RELATIONSHIP MARKETING IN BUSINESS MARKETS: A MEANS OR AN END?

Transcription

1 RELATIONSHIP MARKETING IN BUSINESS MARKETS: A MEANS OR AN END? ABSTRACT Ralph G. Kauffman, University of Houston-Downtown Research concerning relationship marketing in business markets is reviewed. Conclusions and implications are drawn for the role of relationship marketing in the business marketing process and in the development of the marketing mix. General conclusions include when relationships are considered there is a bias toward development of very close relationships. INTRODUCTION Relationships with customers have been characterized as a company's most important business asset (Webster, 1992). Indications that it can cost six to nine times more to acquire new customers than to retain current ones illustrate the value of maintaining relationships (Peppers and Rogers, 1993). Relationship marketing has been defined as "an organization's effort to develop a long-term, cost-effective, link with individual customers for mutual benefit" (Berkowitz, et al, 1994). With regard to business marketing, relationship marketing has been defined as "enabling buyers and sellers to plan jointly, and work to secure the future for both companies" (Dwyer and Tanner, 1999). Perhaps illustrative of the relative lack of attention to relationship marketing as a distinct subject in business markets, a relatively recent edition of a business marketing text (Haas, 1995) the term "relationship" does not appear in the index. What these references have in common is a description of end-state relationships. They do not clearly indicate how to determine what type of relationship may be most desirable under various circumstances or how to achieve the desired state. What is relatively lacking in all of these definitions and discussions is guidance on how to integrate relationship concerns into the business marketing process and marketing programs. In other words, what is the appropriate role of relationships and how should that role be implemented in the business marketing process? One notable exception to the above references is the book by Christopher, Payne, and Ballantyne (1991) which discusses development of relationship strategy among other relationship considerations. OBJECTIVE While much has been written on relationship marketing but except for end-state descriptions, little has been published on how relationship marketing should fit in the overall business marketing process. The objective of this paper is to overview relationship marketing in business markets as it has been reported in selected work by others and to draw conclusions and implications for the role of relationships in the marketing process. An additional objective is to develop recommendations for business marketing organizations on how to include buyer-seller relationships in the marketing process.

2 APPROACH To determine where and how relationship marketing concerns may best fit into the marketing process, key elements of that process will be examined by considering the buyer-seller relationship as a component or factor in carrying out each element of the business marketing process. The role of relationships in the marketing mix will also be examined. Recommendations will be developed for inclusion of relationship marketing in the marketing process by business marketing organizations and relationship implications will be developed for elements of the marketing mix. Since the objective of this paper is to draw conclusions and develop recommendations from a review of previous work, no new primary data are presented. REVIEW AND ANALYSIS Relationship Marketing - What is it? Additional definitions of relationship marketing include: "relationship marketing concerns attracting, developing, and retaining customer relationships" (Berry and Parasuraman, 1991), "the goal of relationship selling is to earn the position of preferred supplier by developing trust in key accounts over a period of time" (Doyle and Roth, 1992), and "relationship marketing refers to all marketing activities directed toward establishing, developing and maintaining successful relational exchanges" (Morgan and Hunt, 1994). Overall, these definitions appear to be somewhat general (e.g. Morgan and Hunt), somewhat circular (e.g. Berry and Parasuraman), and descriptive of either one type of relationship or a particular relationship end-state (e.g. Doyle and Roth). None of them indicates anything about determining or achieving the best type of relationship for a given market or seller-buyer situation. Dwyer, Schurr, and Oh (1987) characterize relationship marketing as consisting of "relational exchange" to differentiate it from a "discrete transaction" which they describe as that which has a "distinct beginning, short duration, and sharp ending by performance." They describe relational exchange as that which "traces to previous agreements,... is longer in duration, reflecting an ongoing process." Morgan and Hunt (1994) identify ten forms of relationship marketing with parties that include suppliers, customers, competitors, government, and internal employees, business units and departments. The problem with Morgan and Hunt's characterization of forms of marketing relationships is that the variable is who is the relationship with, and not the degree of the relationship itself In other words, with any of the ten types of parties they identify, a marketer could have a wide range of closeness of relationship and still have a "relationship" as opposed to a discrete arrangement. For the purpose of this paper, a marketing relationship will be defined as the degree of closeness between a seller and a buyer. Degree of closeness could include, for example, time length of the relationship, degree of trust between the parties in the relationship, and amount and frequency of transactions and/or communication between the parties. Because particular relationships may require particular factors to be more important than others, degree of closeness should be seen as a multi-variate concept which would include different factors of varying degrees of importance for different relationships. While some factors such as degree of trust and frequency of contact, for example, may be generalizable across most relationships, others such as provision of engineering assistance may not. One recently-proposed approach to defining business marketing relationships includes a structure of eight types of relationships ranging from "basic buying and selling" (least close) to "customer is king" (closest) (Cannon and Perreault, 1999). Relationship marketing will be defined as the process of determining and achieving a particular desired degree of closeness between a seller and a buyer in a particular situation. A desired degree of closeness may refer to a market or segment generally or to particular customers individually.

3 Relationship Marketing in Business Markets Jackson (1985) defines relationship marketing in a business context as "marketing oriented toward strong, lasting relationships with individual accounts." This definition and most of those previously cited appear to give the impression that you either have a relationship or you have a discrete transaction situation. The main problem with this definition is that there are many intermediate possibilities between these extremes. For example, a customer who needs a particular product once a year who, because of good past experience with a particular supplier, returns year after year surely has a relationship with that supplier. While the relationship is long-term, it would not be a very close relationship as defined by number or frequency of transactions, contacts, or communications. Heide and John (1990) found that varying degrees of business marketing relationships exist and are desirable was Heide and John (1990). They concluded that degree of closeness in a marketing relationship can be affected by the need for safeguarding transaction-specific assets and by the need for adapting to uncertainty. They also concluded that close relationships are not universally desirable. Jackson (1985) and Ganesan (1994) also found that an assessment of the customer's time orientation (long- or short-term) regarding the purchase in question is essential before attempting to develop a longer-term, closer relationship. These indications suggest that achieving relationships (that are beneficial to the marketer) with customers depend mostly on providing the type of relationship that the customer desires as influenced by the nature of the purchase and its potential effect on the buying organization. This implies a range of relationship arrangements from a discrete transaction with no continuing relationship at one extreme, to a strategic alliance that may involve mutual investment on the part of marketer, buyer, or both, at the other extreme. While some texts and other work sometimes refer to this range of possibilities, few address the question of how to determine where a particular buyer-seller situation should be within the range to achieve the best, and mutually agreeable, result from the relationship. RELATIONSHIP MARKETING AND THE BUSINESS MARKETING PROCESS The marketing process is often described as consisting of a number of steps beginning with opportunity identification and ending with controlling marketing effort. The particular outline used here to discuss relationship marketing is from Kotler (1991). Analyzing Marketing Opportunities In this first step of a general business marketing process, demand and competition in relatively broad areas of the marketplace are assessed and market segments are identified. Current customers, new customers, existing products, and new products are evaluated and assessed. Costs of serving current and new customers and of maintaining current products and developing new products are considered to evaluate opportunities. Relationships are rarely mentioned explicitly (although they may be implied) ) in discussions of assessment of market opportunities in business marketing texts and books (e.g. Haas 1995, Dwyer and Tanner 1999, Sherlock 1991, Corey, Cespedes, and Rangan 1989). While relationships are discussed in most of the articles in Ford (1990), the term "relationship" is often applied only to an arrangement that is long-term and close in nature. To review the relationship aspect of market opportunities, some questions that could be asked might include:

4 Are existing general relationships between us (marketers) and markets/segments profitable? If profitable, how can they be maintained? What types of relationships generally are desired by buyers in particular markets/segments? What type(s) of relationships are necessary to attract new customers in various markets/segments? What type(s) of relationships would be needed to successfully deliver new products for particular markets/segments? Do we (marketer) have the capability and resources to develop and maintain the types of relationships that may be required for these markets/segments? Selecting Target Markets After assessment of existing and potential markets and market segments, the number of opportunities may exceed the marketer's ability to develop and serve all of them. Also, they may not all be equally profitable or otherwise desirable. Among other criteria to select the most profitable targets, ability to determine and provide the type(s) of relationships required should be included. How good is the match between the type of relationship that is or would be required by a particular target market and the marketer's ability to provide that relationship? For example, a part that is a main component of one customer's manufactured product may be only an occasionally-used item for another customer and require a different degree of relationship closeness. The dominant types of relationships existing or required for each market/segment must be identified. How wide a variation is there in the types of relationships required? Segments that require product parts and/or services imply different relationships than a throw-away product or one that does not require such support. Does the marketer have the capability and/or the desire to provide the needed range of relationships? Designing Marketing Strategies After selecting target markets or segments in which to either remain active or enter, most texts indicate that strategies such as product positioning, product mix, new product launch, and geographic scope must be determined (e.g. Kotler, 1991). Are alternative relationship strategies considered? Porter (1985) identifies three generic competitive strategies: cost leadership, differentiation, and focus. In his discussion of differentiation he mentions uniqueness and unrecognized purchase criteria among other means of differentiation. Both are examples of opportunities for relationship strategies. In business markets the types of products vary from custom designed products, e.g. manufacturing equipment, to parts and components, to consumer- type products. For each existing or target market or segment a marketer must determine what are the relationships that customers generally desire for the particular type of product that is offered and devise marketing strategies that will deliver the desired relationship. The same analysis must be performed for individual or potential customers, particularly those who purchase the product in large quantities. A customer will likely desire a different relationship is he/she is buying the construction of a new company office than if buying paper for the copying machine. Are there mostly heavy users or light users of our products/services in the segment? How frequently are our products purchased? What should our relationship strategies be? How can other strategies support the achievement of relationship strategies? An example is Porter's (1985) identification of "intangible interrelationships" between separate value chains as a means of achieving competitive advantage. As noted in the Introduction, Christopher, Payne, and Ballantyne (1991) discuss relationship marketing and the development of relationship strategies. However, they seem to have a bias for long-term, close relationships and their relationship strategy development chapter strays from the topic of relationships into a number of other strategic considerations.

5 Planning Marketing Programs At this stage, decisions on items such as product line makeup, pricing, channels, promotion, advertising, and type of sales approach must be made to determine the overall program. But again, what about relationships? Newell (1997) identifies a number of trends that are affecting consumer markets and marketing programs. At least two of them are also likely affecting business markets and should impact development of marketing programs: (1) The changing perception of value, and (2) Time poverty. Basically he says that the changing perception of value in consumer markets is a shift from judging value by price only, to inclusion of other relevant value factors. This is not a new concept in business markets, but much of the literature seems to indicate that the only valuable relationships are long-term and close. Relationships obviously have the potential for adding value to the sellerbuyer interaction. Should not value added by type or degree of closeness of relationship be included in determining value propositions for customers' consideration? Concerning Newell's second trend, time poverty, mergers, downsizing, and reengineering, have rendered most business purchasing staffs much reduced and faced with buying the same or more materials and services with smaller resources. Relationship components of marketing programs that offer value in terms of reducing the time required from the buyer's side of transactions would seem desirable to many business purchasers. What program components are necessary to achieve the type(s) or relationships that are desired? Organizing, Implementing, and Controlling Marketing Effort This part of the marketing process is, where plans and programs are put into action. Considerations such as relationship status and degree of closeness to customers may be difficult to measure. Therefore particular attention must be given to determining how to implement relationship building elements of marketing programs and to monitoring and controlling these efforts on an ongoing basis. Relationships must be monitored and controlled regardless of their particular degree of closeness or other characteristics if they are to continue. RELATIONSHIP MARKETING AND THE MARKETING MIX Product and Product Development What "product" (from the customer's point of view) is being offered? Does the customer seek only the physical product or service or does it seek a broader "product" that includes relationship aspects? If particular types of relationships can be implied by customers' definition of product, are these included in current products? Perhaps a range of possible relationships is necessary to serve most customers in the market. If particular relationships are sought by individual customers or customer groups, what type and how close a relationship is needed? The bottom line is that a marketer must think in terms of "relationship" being part of the product that is offered. The marketer must also determine how to deliver the desired relationship in the marketplace such that customers will perceive the product as including the desired relationship and that the perceived relationship is provided. Price In addition to the usual questions of value, cost, and competitive or market price influences, what effect does the degree of relationship have on price? Very close relationships that include extensive communication and provision of information and service from the marketer can have significantly higher costs than a discrete purchase situation with no continuing relationship. On the other hand, some partnerships and alliance relationships can result in reduced selling and administrative costs (Kalwani and Narayandas, 1995). The customer's perception of the value provided by the relationship will be a large consideration in determining if and whether to vary the price of the product depending on the degree of the relationship.

6 Channel and Distribution Strategies Corey, Cespecles, and Rangan (1989) identify four factors that shape industrial distribution patterns: nature of the product, market segment demographics, buyer behavior, and distribution costs. These same factors may also be involved in determining the best relationship arrangements for particular products. Nature of the product for example: Products that are mainly a service, mainly a physical product, and products requiring maintenance are examples of three types of products for which customers may have different relationship needs and expectations. Market segment demographics will also affect relationship considerations. Are markets clustered or scattered, do they have few or many customers? Are there large or small average purchases? Do buyers purchase often or seldom? Buyer behavior has been extensively researched and usually has at least an implied relationship consideration. The adage "different strokes for different folks" may apply to development of appropriate relationship goals for particular market segments or customers. Distribution channel costs also bear on relationships: Where to stock products? How to deliver them? For customers who want a just- in-time (JIT) delivery service, a close relationship would seem to be essential. For others perhaps a less close but still not discrete transaction type of relationship may be most appropriate, and for still others a discrete relationship may be best. Promotion and Selling Activities Promotion and selling activities can range from very minimal for items such as standard industrial commodities and products to very extensive for custom and engineered products. As noted above, Kilwani and Narayandas (1995) determined that some very close types of relationships can reduce the need for certain selling activities. The key question again is what types of relationships are required or desired by the market or by customers and what types of promotion and selling activities are needed to deliver these relationships? In an article that questions the universal desirability of the "partnership" form of relationship marketing, Ramsay (1996) indicates that some purchases are more suitable than others for partnership arrangements, implying that varying degrees of relationships may be necessary depending on the criticality of the purchase. Using Kraljic's (1983) purchase classification, he also indicates that for small companies, supply risk may be increased by tooclose relationships with (and dependence on) small numbers of suppliers. Using Ramsay's and Kraljic's analyses and classes (Non-Critical, Leverage, Strategic, and Bottleneck) one could develop a series of relationships and accompanying promotional and selling activities depending on which purchase class the marketer's product falls into. CONCLUSIONS AND IMPLICATIONS The primary conclusion of this paper is that while considerable discussion has gone into relationship marketing and marketing relationships, not enough research has been done on determining what kinds of relationships (with both markets and individual customers) will best enable the marketer to achieve its business objectives and how to achieve that best state of relationships. Reality seems to indicate that not all relationships can or should be of the extremely close type (e.g. partnerships or alliances) and therefore attention must also be given to opportunities for less close relationship situations. A second conclusion and recommendation is that at each step in the marketing process, relationships should be considered. Questions to be answered with regard to markets and customers include: What relationship is desired? What relationship is required to meet or deliver other customer needs and wants? What relationships currently exist? What capabilities are needed to deliver and maintain the necessary relationships? Do we have the necessary capabilities? If not, how can we obtain them or should we re-think consideration of particular target markets or customers?

7 Additionally, it is recommended that, buyer-seller relationships should be carefully planned throughout the marketing process and for each element of the marketing mix and should neither be left to chance nor always pushed in the direction of a very close long-term relationship such as an alliance or partnership. ADDITIONAL RESEARCH Empirical research on relationship development and consideration in the marketing process and in the marketing mix should be conducted to determine what characteristics of particular markets and/or customers lend themselves to particular types of relationship situations. Research should also be done to better define the continuum of relationships from discrete transactions to strategic alliances. Results of research in both of these streams would have the potential, if combined, to define combinations of relationship degrees and market characteristics that could be useful to marketers in strategy and program development. REFERENCES Berkowitz, Eric N., Kerin, Roger A., Hartley, Steven W., and William Rudelius (1994), Marketing, 4th ed., Richard D. Irwin Berry, Leonard L, and A. Parasuraman (1991), Marketing Services, The Free Press. Cannon, Joseph P., and William D. Perreault, Jr., "Buyer- Seller Relationships in Business Markets," Journal of Marketing Research, XXXVI, (November), Christopher, Martin, Payne, Adrian, and David Ballantyne (1991), Relationship Marketing, Oxford, UK, Butterworth-Heinemann. Corey, E. Raymond, Cespedes, Frank V., and V. Kasturi Rangan (1989), Going to Market, Harvard Business School Press. Doyle, Stephen X., and George T. Roth (1992), "Selling and Sales Management in Action: The Use of Insight Coaching to Improve Relationship Selling," Journal of Personal Selling and Sales Management, 12 (Winter), pp Duncan, Tom, and Sandra E. Moriarty (1998), "A Communication-Based Marketing Model for Managing Relationships, Journal of Marketing, 62 (April), pp Dwyer, F. Robert, Schurr, Paul H., and Sejo Oh (1987), "Developing Buyer-Seller Relationships," Journal of Marketing, 51 (April), pp Dwyer, F. Robert, and John F. Tanner, Jr. (1999), Business Marketing: Connecting Strategy, Relationships, and Learning, McGraw-Hill. Ford, David (1990), Understanding Business Markets: Interaction, Relationship, and Networks, San Diego, CA, Academic Press, Inc. Ganesan, Shankar (1994), "Determination of Long Term Orientation in Buyer-Seller Relationships, "Journal of Marketing, 5 8 (April), pp

8 Haas, Robert W. (1995) Business Marketing: A Managerial Approach, South-Western. Heide, Jan B., and George John (1990), "Alliances in Industrial Purchasing: The Determinants of Joint Action in Buyer-Supplier Relationships," Journal of Marketing Research, XXVII, (February), pp Jackson, Barbara B. (1985), Winning and Keeping Industrial Customers, Lexington Books. Kotler, Philip (1991), Marketing Management: Analysis, Planning, Implementation, and Control, 7th ed., Prentice- Hall Kraljic, P. (1983), "Purchasing Must Become Supply Management," Harvard Business Review, (Sep.-Oct.), pp Morgan, Robert M., and Shelby D. Hunt (1994), "Commitment-Trust Theory of Relationship Marketing," Journal of Marketing, 58, No. 3, (July), pp Newell, Frederick (1997), The New Rules of Marketing: how to use one-to-one relationship marketing to be the leader in your industry, McGraw-Hill. Peppers, Don, and Martha Rogers (1993), The One to One Future: Building Relationships One Customer at a Time, New York, Doubleday. Porter, Michael E. (1985), Competitive Advantage, The Free Press. Ramsay, John (1996), "The Case Against Purchasing Partnerships," International Journal of Purchasing and Materials Management, 32 (Fall), pp Sherlock, Paul (1991), Rethinking Business to Business Marketing, The Free Press.