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Introduction to Relationship

Marketing
Bambang Wiharto

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Introduction (1)
• A change is taking place in the world of
business and management.
• This change manifest itself in the way a firm
interacts and deals with the demands of different
stakeholders with whom the firm comes into
contact.
• While some of these contacts are short and
relatively unimportant, others are close and
enduring.
• Key stakeholders in a firm are its customers
and its investors.

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Introduction (2)
• Managers have to meet, successfully, on the
one hand, the demands from customers for
greater value and satisfaction and on the other,
the investors’ demands for growth, profitability
and enhanced shareholder value.
• Making and selling is not sufficient to succeed in
business.
• It requires a different view of business – one that
emphasis exchange and relationships, focuses
on partnerships and accommodates the needs
of different stakeholders.
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Introduction (3)
• We should analyze reasons why this important
trend in relationship has emerged, or re-emerged,
and we compare traditionally marketing
management, with a relationship based approach.
• Definitions of relationship and relationship
marketing are considered and we need to study
the subject in a new and different way based upon
an analysis of the most important trends in today’s
markets.
• These trends are forcing businesses to re-think
the markets in which they operate and the way
they do business.
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The Emergence of Strategic Market
Relationships (1)
• The origin of a relationship-based approach to
the management of a firm emerge from
academics and practitioners in the fields of
strategy, marketing and supply chain
management.
• It appears to be a new way for marketing
management to operate and is based on a
managerial perspective that is part of a quest
(search, seek) to make marketing effort more
effective (Christopher et al. 1992).
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The Emergence of Strategic Market
Relationships (2)
• In this context every customer is an individual,
strong customer relationships are important
for profitability, existing customers are important
than the new ones and knowledge of the
individual customer is paramount for the future
direction of the business.
• Relationships are strategic so the interactive
marketing becomes a question of strategy – its
origins, development and its continuation is a
strategic focus of the firms (Gronroos 1994).
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Transaction Versus Relationships
A major distinguishing characteristics between types of
exchange is to assess whether it is based on a market
transaction or a relational exchange.

Repeat
Transaction Relationships Relationships
Transaction

(minor importance) (major importance)

Behavioral spectrum of relationships (Jackson 1985)

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Traditional versus Strategic
Relationship Approach
Traditional Approach Strategic Market
Relationship
Transaction focus Partnership focus
Competition Collaboration
Firm-induced Co-operation
Value to the firm Value in partnership
Buyer passive Buyer as active participant
Firm as focus for control Firm as part of the process
Firm as boundary Boundary-less
Short-term focus Long-term focus
Independent Dependence and network-led
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Classification of Relationship Types
(Webster, 1992)
Price is given
Competition is fierce Loyalty is stimulated Provide customer
The role of marketing by branding or some satisfaction, encourage
is to find buyers aspect of performance repeat patronage and
avoid losing customers

Repeated Long-term Buyer-seller Partnership


Transactions
Transactions Relationships (Mutual, Total Dependence)

Strategic Alliances (Inc., Network Vertical


Joint Ventures) Organizations Integration

• Long-term strategic goals Multifaceted network


• Agree to participate with role partners in order to be more organizational
effective in the supply and exploitation of a given market structures leading to
• Minimize transaction costs vertically integrated
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Relationship Marketing Definitions
(Morgan and Hunt 1994)
• Relationship marketing refers to all marketing
activities directed toward establishing,
developing, and maintaining successful
relational exchanges.
• Such definition embraces a variety of partners,
not just customers and the term ‘relationship’
can mean a variety of things depending on how it
is applied.
• It can be taken to mean any type of co-operation,
from coercive supply relationship to strategic
alliances (Webster, 1992)
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Relationship Marketing Definitions
(Stone and Woodcock 1995)
• Relationship marketing is how a company
finds you; gets to know you; keeps in touch with
you; tries to ensure you get what you want from
them, not just in the product but in every aspect
of their dealings with you; checks that you are
getting what they promised you –all subject to it
being mutually worthwhile to both parties.
• Currently, in consumer products and services,
relationship marketing has been referred to as
one-to-one marketing (Peppers and Rogers
1997), maxi marketing (Rapp and Collins, 1994)
and loyalty-based marketing (Reicheld, 1996).

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Stakeholding in the Firm
Director Shareholder Employees

Suppliers Distributors

Intermediaries
Sub-contractors Firm
Customers
Producers
Public

Governments Financial Partners

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Trends Driving Relationships
• Globalization of markets and organizations that
span them
• Falling world growth rates
• Merger and acquisition activity
• The need for strategic supply chain
management
• Organizational complexity and the impact of
information technology on business efficiency
and the rapid of electronic commerce

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What Do Strategic Relationships
Imply for Management?
• The consequences of this difference in approach
to strategic market relationships manifests
itself in the degree of adaptability by the seller to
the particular needs of individual customers.
• In industrial markets, where the buyers are
relatively few and some of who will be crucially
important to the well-being of suppliers, the idea
of relationship management has existed for
some time. For example, relationship between
Unilever (customer) and ICI (supplier) to
compete effectively in the European market.
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The Characteristics of Organizations
Operating in a Relationship Mode
• Developing new opportunities via partnerships and
strategic alliances;
• Outsourcing of non-core activities;
• Using product development teams to turn ideas of
winning products and services;
• Open relationships with their employees;
• Using IT to serve customers better and gain
competitive advantage;
• Employing customer satisfaction measurement
linked to the company’s compensation and reward
structures;
• A focus on being market-driven and customer led.
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Criteria to Differentiate Relationship
Approach
• The relationship approach can be differentiated from
any other business based on certain criteria such as:
– Its belief in not only satisfying or even delighting customers but
involving customers as the number one priority;
– By investing resources to research markets and customers on a
one-to-one basis;
– By taking a planned and joint approach towards delivering
customer satisfaction.
• Firms must not only choose their partners carefully but
structure and manage these partnerships thereby
allowing time for the relationships to grow and develop.
• It implies a corporate culture based on trust, open
communication and a lack of opportunistic behavior.
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Summary (1)
• In an effort to anticipate, react and adapt to
change, firms are being forced to move from the
traditional management activity to a new
relationship approach based upon new forms of
exchange.
• This has been characterized by a movement
away from seller initiated effort focused on
manipulating resources in an independent and
prescribed fashion to one of increased
understanding of the exchange process, where
the buyer is more pro-active.
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Summary (2)
• This exchange is based on the joint efforts of
the various buyers and sellers in the supply
chain.
• In this new order, exchange is characterized by
collaboration and co-operation rather than
conflict and confrontation, by joint involvement of
participants rather than unilateral action, and by
interdependence rather than independence.

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Summary (3)
• This leads to focus that takes as its unit analysis
the exchange process, with the transaction at
its focal point, seeking both to understand and
manage these relationships.
• This is in contrast to the traditional approach
which focuses on orientation, concepts and
techniques more appropriate to the selling
organization, which at worst neglect the
customer and at best treats the customers as a
passive component of the exchange process.
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What is Relationship Marketing?
• Relationship marketing is marketing based on
interaction within network of relationships
(Gummesson 2002).
• “To establish, maintain and enhance
relationships with customers and other
partners, at a profit so that the objectives of the
parties involved are met. This is achieved by
mutual exchange and fulfillment of promises
(Gronroos, 1997:327)”

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The Core Concepts of RM
• The core concepts that constitute RM:
relationships, networks, and interaction.
• Relationships require at least two parties who are in
contact with each other.
• The basic relationship of marketing is that between
supplier and a customer.
• A network is a set of relationships which can grow
enormously complex patterns.
• In the relationships, the simple dyad as well as the
complex networks, the parties enter into active
contact with each other. This is called interaction.
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What is a Relationship? (1)
• Does a relationship exist merely because a
supplier and a customer do business with one
another from time to time, or can it only exist
when both parties perceive a relationship to
exist between them and conduct business
according to certain obligation and mutual
understanding?
• Does repeat purchase mean there is a
relationship between supplier and a customer?

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What is a Relationship? (2)
• A series of transactions where the supplier and
buyer do not really know each other does not
constitute relationship.
• For the purpose of RM the term relationship refers
to voluntary repeat business between a supplier and
a customer where the behavior is planned,
cooperative, intended to continue for mutual benefit
and is perceived by both parties as a relationship.
• This approach means that repeat purchase through
lack of alternative suppliers or the operation of lock-
in programmes and loyalty schemes cannot be
defined as RM.
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Three Types of Connections
• In the network approach of B2B, a distinction is
made between three types of connections
which together form a relationship between
buyers and sellers:
1. Activity links embrace activities of a technical,
administrative and marketing kind.
2. Resource ties include exchanging and sharing
resources which are both tangible, such as
machines, and intangible, such as knowledge.
3. Actor bonds are created by people who interact and
exert influence on each other and form opinions
about each other.
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General Properties of Commercial
Relationships (1)
• Collaboration. A situation with little competition
and little collaboration between two or more
companies can be a good start for expanded
collaboration. A high degree of collaboration
and low degree of competition provide a base
for a long-term and harmonious relationship.
• Longevity. A long-term relationship can be
more effective for all parties, especially if it takes
a long-time to build the relationships, a common
case in B2B.
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General Properties of Commercial
Relationships (2)
• Commitment, dependency and importance. If a
relationship is important, we are dependent on
it and we must then commit ourselves to making
it works.
• Trust, risk and uncertainty. The success of closer
collaboration between customer and supplier is
often credited to trust. Alliances represent a
great risk, there may be arguments, one party
may pick the other party’s brain without giving
anything in return.
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General Properties of Commercial
Relationships (3)
• Power. Power in a relationship is only rarely
symmetrical, meaning that each party has the
same amount of power. An asymmetrical
relationship means that one party is weaker and
may feel used, but the relationship can still be
functional if there is no better alternative for the
weaker party.
• Frequency, regularity and intensity. Certain
relationships are frequently and regularly active
such as bank transaction. Other relationships
are rare, such as engaging estate agent, but
loyalty to specific provider can still be strong.

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General Properties of Commercial
Relationships (4)
• Attraction. In the marriage metaphor of long-term
relationship, attraction between the parties is a
dominant factor. The attraction between companies
may require a combination of rational financial
motives and psychological factors. Even in
business, a partner should be cool and sexy.
• Closeness and remoteness. Closeness can be
physical, mental or emotional. The physical
proximity facilitates mental and emotional contact.
Companies that want to do business in a foreign
country often have to be continuously present in
order to obtain credibility.
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General Properties of Commercial
Relationships (5)
• Formality, informality and transparency.
Commercial relationships are usually more
informal than formal. As consumers we rarely
have a contract or any other written obligation,
but they are exceptions. To be effective in a
retirement plan may force us to stick to the same
insurance company, and the payments and
contracts are formal and regulated. If we break
the rules we may be punished or even dropped
as customers.
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General Properties of Commercial
Relationships (6)
• Routinization. A common complaint in marriage
is the lack of romance and excitement; after
period of passion the relationship turns into
routine. Increasingly business routines are
handled by M2M interaction. Customers also
abandon supplier who show no interest in them.
So there is a trade-off between routines and
standard procedures for speed and low cost,
and the feeling that the relationships develop
and live.
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General Properties of Commercial
Relationships (7)
• Content. The content of a business relationship
is traditionally described as economic exchange.
In new marketing and management theory, the
relationship is increasingly seen as interaction
and joint value creation. The content of
relationship is often knowledge and information.
• Personal and social properties. In social network
analysis, efforts are made to identify patterns of
relationships: cliques, clusters, and blocks. The
analysis offers matrices and descriptions of
structures of personal relationships.

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Relationship with Different
Stakeholders
Referral and
Government, Internal advocate sources
Financial organization Markets

‘Influence’ Referral
Markets Markets
Customer
Markets

Employee
Supplier
(recruitment)
Markets
Markets

For RM to be successful, a long-term and mutually trusting and committed


relationship with other stakeholders is also required

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Deciding Who to Have a
Relationship With
• RM is not advocated in all situations and with all
customers; only where it would be profitable for
the company and with those customers who
wish to engage in such a relationship.
• In some situations, if the customers are not in a
relational mode or if a relational strategy
cannot be justified from an economic standpoint,
it may be more profitable and suitable to adopt a
transactional intent and create a marketing
strategy that is transactional in nature
(Gronroos, 1997:49).
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Conditions That Are Conducive to
RM
• Berry (1983), discussing the service sector,
identifies three conditions for the applicability of
RM:
1. The customer ought to show a continuing and periodic
desire for the service
2. The service customer must be able to select the service
provider
3. There must be a choice of suppliers available to
customers.
• Berry adds that very few service firms sell one-
time services and in most cases the above
condition apply. This lends itself to building
relationships with customers.

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Contrast with TM (1)
• A useful aid to understanding RM is to contrast
with TM, so called because the traditional
marketing mix approach to marketing deals
mainly with customer getting rather than
customer keeping.
• RM focuses on customer keeping, rather than
purely customer getting.
• Importance attached to the lifetime value of a
customer to a company rather than the value of
a single sale.

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Contrast with TM (2)
• In consequence, a high level of importance is
attached to customer service, quality and product
benefits rather than product features and gimmicks.
• Contact with customers is encouraged and
provision of quality and adherence (devotion) to
customer orientation is regarded as a concern for
the entire organization.
• RM attempts to satisfy customer needs and wants
as closely as possible by trying to get to know
customers individually, and to tailor the products for
them accordingly rather than offer ‘one size fits all’
products.
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TM versus RM
Transaction Marketing Relationship Marketing

• Focus on single sale • Focus on customer retention


• Orientation on product feature • Orientation on product benefit
• Short timescale • Long timescale
• Little emphasis on customer • High customer service
services
• Limited customer commitment • High customer commitment
• Moderate customer contact • High customer contact
• Quality is primarily a concern • Quality is the concern of all
of production

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Customer Retention and RM
Customer
Retention

Relationship
Loyalty Exit Barriers
Marketing
Schemes

The main objective of RM, for companies


adopting it, is to retain customers by gaining
their loyalty based on mutual commitment.

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Loyalty (1)
• Organization adopting RM in an attempt to
encourage key customers either to stay with
them or to come back.
• The objective is to create loyal customers by
means other than economic factors and product
attributes.
• Thinking of marketing in terms of having
customers, not merely acquiring customers is
crucial for service firms (Berry, 1983)

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Loyalty (2)
• Loyalty is taken here to mean a commitment by
a customer to a supplier which is based on
choice.
• Loyalty is defined as “A customer’s willingness
to continue patronizing a firm over the long term,
purchasing and using its goods and services on
a repeated and preferably exclusive basis, and
voluntarily recommending the firm’s products to
friends and associates”. (Lovelock et al., 1999;
183)
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What is RM means?
• “In essence, relationship marketing means
developing customers as partners, a process
much different than traditional transaction-
based marketing” (Bowen and Shoemaker
1998:13).
• “The objective of this new paradigm – called
one-to-one marketing or relationship
marketing is to give an enterprise the capacity
to treat its customers as individuals and thereby
develop a continuing business relationship with
them” (Peppers and Rogers, 1995:48)
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RM as a Paradigm Shift
(Gummesson, 1999: 252)
• A paradigm shift implies that a science or
discipline is given a new foundation, with new
values, new assumptions, or new methods.
• The accepted and established must be set
aside.
• RM is a paradigm shift! Why??

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The Fundamental Values of RM
• Marketing management should be broadened into
marketing-oriented company management.
Marketing functions must permeate every corner of
an organization.
• Long-term collaboration and win-win. The core
values of RM are found in its emphasis on
collaboration and the creation of mutual value.
• All parties should be active and take responsibilities.
• Relationship and service values instead of
bureaucratic legal values. RM requires different
values based on relationships and services to the
customer.
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Characteristics of RM
• Long-term orientation/horizon
• Commitment and fulfillment of promises
• Customer share not market share
• Customer lifetime value
• Two-way dialogue
• Customization

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Long-term Orientation/Horizon
• Long-term orientation is a key feature of RM.
• It assesses success in terms of how long a
customer is kept in the relationship and the
share of “customer wallet”.
• RM involves estimating customer lifetime value
and engaging in relationships based on the
value of those relationships over a number of
years.
• Gummesson (1999) highlights long-term
collaboration and win-win as key feature of RM.

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Commitment and Fulfillment of
Promises
• Satisfaction alone does not necessarily lead to
customer loyalty. Satisfaction, trust and commitment
are key concepts within RM.
• RM relies on fostering a bond between the
customer and supplier which is glued with empathy.
• Bonding is the result of the customer and supplier
acting in a unified way towards the achievement of
desired goals (Callaghan et al., 1995) and empathy
is the dimension of business relationship that
enables the two parties involved to see the situation
from the other’s perspective and to understand their
desires and goals (Yau et al., 2000)
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Customer Share not Market Share
• RM shifts the emphasis from concentrating on
gaining share of market and rewarding its
employees for the new business which they
bring in.
• Instead, it concentrate on keeping customers
and attempting to gain a bigger share of their
“wallet” by selling more of the same product or
by cross-selling to them.
• Concentrating on customer share implies a
long-term orientation and requires that success
is measured and rewarded differently.
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Customer Lifetime Value
• The lifetime value of a customer is a key element in
the practice of RM.
• It is not economical for supplier to invest in long-
term relationships with all customers – not that all
customers would necessarily want such a
relationship.
• The supplier has to identify those customers who
are willing to enter a long-term relationship with his
company, forecast their lifetime with the company,
and then calculate those customer’s lifetime values
in order to identify the ones with whom it will be
profitable for the company to have a relationship.
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Two-way Dialogue
• RM is ultimately about partnering and
partnership are built on, and maintained by,
dialogue and communication.
• A properly designed RM system should provide
ample opportunity for the customer to initiate
communication with the supplier.
• The flow of information must be a two-way
process.
• While this happens frequently in industrial and
B2B sectors, it ought to be part of RM in mass
consumer goods and service markets too.

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Customization
• An important requirement or feature of RM is that of
customization of product and communication for
each customer.
• Customization in mass markets, however, is rarely a
totally unique offering for one customer and no
other.
• Often it takes the form of using basic design both for
products and communication and adapting them to
the requirements of individual customers.
• Mass customization is an important advantage of
RM to customers, and one of the rewards they can
expect in return for their commitment to supplier.
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The RM-TM Continuum
RM TM
High customer anxiety Low customer anxiety
High degree of contact High contact
Confidence, social and unnecessary
special benefits valued Standard products
highly Customers does not
Customers in favor of seek a relationship with
having a relationship a supplier
with the supplier

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Benefits of RM for Suppliers
• Development and maintenance of satisfactory long-
term relationships with customers could result in
increased customer loyalty, and this is particularly
useful in intangible service industries.
• Loyal customers created through RM strategies are
more likely to respond favorably to cross-selling
efforts by suppliers enabling companies to gain a
bigger share of customer wallet.
• Loyal customers take less of a company’s time in
personal selling, are less price sensitive, bring the
benefit of WOM of advertising and have no
acquisition or set up costs.
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Benefits of RM for Customers
• The benefits which customers might thus expect,
e.g. high quality service, customized products,
feeling valued, and reduction of anxiety.
• Bejou et al. (1998) also refer to reduce
perceived risk as a benefit of RM for customers.

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Disadvantages of RM (1)
• Loss of control – developing a relationship
inevitably (unavoidably) results in some loss
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 parties’
expectations of future events.
• Resource demanding – effort is required to build
and maintain relationship. This can be viewed
as an investment and maintenance cost.
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Disadvantages of RM (2)
• Preclusion from other opportunities – there is always
a need to prioritize the use of limited resources and,
hence, it may not possible to pursue all of
individually attractive opportunities. Additionally,
some relationships may be irreconcilable
(incompatible) with an existing relationship.
• Unexpected demands – given that the two parties in
a relationship will also have other relationship,
establishing a relationship means being linked, if
only passively, into a network of relationships.
Such linkage to or membership of a network may
bring with it obligations or expectations by others of
specific behaviors.
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