
– Corporate-level programme; and
– National account division.
• Eight types of KAM systems are:
– Top-management KAM;
– Middle-management KAM;
– Operating-level KAM;
– Cross-functional, dominant KAM;
– Isolated KAM;
– Country-club KAM; and
– No KAM.

• The general principles of relationship marketing in relation to KAM are:
– Active support of senior management;
– The need for cross-functional coordination; and
– The importance of communication.
Buyer benefits Mutual benefits

Customisation Partnership and synergistic KAM
(mature KAM)
Infrastructure
Pre and early KAM
Key account development cycle
Supplier benefits
Key account management (KAM)
Uncoupling KAM
Key account selection
Mid-KAM

Cox, T. (2018). What makes a good KAM system? Retrieved from

https://pharmafield.co.uk/in_depth/tony-cox-good-kam-system/
Homburg, C. J., Workman. J. P., & Jensen, O. (2002). A configurational perspective

on key account management. Journal of Marketing Research, 66(2), 38–61.
Kempeners, M., & Van Der Hart, H. (1999). Designing account management
organizations. Journal of Business and Industrial Marketing, 14(4), 310–335.
Krapfel, J. R., Salmond, D., & Spekman, R. (1991). A strategic approach to

managing buyer-seller relationships. European Journal of Marketing, 25(9),
22–48.


McDonald, M., Millman, T., & Rogers, B. (1997). Key account management:
Theory, practice and challenges. Journal of Marketing Management, 13(8),
737–757.
Millman, T., & Wilson, K. (1999). Processual issues in key account management:
Underpinning the customer-facing organisation. Journal of Business and
Industrial Marketing, 14(4), 328–337.
Ojasalo, J. (2001). Key account management at company and individual levels in

business-to-business relationships. Journal of Business and Industrial
Marketing, 16(3), 199–218.
Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item
scale for measuring consumer perceptions of service quality. Journal of
Retailing, 64(1), 12–40.
Schultz, R., & Evans, K. (2002). Strategic collaborative communication by key

account representatives. Journal of Personal Selling and Sales Management,
22(1), 23–32.
Selnes, F. (1998). Antecedents and consequences of trust and satisfaction in buyer-

seller relationship. European Journal of Marketing, 32(3), 305–322.
Shapiro, B. P., & Moriarty, R. T. (Eds.). (1984). Organizing the national account
force. Cambridge, MA: Marketing Science Institute.
Wilson, K. (2019). Managing customer relationships: A guide for strategic

accounts. Retrieved from https://www.questteam.com/resources/article.
html?id=wilson_article_1. Retrieved on 17 June, 2019.

Topic  Customer
Relationship
10 Management
(CRM)
LEARNING OUTCOMES

1. Define customer relationship management (CRM);
2. Describe the myths of CRM;
3. Explain the role of CRM in customer profiling and customisation; and
4. Discuss the factors to be considered for a successful implementation
of CRM strategy.
 INTRODUCTION
With more services available today, organisations can no longer expect results
from mass advertising and marketing campaigns aimed at the broad mass of
customer. As the market becomes increasingly fragmented and products become
increasingly commoditised, organisations are finding it difficult to use traditional
mass media marketing techniques to capture market share. Broad marketing and
advertising campaigns are simply no longer as effective as they once were. One
message does not fit all. So how do we fit in and survive?

222  TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
Let us find out the answer in this final topic, which focuses on customer
relationship management (CRM). You will be introduced to CRM definition,
myths, role in customer profiling and customisation as well as the factors to be
considered for a successful implementation of the CRM strategy. Are you ready?
Let us begin the lesson!
10.1 DEFINITIONS OF CUSTOMER

RELATIONSHIP MANAGEMENT (CRM)
A better understanding of customer needs is vital for organisations to succeed in
the future. Marketing activities must be finely tuned and priority should be given
to managing the relationship with the customers.
In order to maintain their existence and position in the market, organisations are
moving quickly to embrace customer relationship management (CRM). Most
academics view CRM as a technology-enabled relationship marketing. On the
other hand, practitioners view CRM as an information technology (IT) project.
What exactly is CRM? In order to have a better understanding of CRM, let us go

through the definitions of CRM in Table 10.1.
Table 10.1: Definitions of Customer Relationship Management (CRM)
Source Definition
Brown (2000) CRM is the process of acquiring, retaining and growing profitable
customers. It requires a clear focus on the service attributes that
represent value to the customers and creates customer loyalty.
Payne (2001) CRM is a management approach that seeks to create, develop and
enhance relationships with carefully targeted customers.
Kumar and CRM is the practice of analysing and utilising marketing database
Reinartz (2006) and leveraging communication technologies to determine corporate
practices and methods that will maximise the lifetime value of each
individual customer to the organisation.
Buttle (2009) CRM is the core business strategy that integrates internal processes
and functions with external networks to create and deliver value to
targeted customers at a profit. It is grounded on high-quality
customer data and enabled by IT.
Boone and CRM is the combination of strategies and technologies that
Kurtz (2012) empowers relationship programmes to re-align the entire
organisation towards a concentrated focus on satisfying customers.

TOPIC 10 CUSTOMER RELATIONSHIP MANAGEMENT (CRM)  223
Customers today are becoming increasingly difficult to woo, bargaining for low
prices but quality products and services and preferring efficient and convenient
personal service. These new directions have encouraged companies to focus on
customers by servicing their needs and creating pleasant customer experience.
Moreover, technology advancements have also contributed to the development of
CRM.
10.2 COMMON MYTHS OF CRM

CRM is not just about the Internet or sales representative productivity; it is an
entire discipline for interacting with customers and involves all front office
functions. In addition, CRM helps organisations to develop a customer focus,
which allows the organisation to hear the customerÊs voice.
What are the objectives of CRM? Retaining customers and establishing customer
loyalty are major objectives of the CRM approach (Zikmund, McLeod & Gilbert,
2003).
However, many organisations that have invested in CRM fail to achieve the
benefits. Why? One of the causes of the failure is due to the lack of CRM
understanding. Some of the common myths of CRM are shown in Figure 10.1.
Figure 10.1: Some common myths of CRM


Now, let us discuss the common myths one by one (see Table 10.2).
Table 10.2: Common Myths of CRM
Myth Definition
CRM refers to CRM often implies that the customers can be managed and
the management manipulated to behave in certain way. This is a mistake because
of customers customers usually manage the organisation and decide on the
purchase of a product (what, when and how).
CRM software Most early CRM implementations were seen as IT initiatives – „Buy
will solve all our CRM application and all your troubles will be solved.‰ CRM
problems software is certainly a necessary enabler but it does not offer a total
solution. Knowing what to do with the information is vital. The
information needs to be translated into real customer intelligence
and used for marketing purposes such as market segmentation,
targeting, customer communication, customer retention and
customer development in order to generate a competitive
advantage.
CRM To achieve CRM success, the organisation needs to invest in an IT
application will infrastructure. Another significant cost in developing an effective
always pay for CRM system is the price of process change. Process change implies
themselves an alteration in the habitual pattern for accomplishing a task. As
CRM investment decisions are often vague and not clearly
measurable, the customer and the business benefits must be defined
clearly and realistically.
All customers Actually, not all customers are comfortable with new technology.
love the new Therefore, organisations need to be careful with the type of
technology technology they adopt for CRM.
Our Conflicting objectives and measures across the departments often
organisation cause misunderstandings with customers. To ensure CRM is
speaks to its successfully implemented, organisationÊs systems and processes
customers with must be evaluated based on the customer experience.
one voice
SELF-CHECK 10.1
1. Define CRM based on what you have learned.
2. Describe the five myths regarding CRM.

10.3 CRM TOOLS AND CUSTOMER PROFILING

The idea of CRM is that it helps businesses to use technology and human resources
in order to gain insights into the behaviour of customers and the value of those
customers. To implement CRM, organisations need the technologies and functions
to make it successful. What are the tools for CRM? The tools to be considered in an
organisationÊs CRM are listed in Figure 10.2.
Figure 10.2: Tools in an organisationÊs CRM

Once the tools and technologies are available, the organisation will be able to
understand its customer needs and wants on an individual basis. One of the aims
of CRM is to build a mutually beneficial long-term relationship with customers,
either at the segment or individual level. To achieve this goal, the organisation has
to offer products or services that meet the requirements of its customers.
According to Buttle (2009), data mining can be used for market segmentation and
customer valuation purposes. For example, in business-to-consumer (B2C) context
such as retailing, banking and home shopping, data mining is used for customer
profiling, segmentation and identification of the futureÊs most potential customers.
For example, customers can be segmented based on the revenue and margin value
of the purchases they make.
A central element for effective CRM is to store and leverage knowledge on

customers. Combining the information gathered through different parts of the
CRM systems, a profile of the customer can be drawn up. Besides using the
Internet, CRM also uses call centres as interaction or contact centre where the staff
answers telephone calls and interacts with the customers. In order to track
customersÊ activities on the companyÊs website as well as to study customersÊ
behavioural pattern, most organisations rely on data warehousing and data
mining.
Data warehousing provides a repository of large amounts of operational, historical

and customer data which needs to be converted into information while data
mining is the creation of intelligence from large quantities of data (Buttle, 2009).
Generally, data mining can provide answers to questions that are important for
CRM strategy development and implementation. Some of the questions are listed
in Figure 10.3.

Figure 10.3: Some important questions for CRM strategy development and
implementation
As mentioned earlier, data mining refers to the creation of intelligence from large
quantities of data. How does data mining help in CRM? Data mining is able to
facilitate CRM in a number of ways such as the following:
(a) Provides relevant information that is not easily located from a large database;
(b) Allows gathering of information from different locations – data

warehousing;
(c) Helps to find associations between data. For example, the data may reveal
that customers who buy low fat yoghurt are also big buyers of herbal health
and beauty products;
(d) Makes predictions on future behaviour and customer lifetime value through
historical purchase behaviour;
(e) Allows classifying of customers according to the value they produce for the
company;

(f) Helps to discover sequential patterns. For instance, organisations might find
that „if customers buy pants, then there is a 30 per cent probability that they
will buy shoes within the next three months‰; and
(g) Allows clustering of customers into groups – to minimise the differences

between members of a cluster while maximising the differences between
clusters.
A profile of the customer can be drawn up by combining the information collected

through various CRM systems such as call centre, the web and e-mail. What
information are contained in a customer profile? A customer profile produced by
CRM systems includes the following information (see Figure 10.4):
Figure 10.4: Information in a customer profile produced by CRM systems
SELF-CHECK 10.2
1. What are the tools for CRM?
2. Describe how data mining can be useful to facilitate successful

CRM implementation.
3. What information is included in a customer profile as produced by

CRM systems?

ACTIVITY 10.1
Read the following case studies.
1. Munchery is a small business that provides a delicious alternative

to standard food delivery. High-quality meals created by talented
chefs are delivered directly to the customerÊs home, office or any
specified location.
By supplying customers with ready-to-eat food whenever and

wherever a customer is in the mood for it, Munchery soon
discovered that managing their growing number of repeat
customers while also catering to new ones has becoming
overwhelming. A CRM solution that involves an integrated
proprietary app used by its drivers made it possible for last minute
order changes to be implemented at a momentÊs notice, resulting
in happier customers and better returns. As CTO and co-founder
of Munchery, Conrad Chu explained, „Our goal is to go above and
beyond so that ultimately we can transform someone from a
frustrated customer to an evangelist.‰ Additionally, Munchery
uses CRM to monitor performance, measure customer satisfaction,
track the ordering process and share feedback with its chefs.
What kind of tools can Munchery use to conduct CRM? Discuss the
answer in the myINSPIRE forum.
2. When your organisation is responsible for keeping track of the

money and property for approximately 70 million individuals, you
can be sure that customer service is going to be one of your most
pressing concerns. Such is the case with Wells Fargo, one of the Big
Four banks in the US. Wells Fargo realises that many of its
customers use multiple banks, therefore it knows that it needs to
go above and beyond when it comes to connecting with clients.

Wells Fargo does this by taking advantage of CRM social media

connectivity so that its staff can always remain in touch and
accessible to those who need them. The bank also uses CRM to
ensure that those who come to the bank with concerns are quickly
connected with someone who can provide a solution. In the words
of Steve Ellis, head of the Wells Fargo Wholesale Service Group, „We
see the cloud as a way to help people connect around customers, to
connect around building products and to connect around risk
management practices.‰
Source: Salesforce (2019)
In the myINSPIRE forum, discuss the advantages of using CRM by

Wells Fargo as compared to the practices in traditional banks.
10.4 STRATEGIC APPROACH TO CRM

Lastly, let us take a look at the strategic approach to CRM. CRM is much more than
just a capability, a new tool or an isolated project. CRM is a portfolio of customer-
focused business capabilities. Companies have to identify their business needs
before they start to evaluate the technology. They have to engage their customers
in a series of dialogue session with their business people so that they can pinpoint
the challenges, communicate the desired state and prioritise the needs based on
their success metrics.
As soon as companies have done this, they will have a roadmap to move forward.
Companies will then need to talk to vendors about how to help them develop and
manage their portfolios. The long-term planning of customer initiatives, which are
based on corporate strategy and reflected in project portfolios, is not only a CRM
best practice; it is the future of CRM.
The goal of CRM cannot be achieved overnight. CRM usually requires significant
changes in the systems, information management practices, business processes as
well as organisational and employee behaviours in order to be successful.
According to Little and Marandi (2003), there are several considerations for a
successful implementation of CRM strategy (see Figure 10.5).

Figure 10.5: Four considerations for successful implementation of CRM strategy
Let us now look into the considerations in more detail (Table 10.3).
Table 10.3: Four Considerations for Successful Implementation of CRM Strategy
Consideration Description
Top management A successful CRM strategy starts from the top of the organisation,
commitment to which requires a major cultural change within the organisation. If
customer top management does not initiate the appropriate structural design
and reward systems, the result of CRM efforts could be
insignificant or even negative. Changes in attitudes as well as
continuous training in all aspects of marketing, operation as well
as technology must be emphasised.
Integration of Companies often face the challenge of integrating data from several
channels sources into a coherent single view of the customer. Failure to
integrate databases may lead to inefficiency and may damage
customer relationships. Therefore, the successful operation of CRM
requires a seamless operation and multichannel integration of the
processes and the channels involved such as e-tailing, m-tailing,
call centre, sales force and communication system. Besides that, the
channel integration also allows customers to have a method of
contact with the supplier.
Building of trust Trust exists when one party has confidence that he can rely on the
other exchange partner. Trust means a customer believes that the
marketer is reliable and has integrity (Omar, Alam, Abd Aziz &
Nazri, 2011). Customers need to trust not only the supplier but also
the technology, which is the facilitator of the relationship between
them and the supplier. Having a reliable security device within the
CRM systems, clear communication and stringent policy of security as
well as privacy (in a company) concerning the customers are
important. When there is trust in a relationship, all partners believe
that none will become opportunists.

Cost CRM system requires a significant investment in the organisationÊs

information technology (IT) infrastructure such as software
licenses and updates, firewalls for security, personnel to install and
maintain the systems, training for system users and so on. With
continuous development in technology and improvements to
systems, those responsible for adopting and implementing the
CRM strategy must think carefully and choose the right software
program from the selected suppliers.
Organisations need to have a clear measure of the benefits of

engaging in a relationship and managing relationships with
different categories of customers. By using the software to calculate
customer lifetime value and target the right customers, CRM can
help companies reap the benefits of having loyal customers.
Companies that find CRM technology too expensive can opt to
outsource the CRM service.
SELF-CHECK 10.3
1. Explain the four considerations for a successful implementation of

the CRM strategy.
2. Define trust and explain its role in CRM.

ACTIVITY 10.2
Activision has been a leading publisher in the American video game

market for over three decades. The companyÊs 2011 release of Modern
Warfare 3 was at the time the largest and most successful entertainment
launch in history, bringing in over USD400 million in the first 24
hours. However, when you are providing entertainment, the amount of
money that you bring in is only one measure of success.
Activision prides itself in providing continued service to its gamers so

that they can remain satisfied and enthralled long after they have made
their purchase. By using Marketing Cloud, Activision is able to monitor
social media conversations that are relevant to its products. Service
Cloud allows Activision to follow up on those conversations. And given
that social media customer service is significantly less expensive than
conventional methods, Activision found that it was able to decrease its
annual customer service operating expenses by 25 per cent. As explained
by Tim Rondeau, ActivisionÊs Senior Director of Customer Care, „WeÊre
reducing costs and increasing satisfaction at the same time.‰
Source: Salesforce (2019)
What is the role of CRM at Activision? Discuss this question in the

myINSPIRE forum.
• In order to maintain their existence and position in the market, organisations

are moving quickly to embrace customer relationship management (CRM),
which aims at building long-term relationships with valued customers.
• CRM is defined as IT-enabled relationship marketing with the basic principles

of planning, control and measurement.

• The following are some common myths of CRM:
– CRM refers to the management of customers;
– CRM software will solve all our problems;
– CRM application will always pay for themselves;
– All customers love the new technology; and
– Our organisation speaks to its customers with one voice.
• The tools in an organisationÊs CRM are:
– Call centre;
– Sales force;
– Website or e-CRM;
– Customer service and help desk;
– Point-of-sale terminal;
– Voice response system;
– Mobile communication device (m-CRM);
– Service history;
– Analytical and predictive modelling; and
– Smart card.
• Data warehousing provides a repository of large amounts of operational,

historical and customer data that needs to be converted into information.
• Data mining is the creation of intelligence from large quantities of data. Data
mining can be used for market segmentation and customer valuation
purposes.

• Data mining facilitates CRM in the following ways:
– Provides relevant information;
– Allows gathering of information;
– Helps to find associations between data;
– Makes predictions;
– Allows classifying of customers;
– Helps to discover sequential patterns; and
– Allows clustering of customers into groups.
• Considerations for successful implementation of CRM strategy are:
– Top management commitment to customer;
– Integration of channels;
– Building of trust; and
– Cost.
Channel integration Data mining

CRM criticisms Data warehousing
Customer profiling Myths
Customer relationship management Tools
(CRM)
Trust
Customisation

Boone, L. E., & Kurtz, D. L. (2012). Contemporary marketing (15th ed.). London,
Brown, S. A. (2000). Customer relationship management: A strategic imperative in

the world of e-business. New York, NY: Wiley.
Buttle, F. (2009). Customer relationship management: Concepts and tools (2nd ed.).
Oxford, England: Elsevier Butterworth-Heinemann.
Kumar, V., & Reinartz, W. J (2006). Customer relationship management: A

database approach. Hoboken, NJ: John Wiley and Sons.

Omar, N. A., Alam, S., Abd Aziz, N., & Nazri, M. A. (2011). Retail loyalty programs
in Malaysia: The relationship of equity, value, satisfaction, trust and loyalty
among cardholders. Journal of Business Economics and Management, 12(2),
332–352.
Payne, A. (2001). Steps to a strategy: The IT report for directors and decision
makers. Conspectus, 14–16.
Salesforce. (2019). 4 examples of businesses leveraging crm to improve

productivity and efficiency. Retrieved from https://www.salesforce.com
/crm/examples/#
Zikmund, W. G., McLeod, R. Jr., & Gilbert, F. W. (2002). Customer relation

management: Integrating marketing strategy and information technology.
Hoboken, NJ: John Wiley & Sons.

MODULE FEEDBACK
MAKLUM BALAS MODUL
If you have any comment or feedback, you are welcome to:
1. E-mail your comment or feedback to modulefeedback@oum.edu.my
OR
2. Fill in the Print Module online evaluation form available on myINSPIRE.
Thank you.
Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi )
Tel No.: 03-78012140
Fax No.: 03-78875911 / 03-78875966


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Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Module Writers: Dr Che Amiza Che Wel

Moderator: Dr Baderisang Mohamed

Enhancer: Dr Chiew Wye Mei

Developed by: Centre for Instructional Design and Technology

First Edition, August 2014

Copyright © Open University Malaysia (OUM)

Topic 1 Introduction to Relationship Marketing 1

Topic 2 Characteristics of Relationship Marketing 29

Copyright © Open University Malaysia (OUM)

Topic 3 Drivers of Relationship Marketing 48

Topic 4 Planning a Relationship Marketing Programme 74

Copyright © Open University Malaysia (OUM)

4.6 Relationship Marketing Planning Objectives 100

Topic 5 Implementing Relationship Marketing Programmes: 106

Topic 6 Implementing Relationship Marketing Programmes – 130

Copyright © Open University Malaysia (OUM)

Topic 7 Monitoring and Controlling Relationship 160

Topic 8 Ethical Considerations in Relationship Marketing 181

Copyright © Open University Malaysia (OUM)

Topic 9 Key Account Management (KAM) 200

Topic 10 Customer Relationship Management (CRM) 221

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

COURSE GUIDE DESCRIPTION

As an open and distance learner, you should be acquainted with learning

Copyright © Open University Malaysia (OUM)

Table 1: Estimation of Time Accumulation of Study Hours

COURSE LEARNING OUTCOMES

1. Identify the characteristics and drivers of relationship marketing;

2. Describe the planning and assessment of relationship marketing

3. Explain the implementation of relationship marketing programmes by

4. Illustrate appropriate approaches and measures to control and monitor

5. Apply ethical considerations used by marketers in relationship management;

6. Discuss key account management (KAM) and customer relationship

Copyright © Open University Malaysia (OUM)

Topic 1 begins with an introduction to relationship marketing, followed by factors

Topic 3 discusses how the drivers of relationship marketing help to identify

Topic 4 provides an important foundation for situational analysis by discussing

Topic 7 explains the major approaches of monitoring and controlling relationship,

Topic 8 focuses on the concept of consumerism, social responsibility and ethics in

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TEXT ARRANGEMENT GUIDE

Self-Check: This component of the module is inserted at strategic locations

Activity: Like Self-Check, the Activity component is also placed at various

Copyright © Open University Malaysia (OUM)

Brown, S. A. (2000). Customer relationship management: A strategic imperative in

Buttle, F. (2004). Customer relationship management: Concepts and tools. Oxford,

Christopher, M., Payne, A., & Ballantyne, D. (1991). Relationship marketing:

Grönroos, C. (1981). Internal marketing: An integral part of marketing theory.

Gronroos, C. (2000). Creating relationship dialogue: Communication, interaction

Copyright © Open University Malaysia (OUM)

Gummersson, E. (2002). Total relationship marketing: Marketing management,

Kumar, V., & Reinartz, W. J. (2006). Customer relationship management: A

Little, E., & Marandi, E. (2003). Relationship marketing management. London,

Ojasalo, J. (2001). Key account management at company and individual levels in

Zikmund, W. G., McLeod, R. Jr., & Gilbert, F. W. (2002). Customer relation

TAN SRI DR ABDULLAH SANUSI (TSDAS)

Copyright © Open University Malaysia (OUM)

By the end of this topic, you should be able to:

Furthermore, companies want loyal customers rather than having to keep