1. Relationships in Marketing
Managing business relationships
Week 6, Lecture 2. From Transactions to relationship marketing

2. Lecture Agenda Development of relationship marketing
When to use relationship marketing
KMV model of relationship marketing
Satisfaction
Relationship intensity

3. Relationship Marketing
Remember definition?
“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)

4. Relationship Marketing
RM has developed out of transaction and ‘product’ perspectives on exchange behaviour into one that values the needs of the ‘people’ involved within a series of exchanges. RM is about collaboration….. not adversarial or competitive activities.

5. Transactional or Discrete Exchanges
Product & Price Orientation
One-Off
No History and No Future
Driven by the 4Ps Marketing Approach
Transactional Exchanges
Transactional Exchanges
Transactional Exchanges

6. Collaborative Exchanges
Relationship Orientation
A Series of Transactions
History and a Future
Driven by a Customer Relationship Approach
Collaborative Exchanges
Transactional Exchanges

7. A Range of Relationships
Relationships are far from static nor are they polar: they vary in intensity, are dynamic and change with context. We do not always want, or choose, to have intense relationships.
To be successful it is necessary for marketing (managers) to recognise the range and depth of relationships that organisations and their customers desire.

8. Continuum of Exchanges
Fill (2011, p. 558)

9. A Range of Relationships
Advocate
Emphasis on
long-term
loyalty
Supporter
Client
Customer
Emphasis
on one-off
transactions
Prospect

10. When to Use Relationship Marketing
Use relationship marketing when:
Customers have long time scales
Especially applicable for large scale B2B projects
When switching costs for consumers are high
Which would decrease the likelihood of winning customers from competitors
When customer has a relationship (rather than a cost) orientation
When benefits of the relationship outweigh the costs

11. Types of Relationship at DaimlerChrysler
Transaction
Coordination
Cooperation
Alliance
Based on….
Data
Information Exchange
Knowledge Transfer
Specialist knowledge build up
Lasts for…
Length of Transaction
Length of
contract
Series
Life Cycle
Beyond the
Level of Commitment
Suppliers not Integrated
Limited Integration
Strong Integration
Seamless
Examples
Pencils
Mouldings
Exhausts
Fuel Cells
Adapted from Wagner and Boutellier (2002)

12. Relationship Revenues v Costs
Sleeping
giants
Power
traders
High
Relationship revenue
Delinquents
Low
Pets
Low
High
Relationship costs
Kotler, et al (2008, p. 396)

13. Relationship Revenues v Costs
Sleeping giants
Very lucrative but undemanding
Power traders
Take up a lot of effort, but have high revenue
Pets
Similar to power traders
Both could be best served with transaction marketing
Delinquents
Most difficult groups to deal with
Can offer lower levels of service to reduce costs, since defection is not such a loss

14. Trust and Commitment
Trust is the confidence that one party has in the other’s reliability and integrity.
Commitment is associated with a partner’s consistency, competence, honesty, fairness, willingness to make sacrifices, responsibility, helpfulness and benevolence
Commitment is “the desire that a relationship continue (endure) in order that a valued relationship be maintained or strengthened.” Fill 2009, p. 213
Morgan and Hunt (1994)
© Chris Fill

15. The KMV Model of Trust and Commitment
Cooperation
Trust
Morgan and Hunt (1994)
© Chris Fill

16. The KMV Model of Trust and CommitmentTC + + + PL RB
Commitment + + SV
Cooperation + + + +
Trust C
TC = Termination Costs; A = Acquiescence; RB = Relationship Benefits; PL = Propensity to Leave; SV = Shared Values; C = Communication; FC = Functional Conflict; OB = Opportunistic Behaviour; U = Uncertainty + FC OB U
Morgan and Hunt (1994)
© Chris Fill

17. Loyalty or Satisfaction?
Loyalty is possible without commitment
Satisfaction is derived from trust and commitment
© Chris Fill

18. Trust, Commitment and Satisfaction
A natural outcome from building trust and developing commitment is the establishment of customer satisfaction.
Satisfaction is thought to be positively related to customer retention which in turn leads to an improved return-on-investment and hence profitability.
Many organisations seek to improve levels of customer satisfaction, with the intention of strengthening customer relationships and driving higher levels of retention and loyalty.
Ravald and Gronroos (1996)

19. Satisfaction and Retention
“Totally satisfied customers were six times more likely to repurchase Xerox products over the next 18months than its satisfied customers” Jones and Sasser (1995, p. 91)
For less than totally satisfied customers, the possible increase in satisfaction from another brand, is worth the risk of potentially lower levels of satisfaction
Successful relationships are more likely to lead to totally satisfied customers, but…
… totally satisfied customers are more likely return for another sale
The sooner the organisation can establish trust and commitment the more likely it is to retain customers

20. Relationship Intensity
Factors previously discussed can be combined with a couple more into one model of relationship intensity
Fill (2011, p. 569 citing Bruhn)

21. Relationship Intensity
Relationship quality is “the capability of one of the relationship parties to reduce the complexity of transactions, lower the uncertainty and raise the interaction efficiency between the interaction parties” Bruhn (2003, p. 63)

22. Relationship Intensity
Purchasing behaviour
How does the buyer act in relation to the purchase (e.g., impulsive or deliberate)
Information behaviour
Extent of search for competitive products
Integration behaviour
How much information does the buyer share about themselves that is relevant to the purchase
Communication behaviour
Does customer spread WOM concerning the company?

23. Thing to Remember Development of relationship marketing
That transactional and collaborative exchanges can exist side by side
The links between trust, commitment and relationship
How relationship intensity develops