BBMR4103
Relationship Marketing
Summary 133
Key Terms 134
References 134
INTRODUCTION
BBMR4103 Relationship Marketing is one of the courses offered by OUM
Business School 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 students taking the Bachelor of Business
Administration (BBA) programme. This module aims to impart the relationship
marketing perspective especially for those majoring in Marketing. This module
should be able to form a strong understanding on the importance to impart the
relationship marketing views or perspectives in all marketing activities in the
organisations.
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.
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 3
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), Test(s) and Examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120
COURSE OUTCOMES
By the end of this course, you should be able to:
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic can be listed as
follows:
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 5 addresses issues relating to the strategy, structure and system involved
in implementing relationship marketing programmes in the company in order to
plan the marketing strategy.
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 here.
Topic 9 describes key account management cycle, key decisions and activities.
The relevance of key account management to relationship marketing is also
discussed.
Topic 10 deals with the criticisms, the role and the myth of Customer
Relationship Management (CRM). The factors to be considered for a successful
implementation of CRM strategy are discussed in this topic.
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.
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.
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.
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.
Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of
marketing. Harlow, England: Pearson Education.
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.
INTRODUCTION
By the mid-20th century, people began to realise that the most important factor in
business was the satisfaction of the customer, rather than just the profit. A happy
and satisfied customer would bring more profit as he or she would be willing to
pay the organisation for its products or services which hold a valuable quality.
Source Definition
Berry (1983) Attracting, maintaining and in multi-service organisations,
enhancing customer relationships.
Berry & Relationship marketing concerns attracting, developing and
Parasuraman (1991) retaining customer relationships.
Gummesson (1994) Relationship marketing is marketing seen as relationships,
networks and interactions.
Gronroos (1994) Relationship marketing identifies and establishes, maintains
and enhances relationships with customers and the
stakeholders or a profit so that the objectives of all parties
involved are met and that this is done by a mutual exchange
and fulfilment of promises.
Sheth (1994) The understanding, explanation and management of the
ongoing collaborative business relationship between suppliers
and customers.
Level Description
Basic marketing The salesperson sells the product.
Reactive marketing The salesperson sells the product and encourages the
customer to call if she or 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.
ACTIVITY 1.1
Let us now discuss the factors for successful relationship marketing one by one.
(a) Customisation
Relationship marketing in the mass market requires that the market
consists of 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).
ACTIVITY 1.2
Market Who
Consumer markets Customer markets in the business-to-business sector
Internal markets Employees
Supplier and alliance Business partners
markets Suppliers
Consultants
Contractors
Influencer markets Venture capitalists
Regulators
Lobbyists
Litigators
Referral markets Customers advocates
Intermediaries
Business advisors
Recruitment markets Employment agencies
Graduates
The pool of potential employees
(vii) Media;
(viii) Allies;
(ix) Competitors; and
(x) General public.
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 part-
Relationships 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 ă the customer or supplier
as prisoner.
11. The customer as a „member‰.
12. The e-relationship.
13. Pre-social relationships: relationships to brand and
objects.
14. The non-commercial relationship.
15. The green relationship.
16. The law-based relationship.
17. The criminal network.
Structure Definition
Monopoly A competitive structure in which an organisation offers a
competition 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
competition supply of a large proportion of a product.
Monopolistic A competitive structure in which a firm has many potential
competition 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.
Another social force is culture and in recent years, many countries have
experienced notable cultural changes that have affected consumer attitudes
and values. For example, with more working women, the number of tasks
to do is expanding while the time available to do them is shrinking. This
has led to the phenomenon of time poverty. Entrepreneurs are responding
to this trend by creating ventures that help alleviate or reduce the
consumerÊs time poverty such as delivery services, online shopping
business and ready-to-eat foods (Pride & Ferrell, 2010).
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 and
Facebook as well as electronic trading businesses such as eBay (Pride &
Ferrell, 2010).
SELF-CHECK 1.1
ACTIVITY 1.3
There are a few factors that play a crucial role in the rise of relationship
marketing, which are, strategy of enhancing the breadth of the products or
services, the changes of customer behaviour over the time and the increasing
value of products or services by the manufacturer and the provider.
Boone, L. E., & Kurtz, D. L. (2006). Principles of marketing. Mason, OH: Thomson
South-Western.
Henneberg, S. C., Mouzas, S., & Naudé, P. (2006). The building blocks for
network picture. Network pictures: Concepts and representations.
European Journal of Marketing, 40, 408-429.
Hunt, S. D., & Arnett, D. B. (2001). Competition as a process and antitrust policy.
Journal of Public Policy & Marketing, 20(1), 15-26.
Hunt, S. D., Arnett, D. B., & Madhavaram, S. (2006). The explanatory foundations
of relationship marketing theory. Journal of Business & Industrial Marketing,
21(2), 72-87.
Lauterborn, B. (1990). New marketing litany: Four Ps passé: C-words take over.
Advertising Age, 61(41), 26.
Matt, M., Merenda, M., & Gittell, R. (2012). Government, public policy and
sustainable business. In The sustainable business case book. Retrieved from
http://catalog.flatworldknowledge.com/bookhub/reader/3157?e=gittell_1
.0-ch03_s01
Möller, K. (2006). The marketing mix revisited: Towards the 21st century
marketing. In Constantinides, E. (Ed.), Journal of Marketing Management,
22(3-4), 439-450.
Pride, W. M., & Ferrell, O. C. (2005). Marketing: Concepts and strategies (5th ed.).
Boston, MA: Houghton Mifflin.
Rami, O., Henrikki, T., & Kimmo, A. (2000). The role of communication in
business relationships and networks. Management Decision, 38(6), 403-409.
Shajahan, S. (2004). Relationship marketing: Text and cases. New Delhi, India:
Tata McGraw-Hill.
Sin, L. Y., Alan, C. B., Yau, O. H., Chow, R. P., Lee, J. S., & Lau, L. B. (2005).
Relationship marketing orientation: Scale development and cross-cultural
validation. Journal of Business Research, 58(2), 185-194.
INTRODUCTION
Relationship marketing was first defined by Berry (1983). The aim of relationship
marketing is to build a long-term mutually satisfying relationship with
customers, suppliers and distributors in the hopes of earning and retaining their
long-term preference and business (Kotler, 2000).
Relational benefits are defined as those benefits which customers receive from
long-term relationships above and beyond the core service performance
(Gwinner, Gremler, & Bitner, 1998). Specifically, these benefits result from
engaging in long-term relational exchanges with service firms and can be
categorised into three distinct types of relational benefits as shown in Figure 2.1.
SELF-CHECK 2.1
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 (David, 2013).
Marketers are beginning to see the potential for more precise targeting through
the use of social networking (David, 2013).
The following are further explanations for the three levels of relationship
marketing:
service through the same representative and augmenting the core service
with educational or entertainment activities such as seminars or parties
(Berry, 1995). Although social bonding is not a substitute for having a
strong, up-to-date core service (Crosby & Stephan, 1987), it can build the
customer loyalty when competitive differences are almost similar.
Level Description
Level One The firm uses pricing incentives to encourage customers to continue
doing business with it. Frequent flyer programmes are an example of
Level One relationship marketing. This level of relationship
marketing is the least effective in the long term because its price-
based advantage is easily imitated by other firms.
Level Two The customers receive emotional rewards such as easy recognition
and greeting on special dates. Poh Kong, a jewellery company, gives
away birthday cards and also discount coupons for customers to
redeem on their birthdays.
Level Maths Clinic, a famous tuition centre in Klang Valley offers not only
Three a reasonable price for its students but also provides them with
transportation services and also a free motivational session.
Marketing programmes like this give the organisation the strongest
potential for sustaining long-term relationships and attracting more
customers.
ACTIVITY 2.1
Identify the levels of relationship marketing and how they affect the
business flow.
(a) It typically costs five times as much to acquire new customers than to retain
a current one (Peppers & Rogers, 1993). Therefore, the firmÊs effort in
acquiring and keeping customers must be distributed accordingly.
(b) It is proven that if a company retains just 5 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 customer
(Reichheld, 1996). This is a strong case that supports organisations that
develop and use customer retention strategies to retain current customers.
relationship that the firm has with the customers makes them to be more
forgiving of the firmsÊ small mistakes or failures.
Type of Benefits
Now, we will discuss the types of relational benefits as introduced to you in
Figure 2.1.
The confidence benefits are shown in Figure 2.3 (Hennig-Thurau et al., 2002).
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).
ACTIVITY 2.2
Disadvantages 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 which
demanding can 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 into a network of relationship. Such linkage or
membership of a network may bring with it obligations or
expectations by others of specific behaviours.
Relationship marketing can increase the market share by attracting more new
customers, doing more business with existing customers and reducing the
loss of customers.
Berry, L. L., Parasuraman, A., & Zeithaml, V. (1991). Marketing services. New
York, NY: Free Press.
Bitner, M. J. (1995). Building service relationships: ItÊs all about promises. Journal
of The Academy of Marketing Science, 23, 246-51.
Boone, L. E., & Kurtz, D. L. (2006). Principles of marketing. Mason, OH: Thomson
South-Western.
Evans, P. B., & Wurster, T. S. (1997). Strategy and the new economics of
information. Harvard Business Review, 75(5), 71-82.
Grossman, R., Kasif, S., Moore, R., Rocke, D., & Ullman, J. (1999). Data mining
research: Opportunities and challenges: A report of three NSF workshops
on mining large, massive and distributed data supported in part by NSF
Grant IRI-9802160. Retrieved from www.ncdm.uic.edu/dmr-v8-4-52.htm.
Henard, D. H., & Szymanski, D. M. (2001). Why some products are more
successful than others. Journal of Marketing Research, 36(3), 362-75.
Peppers, D., & Rogers, M. (1993). The one to one future: Building relationships
one customer at a time. New York, NY: Currency Doubleday.
Reichheld, F. F. (1996). The loyalty effect. Boston, MA: Harvard Business School
Press.
Sheth, J. N., & Parvatiyar, A. (1994). The domain and conceptual foundations of
relationship marketing. Handbook of Relationship Marketing. Thousand
Oaks, CA: Sage Publication.
Verhoef, P. C., Franses, P. H., & Donkers, B. (2002). Changing perceptions and
changing behavior in customer relationships. Marketing Letters, 13(2),
121-34.
INTRODUCTION
The driver of relationship marketing plays a very important role in a successful
business strategy. It covers customer satisfaction, loyalty, trust and commitment
to ensure the successful of oneÊs business.
ACTIVITY 3.1
3.1 SATISFACTION
Before we begin, do you know what satisfaction is?
Each and everyone in the service industries include retailing needs to focus on
the customerÊs satisfaction as it is a very prominent investment for the
organisation. Satisfaction also needs to be achieved in order to be staying in
business. This can be done by gathering the information from the customers,
communicating with the staff within the organisation and through a marketing
survey.
External customers are people who we address as „customers‰. They are called
as „external customers‰ because they are not involved in producing the products
or giving the services, they are merely the people who enjoy using them. They
bring in all the gross revenues that keep the companies going.
Table 3.2: Satisfaction Factors and the Elements (Specific Attributes) in a Supermarket
ACTIVITY 3.2
Explain how firms can enhance customer satisfaction and how this is
measured.
According to Little and Marandi (2003), the five dimensions shown in Figure 3.1
seem best supported by the research finding on the relationship quality
The companies need to understand the area that will help them to increase the
value of their product or service in order to fulfil the current market. The
following are few strategies to guide the organisations to provide a better quality
product or service to the customer:
(a) Understand the demands of the customer;
(b) Identify the customer segments;
(c) Improve the quality of service and products;
(d) Strengthen the communication between the organisation and customers;
(e) Build the customer loyalty; and
(f) Develop strong customer relationship.
Research shows that the factors in Table 3.3 collectively influence a consumerÊs
decision to buy a durable product like a microwave and hence may be termed as
„values‰ that a customer looks for (Saxena, 2009).
Table 3.3: Factors Influencing a ConsumerÊs Decision to Buy Products for Value
momentum to bring the relationship to the next level. It is also initiating the
acceptance of the parties to establish a stronger bond between them
(Musadiq, 2008).
3.4 LOYALTY
According to Oliver (1999), 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.
Getting the customers to return 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 3.4 provides some examples of statements indicating customer loyalty.
The five principles that create customer loyalty are shown in Figure 3.5.
(b) Differentiation
A customerÊs selection from different products or suppliers is based on the
differentiators. The differentiators can highlight the unique features of
some products. Other attributes such as the payment terms, the service
given and the function of products can create a level of difference. This can
attract customersÊ attention, making the product the preferred one.
(e) Focus
In order to get the loyal customers and achieve the customer retention, we
need to focus on the customer wants and needs. The customer satisfaction
survey or the customer loyalty programmes will help companies to get to
know the customers better.
ACTIVITY 3.3
ACTIVITY 3.4
One of the leading software companies is thinking of designing a
customer loyalty programme based on the coupon redemption. Design
a programme for the company.
3.5.1 Commitment
Do you know the meaning of commitment? Do you think Figure 3.8 depicts
commitment correctly?
3.5.2 Trust
In your opinion, what is the meaning of trust in relationship marketing? Do you
think Figure 3.10 illustrates trust accurately?
According to Dalrymple and Cron (as cited in Musadiq, 2008), there are a few
attributes associated with achieving customerÊs trust by an organisation (see
Figure 3.11).
The element of trust helps the organisation to sustain its customers who
consume its products or services.
Organisations that have workers with high commitment towards their job
will have fewer problems in handling human resource turnover. Customers
who have strong commitment to certain products or services would always
be good buyers and loyal customers.
Allen, N., & Meyer, J. (1990). The measurement and antecedents of affective,
continuance and normative commitment to the organization. Journal of
Occupational Psychology, 63, 1-18.
Bennett, R., & Rundle-Thiele, S. (2004). Outcomes satisfaction not be the only
goal. Journal of Services Marketing, 18(7), 514-523.
Bowen, T. J., & Chen, S. (2001). The relationship between customer loyalty and
customer satisfaction. International Journal of Contemporary Hospitality
Management, 13(5), 213-217.
Dalrymple, J., & Cron, L. (1995). Sales management: Concepts and cases. In
Musadiq A. S., Strategic marketing: Making decisions for strategic
advantage. New Delhi, India: Prentice-Hall.
Hutt, M. D., & Speh, T. W. (2007). Business marketing management: B2B. Mason,
OH: South-Western Cengage Learning.
Lawfer, M. R. (2003). Why customers come back: How to create lasting customer
loyalty. Franklin Lakes, NJ: Career Press.
Manzie, R. L. (2004). Why customers come back: How to create lasting customer
loyalty. New Jersey, NJ: The Career Press.
INTRODUCTION
In order 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. In other words, a marketing plan 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.
Planning is classified on the basis of the companyÊs scope and breadth. Some
plans focus on long-range organisational objectives that will significantly affect
the firm for five or more years. Other marketing objectives of individual business
units are planned for shorter periods. Figure 4.1 explains two types of marketing
planning.
SELF-CHECK 4.1
ACTIVITY 4.1
Elements Description
Strengths Identify the strong points of your products, brand image and
marketing programmes so that you know what to develop in your
plan.
Weaknesses Identify the areas in which your products, brand image and
marketing programmes are relatively weak.
Opportunities Your situation analysis needs to look for opportunities, such as new
growth market you can participate in or an exciting new way to reach
out to prospective customers.
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.
Refer to Table 4.2 for an explanation of the typical marketing challenges and
opportunities.
ACTIVITY 4.2
which affect the position of the product in the social structure should
be taken into consideration as well.
ACTIVITY 4.3
„Both the economic ties and the social bonding of partners: believe in the
spirit of cooperation and trust and actions taken indicate the strength of the
relationship.‰
Donaldson & OÊToole (2000)
Criteria Description
Economic The most easily applied measure of relationship strength.
content A supplier must measure the share of turnover of its customers to
or profits arising from a particular customer.
Interactions The amount of contact between customer and supplier.
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 The supplier and the customer share similarities in 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 conditions at the time.
Relationship duration is also associated with relationship strength
– the longer the relationship, the stronger it is likely to be.
SELF-CHECK 4.2
Explain the criteria for assessing relationship strength.
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.
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
the following:
(a) Age;
(b) Gender;
Copyright © Open University Malaysia (OUM)
66 TOPIC 4 PLANNING RELATIONSHIP MARKETING PROGRAMME
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 products and services?
(c) Are you providing the right products and services 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?
(a) Innovators
Enjoy trying new products and are adventurous. They are the leading-edge
customers who are not afraid of the „bleeding edge‰ of any new product or
service.
(b) 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.
(d) Followers
Labelled as „conservatives‰, this group goes along with the majority, but at
a much later time. They are under the influence of the incapacitating FUD
(Fear, Uncertainty and Doubt) factor.
(e) Traditionalists
This type 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.
(f) Rebels
Rebels will always reject a product because of its very nature.
ACTIVITY 4.4
Auditing is a systematic examination of books and records of a business
or other organisation in order to ascertain or verify and to report upon
the facts regarding its financial operations and the results thereof.
Elaborate and explain the objectives of auditing.
(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 in order 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.
(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.
ACTIVITY 4.5
What benefits would the company get from employing an independent
auditor? Discuss.
Table 4.5 will explain the differences between external audit and internal audit.
Table 4.5: The Differences between External Audit and Internal Audit
ACTIVITY 4.6
The situation analysis covers the strength, weakness, opportunity and threat
analysis.
Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2010). MKTG4: Student edition.
Mason, OH: South-Western Cengage Learning.
Pakroo, P. (2010). Small business start-up kit for California. Valencia, CA: Delta
Printing Solutions.
Ravinder, K., & Virender, S. (2005). Auditing: Principles and practice. New Delhi,
India: Prentice-Hall of India.
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.
INTRODUCTION
As Palmatier, Dant, Grewal and Evans (2006) asserts, in the progress from a
transactional programme to a relational paradigm, a big step has been taken by
the marketing academics and organisations in order to maintain the consumer
relationship to ensure the organisationÊs financial and long-term survival.
The key point of this relationship programme is that it takes place from mass
marketing (transactional marketing) which involves sending messages about a
standard product offering to an anonymous person to personalised marketing
(relational marketing) with messages and offerings tailored to a specific
individual (Shajahan, 2004).
The following are the two types of strategies in implementing the relationship
marketing (RM):
We may need hard work, resources and patience in order to face all new
acquaintances who long to be part of a new close relationship and network
(Mosad, 2002). Each phase of a relationship life cycle conceives 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 involved partners, the nature of potential
relationship and the nature of values to be exchanged. Therefore, a good
strategy needs to be applied in order 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 (Mosad, 2002).
The following are the explanations for the various phases of the ZineldinÊs
relationship life cycle (ZLC).
parties discover that they fail to understand each otherÊs needs and
wants, and develop an appropriate offering or act in a manner
inconsistent with expectations, then, the next phase will probably not
occur (Mosad, 2002).
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
The phases of ZineldinÊs relationship life cycle are shown in Figure 5.1.
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 Tony and Jonathan (2000), there are a few components involved in
the implementation of a successful relationship marketing strategy. The main
components of successful relationships are shown in Figure 5.3.
(a) Commitment
Commitment can be described as follows:
(i) Is of central importance in developing relationships;
(ii) The strongest predictor of voluntary decisions to remain in the
relationship (Rusbult, 1983);
(iii) Influenced by social bonding, which is the degree of mutual personal
friendships and liking shared by partners who have strong personal
relationships. They are more committed to maintain the relationship
than less socially bonded partners; and
(iv) 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.
(b) Trust
This component can be described as follows:
(i) The precondition for increased commitment.
(ii) As a generalised expectancy held by an individual that the word of
another can be relied upon.
(iii) 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 association between "trust and long-term relationships".
(iv) Established through interaction 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 of the seller.
(e) Communication
Communication can be described as follows:
(i) According to Schramm (1954), communication is a process of
establishing a commonness or oneness of thought between a sender
and a receiver; and
(ii) 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 communications perspective emerges.
ACTIVITY 5.1
1. Explain the different types of strategies in relationship marketing.
2. How does the implementation of relationship marketing bring
good business benefit to the company? Discuss.
Let us now look into the tools in relationship marketing strategy one by one.
Citibank provides their customers with five reward categories that suit
their lifestyle: shopping, entertainment, driving, home and travel. Each time
they use their credit card for any of the five categories, the customer will be
rewarded with five times worth of points, bonus coupons upon renewal
and automatic protection for every purchase.
ACTIVITY 5.2
Table 5.1: Three Main Categories of Factors Affecting the Selection of an Appropriate
Organisational Structure
Categories Description
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.
Market factors Refer to the competitors that can be identified in the environment, the
organisationÊs customers, the product (or service) complexity and the
technological changes that can be identified.
(a) Centralisation
The definition of 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).
(b) Formalisation
The definition of formalisation is the degree to which rules define roles,
authority, relations, communications, norms, sanctions and procedures
(Jaworski & Kohli, 1993).
(c) Participation
The definition of participation is the extent to which everyone in the
organisation is free to participate and be involved in the decision-making
process (Audhesh et al., 2012).
The information can consist of 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 secondary
DSS is divided into four main parts in a systematic view (see Figure 5.7).
Now, let us discuss the components of customer profiling in DSS one by one.
(a) Prospecting
Customer profiles especially their buying patterns give clues to the
marketer on prospective customers.
ACTIVITY 5.3
Ali, H., & Birley, S. (1998). The role of trust in the marketing activities of
entrepreneurs establishing new ventures. Journal of Marketing
Management, 14(7), 749-63.
Annekie, B., & Adele, B. (2008). Relationship marketing and customer relationship.
Pinetown, South Africa: Pinetown Printers.
Auh, S., & Menguc, B. (2007). Performance implications of the direct and
moderating effects of centralization and formalization on customer
orientation. Industrial Marketing Management, 36(8), 1022-1034.
Buchanan, R. W. T., & Gillies, C. S. (1990). Value managed relationships: The key
to customer retention and profitability. European Management Journal,
8(4), 523-6.
Copyright © Open University Malaysia (OUM)
TOPIC 5 IMPLEMENTING RELATIONSHIP MARKETING PROGRAMMES: 93
STRATEGY, STRUCTURE AND SYSTEMS
Christy, A., Stephanie, M. N., Naveen, D., & Katherine, N. L. (2011). Why
customers wonÊt relate: Obstacle to relationship marketing engagement.
Journal of Business Research, 64(7), 749-756.
Michael , M. C., Carol, L. B., Aimee, D. E., & Kimberly, M. (2009). A framework
for understanding delay. Journal of Product & Brand Management, 18(6),
461-467.
Palmatier, R. W., Dant, R. P., Grewal, D., & Evans, K. R. (2006). Factors
influencing the effectiveness of relationship marketing: A meta-analysis.
Journal of Marketing, 70(4), 136-153.
Parvatiyar, A., & Sheth, J. N. (2000). The domain and conceptual foundations of
relationship marketing. In Sheth, J. N., & Parvatiyar, A. (Eds.). Handbook of
relationship marketing. Thousand Oaks, CA: Sage Publications.
Shajahan, S. (2004). Relationship marketing: Text and cases. New Delhi, India:
Tata McGraw-Hill.
Slater, S. F., & Olson, E. M. (2002). A fresh look at industry and market analysis.
Business Horizons, 45(1), 15-22.
INTRODUCTION
This topic will examine the concept of internal marketing in relationship
marketing as well as the roles of shared values, culture, staff, internal service
quality, styles and skills in implementing relationship marketing in an
organisation.
Copyright © Open University Malaysia (OUM)
96 TOPIC 6 IMPLEMENTING RM PROGRAMMES – SHARED VALUE, STAFF,
STYLES AND SKILLS
ACTIVITY 6.1
Read the following excerpt and discuss with your course mates:
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 systems 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.
To ensure that the internal RM works, trust is a prerequisite for the relationship
among the organisationÊs employees and between the employees and the
management.
SELF-CHECK 6.1
1. What is internal marketing?
2. Explain internal marketing as a social process.
„The deep-seated, unwritten system of shared values and norms within the
organisation which in turn dictates its climate.‰
(Egan, 2004)
To ensure optimal RM success, the right culture has to be created to get the
maximum benefit from the organisation and its people. The culture has to shift
from an organisation where top management directs, controls and instructs staff
to one where staff is encouraged to participate and become proactive to
contribute to the achievement of the RM vision. Hence, in order to achieve this,
the presence of a set of shared values for the development of a culture conducive
to RM is vital.
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)
The following are a few elements which are important in the implementation of
RM programmes:
The planned messages will create expectations against which the customer
will evaluate the quality of the organisationÊs products or services. Hence,
failure to meet these expectations will destroy the customersÊ trust towards
the suppliers. It is suggested by Gronroos (2000) that organisations need to
treat planned communication as an extension of internal policies, processes
and values. 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
6.3.1 Staff
Staff is an important supporting conditions for successful RM implementation.
Many commentators believe that staff is the most important element in the
performance of a RM strategy (Buttle, 2004). There are several reasons that
support the importance of staff in implementing RM strategies (see Figure 6.4).
Moreover, staff who is 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 boasts
affords the employees with an experience of success, which in turn, enhances
staff satisfaction and the willingness to make a commitment.
The two models proposed by Reichheld, Markey, and Hopton (2000) called
„virtuous circle‰ and, Heskett and Schlesinger (1994) called „service-profit chain‰
explain that employee retention is related to profitability.
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 implications of the virtuous circle model is the assumption that the
organisations have an environment within which members of staff are motivated
and empowered to deliver good customer service. In order to promote growth
and employeesÊ satisfaction, organisations need to focus on internal service
quality in terms of monitoring and control mechanisms.
values and cultures which apply within an organisation may become emotionally
involved in the organisation and are prepared to make extra efforts in the interest
of 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 ă
„happy staff equals happy customers‰.
It should be noted that the eight components of internal quality depend on the
nature of the service. It is suggested by Lovelock (1983) that the scope of service
personnel to exercise discretion in tailoring and customising the service to the
individual needs should be considered.
To deliver menu service, the service providers need to be familiar with the
various ranges of products and procedures. However, they have 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
pre-set product ranges to customers.
As employeeÊs ability and skills are vital, organisations need to focus on the
recruitment process with detailed specification of job requirements and
specifications.
As both trust and commitment are vital in RM, the classification of type of
service discussed above suggests that employee retention assumes a different
level of importance in different service situations. For instance, in the case of high
discretion service (performance service and professional service), employees
retention takes a greater role. On the other hand, for production line or menu
service, which involves simple service product, the perceived level of risk in the
recruitment of new staffs is lower as new staff can be trained more quickly and
cheaply.
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 helps to promote organisation growth (Chaston, Badger, &
Sadler-Smith, 2000).
SELF-CHECK 6.3
6.4 STYLE
Managers at all levels of the organisation play a significant role in ensuring the
successful implementation of the RM strategy. 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‰.
There are various ways in which managers can exert influence on staff in
implementing RM. Among them are through reward systems. Reward practices
can have significant effect on the implementation of Total Quality Management
(TQM) (Allen & Kilmann, 2001). The following are two types of reward systems:
6.5 SKILLS
PeopleÊs skills and knowledge required for successful RM performance may need
reviewing and upgrading 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 Brown (2004), interpersonal,
consulting and selling skills coupled with highly effective problem solving and
negotiating competencies are prerequisites for effectiveness in the sales arena
today.
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. Therefore, this requires company staff to be proficient in
technology and be supplied with up-to-date hardware systems and applications.
The training and retraining of staff are no longer something confined to
employee orientation, it has become a continuous, ongoing process. RM
managers should question whether existing skills and practices support the
adoption of relational approaches.
Hence, training will serve two key functions in RM, 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 comprises three levels,
which are:
There are various sources of information that you can refer to in order to
understand the effectiveness of training (see Figure 6.10).
SELF-CHECK 6.4
To ensure optimal RM success, the right culture and shared values have to be
created to get the maximum benefit from the organisation and its people.
The way managers behave will have a big impact on the behaviour of staff.
Thus, having a supportive management style is one of the key elements of
strategic internal marketing.
Ahmed, P. K., & Rafiq, M. (2002). Internal marketing: Tools and concepts for
customer-focused management. Oxford, England: Butterworth-Heinemann.
Allen, R., & Kilmann, R. (2001). Aligning reward practices in support of total
quality management. Business Horizons, 44(3), 77-84.
ASDA. (2013). Saving you money every day. Retrieved from www.asda.co.uk.
Berry, L. L. (1981). The employee as customer. Journal of Retail Banking, 3(1), 33-
40.
Chaston, I., Badger, B., & Sadler-Smith, E. (2000). Organizational learning style
and competences: A comparative investigation of relationship and
transactionally orientated small UK manufacturing firms. European Journal
of Marketing, 34(5/6), 625-642.
Hallowell, R., Schlesinger, L. A., & Zornitsky, J. (1996). Internal service quality,
customer, and job satisfaction: Linkages and implications for management.
Human Resource Planning, 19(2): 20-31.
Heskett, J. L., & Schlesinger, L. A. (1994). Putting the service-profit chain to work.
Harvard Business Review, 72(2), 164-174.
Horovitz, J., & Panak, M. J. (1992). Total customer satisfaction: Lessons from 50
European companies with top quality service. London, England: Pitman.
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.
Peelen, E., Verbeke, W., & Ouwerkerk, C. (1996). Exploring the contextual and
individual factors on ethical decision making of salespeople. Journal of
Business Ethics, 15(11), 1175-1187.
Rabb, G., Ajami, R. A., Gargeya, V. B., & Goddard, G. J. (2008). Customer
relationship management: A global perspective. Hampshire, England:
Gower Publishing.
Rafiq, M., & Ahmed, P. (2000). Advances in the internal marketing concept:
Definition, synthesis and extension. Journal of Services Marketing, 14(6),
449-463.
Reichheld, F., Markey Jr. R., & Hopton, C. (2000). The loyalty effect – The
relationship between loyalty and profits. European Business Journal, 12(3),
449-463.
INTRODUCTION
This topic will explain the strategic methods of monitoring and controlling
relationships at all levels, either 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 mean monitoring
performances, comparing it with goals and taking corrective actions are needed.
Hence, monitoring systems provide the information that informs the planning
process while control mechanisms ensure the plan to be implemented.
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 units 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.
Based on the work by Bloemer, Ruyter and Wetzels (1999), service quality is
often conceptualised as the comparison of service expectation with actual
performance perceptions. However, Brady and Cronin (2001) developed
some 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. Thus, there are two main
model of service quality as follows:
(i) 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 ten 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 perceptions (based on the ten
dimensions) exceed the customer expectations, 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:
Later, these ten factors were summarised into five generic dimensions
which consisted of tangibles, reliability, responsiveness, assurance
and empathy.
(ii) SERVPERF
Another aspect of service quality 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.
Measuring Loyalty
Loyalty has been used to describe a customerÊs willingness to continue
patronising a firm over the long term and recommending the firmÊs 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 classified into
long term and short term.
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 a number of different ways, the
relevance of which will depend on the nature of the product and its market (see
Figure 7.4).
According to Little and Marandi (2003), there are six measures that can be used
in measuring financial performance (see Table 7.1).
Measures 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 of 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 should not be
overlooked.
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) recommend using activity-based costing
(ABC) to help a company record the benefits, cost and time spent
on a particular activity by each customer. So, it can be used to
determine the cost of servicing a particular customer.
SELF-CHECK 7.1
(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 might feel bad if a problem is not highlighted.
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 customersÊ 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 10.2).
Principle Description
Make it easy for How can managers overcome unhappy customersÊ reluctance
customers to to complain about service failures? The best way is to directly
complain and give address the reasons for their reluctance. Many organisations
feedback have improved their complaint collection procedures by
adding special toll-free phone lines, links on their web sites,
displaying customer comment card in their branches and
providing video terminals for recording complaints.
Establish the grounds Customers will be more willing to complain if they are
for complaint confident that they will be successful.
Offer immediate The more quickly the complaint is resolved, the lower the
redress where negative impact on the customerÊs attitudes. Where possible, it
possible is advisable to delegate authority and responsibility for
resolving complaints to 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.
SELF-CHECK 7.2
In understanding the Gaps model of service quality, the following are several
issues that need to be considered:
Bloemer, J., Ruyter, K. D., & Wetzels, M. (1999). Linking perceived service quality
and service loyalty: A multi-dimensional perspective. European Journal of
Marketing, 33(11/12), 1082-1106.
Brady, M., & Cronin, J. (2001). Some new thoughts on conceptualizing perceived
service quality: A hierarchical approach. Journal of Marketing, 65(3), 34-49.
Cronin Jr, J. J., & Taylor, S. A. (1992). Measuring service quality: A reexamination
and extension. The Journal of Marketing, 56(3), 55-68.
Dick, A., & Basu, K. (1994). Customer loyalty: Toward an integrated conceptual
framework. Journal of Academy of Marketing Science, 22(2), 299-113.
Howard, J. A., & Sheth, J. N. (1969). The theory of buyer behavior (Vol. 14). New
York, NY: Wiley.
Jones, T. O., & Sasser, W. E. (1995). Why satisfied customers defect. Harvard
Business Review, 73(6), 88-99.
Kaplan, R., & Norton, D. (1992). The balanced scorecard approach ă measures
that drives performance. Harvard Business Review, 72(2), 164-174.
Lovelock, C., & Wirtz, J. (2004). Services marketing: People, technology, strategy
(5 ed.). Upper Saddle River, NJ: Pearson Education International.
Omar, N. A., Abd Aziz, N., & Nazri, M. A. (2011). Understanding the
relationships of program satisfaction, program loyalty and store loyalty
among cardholders of loyalty programs. Asian Academy of Management
Journal, 16(1), 21-41.
Omar, N. A., & Musa, R. (2011). Measuring service quality in retail loyalty
programmes (LPSQual) implication for retailersÊ retention strategies.
International Journal of Retail and Distribution, 39(10), 759-784.
Reichheld, F., Markey, Jr. R., & Hopton, C. (2000). The loyalty effect ă the
relationship between loyalty and profits. European Business Journal, 12(3),
134-139.
Shaw, R., & Reed, D. (1999). Measuring and valuing customer relationships: How
to develop the measures that drive profitable CRM strategies. London,
England: Business Intelligence.
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 the rights of
workers to just wages, truth in advertising and honesty in business dealings. 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 (RM).
In terms of RM, ethics plays an important role in planning, implementing and the
monitoring of RM. Most traditional marketing activities create conflicts between
customers and companies as these activities focus on short-run tactics of
increasing sales. However, in RM, the concept of customers as „co-producers‰
In understanding the relationship of RM 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 RM.
For example, would it be right for a sales manager to break a promise made to a
customer and sell some hard-to-find products to someone else, whose need for it
is greater? 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 religion, philosophy, cultural
experiences and law.
Little and Marandi (2003) suggest that marketers have been criticised from
several perspectives, which include 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) Insider dealing in shares;
(b) Mis-selling of personal pensions;
(c) Mis-selling of endowment mortgages;
(d) Excess payment to top directors; and
(e) The use of child labour in Asia by companies like Nike and Adidas.
SELF-CHECK 8.1
1. Define consumerism.
2. List how the consumer movement seeks to improve the rights of
traditional buyers.
3. Discuss the criticisms of marketing from an ethical perspective.
(a) Relativism
Suggests that each situation is judged according to its own merits and
universal standards cannot be applied to judge the morality of a decision.
(b) Utilitarianism
Proposes that the moral merits of a decision lie in whether it serves the
greatest number of people. Thus, they answer the question „what makes a
moral act right?‰ by emphasising the greatest happiness of all. 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.
Due to the ethical dilemmas of acting in the interests of various stakeholders and
the possibility of clashes between personal and organisational ethics, most
organisations are actively producing ethical statement and codes of conduct as
point of reference for employees.
SELF-CHECK 8.2
The purpose of information gathering must be told to the customers, not be used
for other purposes and not to be shared with other organisations without the
consent of the customers. The success of RM depends largely on how well this
information is converted into organisation-wide knowledge and finally customer
insight. This depends on the completeness, currency, accessibility and relevance
of the information.
Thus, it is vital that the promises made have clear statements regarding quality,
refunds and delivery times. Unethical behaviour of stakeholders (other than
customers) is not favourable in building relationship with customers. At the
same time, customers have to respect the time and resources invested in the
relationship by suppliers and avoid opportunistic behaviour.
Figure 8.3: Eight principles that govern the utilisation of the information
ACTIVITY 8.1
Dibb, S., Ferrell, O. C., Pride, W. M., & Simkin, L. (2001). Marketing: Concepts
and strategies. Boston, MA: Houghton Mifflin.
Kotler, P., Armstrong, G., Saunders, J., & Wong, V. (2001). Principles of
marketing. Harlow, England: Pearson Education.
Steiner, G. A., & Steiner, J. F. (1997). Business, government and society. New
York, NY: McGraw Hill.
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 to both 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 the car manufacturer. The relationships enable to deliver what Toyota wants and
at the same time, enable them to meet their customersÊ requirements.
Moreover, suppliers may have ideas for product improvements, new product
development and process improvements. For instance, Boeing co-operates with
major international airlines in developing new aircrafts. This ensures that their
product innovations meet customer requirements and create a high probability of
In this topic, we will discuss the key account development cycle, the criteria for
key accounts and the key decisions in designing key account management. We
will also discuss the relevance of key account management to relationship
marketing.
(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. We will give
you access to all kinds of data. Use the data to build a win-win relationship;
(d) Wal-Mart hungers for consumer insight. We place great value on any
information that can improve our 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 business partners have to say. Do not feel bound by
hierarchy or categories.
According to Little and Marandi (2003), the following are the three characteristics
of KAM:
KAM can also be described by the key activities that the suppliers undertake in
building and maintaining relationships (Homburg, Workman & Jensen, 2002).
These 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.
As KAM may occur at the individual as well as the organisational level, the
benefits of KAM can be classified into supplier, mutual and buyer benefits. Table
9.1 shows the major benefits of KAM.
(b) 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 customer the
value added services in addition to its product and price. The number of
contact points between both parties will increase and senior level of
organisation realises the importance of managing the accounts.
ACTIVITY 9.1
Let us now discuss the criteria of key account selection one by one.
(c) Profitability
Ojasalo (2001) stresses 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.
(d) Status
Association with prestige and good reputation of an organisation often
helps in winning future customers. Ojasalo (2001) identifies the fact that
organisations often derive benefits from association with a reputable
partner.
SELF-CHECK 9.1
Figure 9.3: Some activities for the servicing key accounts: KAM activities
(b) Customisation
It may derive from physical modification of the product, or tailored service
and the supplier must be able to offer products which are not offered by
competitors.
(f) Communication
Communication is critical to the initiation, development and maintenance
of key accounts. Schultz and Evans (2002) suggest that customers are
concerned about efficient interaction where they feel informal
communication is less cumbersome than formal channels, customers prefer
a two-way communication, customers prefer to receive the personal touch
from companies and customers respond better to communication in which
they feel important.
However, Homburg et al. (2002) identified seven types of KAM system (see
Figure 9.5).
(g) No KAM
The supplier may pay lip service to KAM system. No special activities are
undertaken.
SELF-CHECK 9.2
Principles Description
Active support of senior RM initiatives must be supported by influential members
management of the organisation if they are to succeed.
The need for cross- The development of KAM relationships work better when
functional coordination they are supported by teams arranged around customers
rather than functional areas.
Importance of Communication plays important roles in building and
communication maintaining relationship with key accounts.
The following are the four stages in the key account development cycle:
– Pre and early KAM;
– Mid-KAM;
– Partnership and synergistic KAM (mature KAM); and
– Uncoupling KAM.
The following are the five major types of key account development
programme (Shapiro & Moriarty, 1984):
– No programme;
– Part-time programme;
– Full-time programme (unit level);
– Corporate-level programme; and
– National account division.
Homburg et al. (2002) identified the following eight types of KAM system:
– Top-management KAM;
– Middle-management KAM;
– Operating-level KAM;
– Cross-functional, dominant KAM;
– Isolated KAM;
– Country-club KAM; and
– No KAM.
Kempeners, M., & Van Der Hart, H. (1999). Designing account management
organizations. Journal of Business and Industrial Marketing, 14(4), 310-335.
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.
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.
Shapiro, B. P., & Moriarty, R. T. (Eds.). (1984). Organizing the National Account
Force. Cambridge, MA: Marketing Science Institute.
INTRODUCTION
Today, with more services available, organisations can no longer expect results
from broad advertising and marketing campaigns aimed at the broad mass of
customer. As the market becomes increasingly fragmented and 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.
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 customer and create loyalty.
Payne (2001) CRM is a management approach that seeks to create, develop and
enhance relationships with carefully targeted customers.
Buttle (2004) CRM is the core business strategy that integrates internal processes
and functions, and 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.
Kumar & 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 firm.
As customers are becoming increasingly difficult to woo and bargain for low
prices in return of quality products and services; and prefer 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, the advancement of technologies has also contributed to
the development of CRM.
SELF-CHECK 10.1
Once the tools and technologies are ready, 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 a segment or at an individual level. To achieve this goal, the company
has to offer products or services that meet the requirements of customers.
According to Buttle (2004), 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 greatest potential
customer for the future. Thus, customers can be segmented based on the revenue
and margin value of the purchases they make.
Generally, data mining can provide answers to questions that are important for
CRM strategy development and implementation (see Figure 10.3).
Figure 10.3: Some important questions for CRM strategy development and
implementation
SELF-CHECK 10.2
prioritise the needs based on their success metrics. Once they have done it, they
have a roadmap to move forward. Companies will then need to talk to vendors
about how to help them develop and manage their portfolio. The long-term
planning of customer initiatives, which is based on corporate strategy and reflected
in portfolio of projects, 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,
and organisational and employee behaviour 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).
(a) Top management that believes and is committed to the customer at the
centre of activity
A successful CRM strategy starts from the top of the organisation, which
requires a major cultural change within the organisation. If the top
management does not initiate the appropriate structural design and reward
systems, the results 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.
(d) 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 system,
training for system users etc. With continuous development in technology
and improvements to systems, those responsible to adopt and implement
CRM strategy must think carefully by choosing the right program from the
selected suppliers.
SELF-CHECK 10.3
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.
OR
Thank you.