MANAGING BUSINESS RELATIONSHIPS WEEK 6, LECTURE 1. FROM TRANSACTIONS TO RELATIONSHIP MARKETING Relationships in Marketing

Agenda for Weeks 6 & 7 Week 6 Relationship Marketing Week 7 Customer Relationship Management (CRM)

Lecture Agenda What is a relationship? Relationship marketing definitions Relationship development Loyalty

What is a Relationship? Sale consummated the relationship with the customer and after that the relationship begins (Levitt, 1983) Marketers perceive that (either metaphorically or in reality) relationships of some sort exist in commercial exchanges They are not really interpersonal relationships, however, but the attributes of personal relationships might be usefully employed (O’Malley and Tynan, 1999) But buyers frequently have no wish to enter into a relationship with a company (Palmer, 1996)

Think About…. … how you would define ‘a relationship’ Does this work fully in a inter-personal and business context?

Developments in Marketing 1990’s2000’s1980’s1970’s1960’s1950’s ? Consumer marketing Industrial marketing Non-profit marketing Services marketing Relationship marketing

Relationship Marketing Definitions “Relationship marketing is marketing based on interaction within networks of relationships” (Gummesson, 2002, p. 3) “Establishing, developing and maintaining successful relational exchanges” (Morgan and Hunt, 1994, p. 20) “Identify and establish, maintain, and enhance, and when necessary, terminate relationships with customers and other stakeholders, at a profit, so that the objectives of all parties involved are met. This is achieved by a mutual exchange and fulfilment of promises” (Gronroos, 1994, p. 9)

Research Marketing Definitions Themes Elements of RM  Establishing relationship  Maintaining  Enhancing Success  Objectives Not always mentioned is the end of the relationship

Relationship Development Holmlund, 1997, cited by Fill, 2009

Relationship Lifecycle Customer relationship lifecycle Baines, et al, 2011, p. 568

Relationship Lifecycle At each stage of the relationship, the customer has different requirements and issues Therefore at each stage different marketing actions are required

Acquisition Activity intended to recruit customers and begin to gain information about them. Split into:  Initiation Phase  Socialisation Phase Bruhn (2003)

Acquisition Initiation phase Comes before the purchase of goods or services Buyer finds information about seller, as part of buyer decision making process Seller attempts to gain information about buyer  E.g., through promotional activity or list buying Initiation phase ends with first purchase Bruhn (2003)

Acquisition Socialisation phase Both buyer and seller become more familiar with each other The first purchase, provides buyer with experience of the product and seller with information This information allows for future customisation This stage generally involves a financial loss for the seller Bruhn (2003)

Development Also known as the growth phase Value both parties receive from the relationship increases  Organisation is able to cross sell to buyer  Buyer values increased level of trust, service and customisation As relationship develops more and more information is exchanged

Retention The potential value each side can gain from the other is maximised Now both sides settle into a period of consolidation This is the period of maximum profit for the seller

Decline Relationship declines as one side or the other perceives lower levels of value Relationship can be recovered, through recovery activity or come to an end Either side may formally end the relationship or they may simply drift apart

Advantages of Customer Retention Acquiring new customers costs 5 times more than retaining existing ones Average company loses 10% of customers annually A 5% reduction in customer defection increases profits by 25% - 85% Customer profitability increases over customer life cycle Kotler & Keller (2006)

Loyalty Ladders Partners Clients Customers Prospects Members Advocates Partners Clients Repeat Cust Prospects Members Advocates 1st Time Cust Suspects Traditional Marketing Relationship Marketing Payne et al 1995 Kotler 1997 Baines, et al 2011

Loyalty and Repeat Purchase Loyalty is about more than just repeat purchase Many possible reasons for repeat purchase other than loyalty Loyalty relates to attitude as well as behaviour

Types of Loyalty Some of the more general types of loyalty Source: Baines, et al (2011, p. 573)

Things to Remember What is a relationship in marketing terms? Nature of the development of relationships Customer loyalty