Tuesday, April 19, 2011

Domain of Relationship Marketing

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Relationship marketing requires the organisation to get to know its customers, their needs and their motivations. Based on this knowledge, the organisation then develops programs which are designed to increase the value of the customer to the organisation. These programs often include actions such as setting up loyalty schemes, pro-actively contacting customers to ensure satisfaction of developing special offers available to only certain categories of customers, all of which are focused on increasing the value of the customer to the organisation.

Relationship marketing is to identify and establish, maintain and enhance and, when necessary, also to terminate relationships with customers and other stakeholders, at a profit, so that the objectives of all parties are met, and that this is done by a mutual exchange and fulfilment of promises.

Core concepts of relationship marketing

The traditional approach of marketing which emphasises gaining new customers and larger market share as the key determinants to a successful business. Rather than pursuing each customer and transaction as a new event, the relationship marketer will attempts to develop and ongoing series of transactions with the consumer, to increase customer loyalty and reduce the need to acquire new customers.

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The emphasis on relationship marketing is based on a pair of key assumptions

The lifetime value of the customer. Ideally, as customers stay with the relationship, they will increase their value to the organisation, increase their rate of purchase and spread positive word of mouth to encourage new customers to join.

Customer loyalty. The theory assumes that the development of trust, commitment, and responsiveness will result in the customer feeling a reciprocal loyalty to the organisation and will not simply encourage the consumer to play one company off against another to maximise their personal gain.

Loyal customers are those individuals who exhibit both behavioural and psychological commitment to the organisation. Behavoiural commitment is exhibited through

Repeated buying from the one supplier when others exist

Increasing the amount of transactions with that supplier, either by purchasing more, or more frequent visits to the web site; or

Providing constructive feedback and suggestions.

Psychological commitment to the organisation is based around the mental processes associated with the development of a successful relationship. Consumers have established psychological commitment when they

Would not consider terminating the relationship, or using an alternative supplier

Engage in posititve word of mouth referral

Hold a positive attitude towards the supplier, relationship, and are experiencing beneficial outcomes from the exchange

Suitability for relationship marketing

Six points to determined when the relationship marketing paradigm is most suited for application

There is an ongoing or periodic desire for the service on the part of the customer (eg. Hairdressing)

The service customer controls the selection of the service supplier. The targeted customer for a relationship marketing campaign must be the person who ultimately makes the purchase decision.

There exists an alternative choice of supplier.

Brand switching is a common phenomenon (relationship marketing is a strategic alterative to price-based competition or cyclical sales promotions)

Word of mouth is an especially potent form of communicating about a product.

There is an ability to cross-sell products. The Internent provides an organisation with the capacity to develop a website with multiple layers of service options, product alternatives and content which can be cross-sold to enhance the user’s experience.

Web sites also have the opportunity to collect the requisite data for the development of personalised services and the formation of web-based relationship marketing.

Philosophical principles of relationship marketing

Three core principles which are consistently recognised as having the greatest impact are

Trust. This includes a belief in the trustworthiness of the partner, and the reliance on the other partner to perform.

Commitment. This is the perceived need to maintain the relationship, either because of the inherent value of staying, or because of the costs associated with leaving the exchange,

Reciprocity. This is basically the notion of equality and mutual obligation.


Developing trust is a major issue facing the online marketer. This is due to the relatively new nature of the Internet.

There are 5 processes by which trust can be formed in business relationships

Calculative processes, which try to second guess the value of cheating or defrauding the relationship. If the benefits of cheating do not outweigh the costs of being caught, then the parties to the transaction will be honest.

Prediction of future intent based on past behaviour, which uses the past actions of a party to determine the likelihood of acting in a fraudulent manner in the future (eg. Credit rating)

Credibility, which is where trust is derived from the capability and capacity of the other party to deliver on their promises. Web sites which offer sample downloads, trial products, peer reviews and user ratings all provide indications of the credibility of the organisation to deliver on their promise.

Motive assessment, which is based on interpreting the motives of the transaction partner.

Transference process, which works on the principle of word of mouth, third party referral and trust by recommendation. The Internet has provided a range of systems and services for the ranking and rating of third party groups.

Trust in the online environment is particularly important before an initial transaction occurs, let alone as a part of developing an ongoing relationship. Although trust along does not gain the sale, it is a major factor in getting to the point of consideration for purchase.


Trust is a key element to the formation and continuity of the relationship, whereas commitment is more towards the operationalisation of the contractual obligation. Commitment is dependent on a range of factors, such as

Service and product quality.

Satisfaction, which is the degree to which the relationship continues to meet the needs of the organisations involved. It differs from service quality in that a high quality service can still provide an unsatisfactory experience and still be grounds for departing the relationship.

• Commitment has an impact in the following areas

• Intentions to stay in the relationship.

• Desire to stay in the relationship.

• Performance of the relationship.

• Willingness to invest in the relationship.

• Development of alternatives.

• Opportunistic behaviour.

For online marketers, the lesson to learn from commitment is to not only continue to balance the P & L sheets of the relationship, but to also trust instinctive desires to maintain commitment. Online relationship marketers need to have a longer-term focus, rather than simply using Internet relationships as short-term opportunistic events.


The key to reciprocity is that the totality of the exchanges must balance over the course of the relationship, which means that the individual exchanges can favour one partner or the other providing that the overall outcomes remain equal. In addition, the basis for reciprocity can move beyond simple financial transactions to include such functions as

Increasing stability by reducing risk and uncertainty

Establishing legitimacy

Increasing effective and efficient resource usage

Accessing resources not currently available to the organisation.


Three levels of relationship marketing


Tactical level application of relationship marketing is aimed at the initial recruitment and development of the relationship whereby incentives are offered to the consumer for their initial involvement with the company (e.g. 0 days free access to a subscription function).

For the most part, these are not designed to develop trust nor enhance credibility, and they are not presented as tools of commitment and reciprocity. They aim to get the user from pre-purchase to purchase, or to shift from their current relationship to the new provider.

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