Relationship Marketing Essay - Full

Business Studies 1 Discussion and Analysis of Relationship Marketing James Thompson – s0923632 Yan Zhuang

Question 2. Marketing a. Outline and discuss the concept of relationship marketing b. Select a company that you believe have adopted a relationship marketing approach and critically assess the ways in which they are attempting to build relationships with their customers. Provide evidence to support your argument by drawing on relevant academic, trade or popular press, or company materials including company website.

This essay will discuss the key bases and issues in the section of business known as ‘Relationship Marketing’ (RM), and will also critically assess the ways British Airways plc, adopted the RM approach. Relationship Marketing refers to the relationship between the seller and the customer, but can also be used to demonstrate the relationship between stakeholders. Kollen & Kettler (2006) showed that the aim of RM is to keep the business and loyalty of customers, suppliers and distributors by creating agreeable relationships with those involved, as this could cause the customers to return. A strong motive for these parties to stay loyal to a seller is trust (Gwinner et al., 2006) because if the customer has trust in a product they will be more likely to turn to it rather than a similar product, e.g. trust in the Coca-Cola brand will result in the customer buying their products over Pepsi’s. Relationship marketing success comes through following the ethical bases of RM. There are many virtues that have been related to RM, however the main virtues considered are those of trust, commitment, diligence, integrity, fairness, respect and empathy. Of all these virtues trust is the most important, for if the customer does not have trust in the seller, they cannot then take the step to committing to the seller, and there can be no relationship between the two. Hosmer (1995) said that trust “is associated with willing, not forced, cooperation”. This is an idea that Christian Grönroos later reflects as he states that customer relationships cannot exist unless the customer wants it to. Despite this, there hasn’t been much research into whether or not customers are aware of a relationship going on, or even if they would like to enter into a relationship with a seller. Instead, RM has been studied mainly on the idea that the decision lies with the seller (Grönroos, C. p.402). The need to build stronger relationships between sellers and customers grew as the importance of keeping customers; mainly through loyalty, was emphasized through customer marketing. Nooteboom (1992) summarized this as “equitable partnership for all”, meaning that the main importance of relationship marketing is that both partners get equal benefit. As with all relationships, once it is formed both sides become dependant on one another. This dependency is the reason why ethics are so important in relationship

marketing, particularly trust and commitment. Once a trust has been established and the two parties become committed, diligence plays a very important role in the keeping the relationship established. Morgan and Hunt (1994) define commitment as “so important as to warrant maximum efforts at maintaining it… the relationship is worth working on to insure that it endures indefinitely”. This definition refers to diligence. This three part relationship of trust, commitment and diligence was implied by Gundlach et al. (1995) who theorized that commitment had those three components. White and Schneider (2000) define commitment so that “to achieve higher levels of commitment, a focus on assurance/responsiveness and empathy is required”. This quote is relevant as it is important not to compare empathy with sympathy. While marketers in a relationship with their customers understand the needs of their ‘other half’, they are still out to make a profit and will ensure they do so (Murphy, P., Laczniak, G., Wood, G. p.49). Businesses can gloss over this motive and make the customer feel as if they are receiving a fair deal, for example as Fournier et al. (1998) said: “We want customers’ money – let’s tell them that, and let’s tell them why the deal is a good one”. This can be done in a number of ways. For example, loyalty cards that provide money off on you next purchase providing you spend a certain amount before is a popular trend in supermarket chains. This can provide an instant market relationship as the customer will be keen to start getting ‘loyalty points’ in order to save money in future. This method is a way of attracting customers into a relationship, but once they have accepted it, it also maintains the relationship. Another method often used by mobile phone providers is to give offers and benefits to existing customers, e.g. 100 extra text messages for the month. This may attract new customers as they see the benefits of committing to this provider, but it is mainly a relationship maintenance tactic. In reality, anything that involves a minimum length contract; e.g. phone networks, internet providers, already involves a relationship as the customer has committed to the seller. Diligence comes into the relationship when it has been committed to. It ensures that the commitment remains in tact and that the relationship stays balanced and healthy. A good example for the importance of diligence would be a person (seller) buying a pet (customer). The commitment has been made as

the pet now belongs to its owner. However, to ensure the owner-pet relationship is maintained, the owner (seller) must feed, water and interact with the dog (customer). Another key concept of relationship marketing is ‘customer-centric view’ (Prahalad and Ramaswamy, 2004).This is where the end customer is permitted to take part in the creation of a product, helping the relationship between seller and customer to be strengthened. This can be seen in many areas of the market, for example, PepsiCo allow customers to enter a competition where the winners’ entry is used as the artwork for the drinks cans. Similarly, viewers can upload their ‘Estings’ video to the E4 television channel’s website where the winners is selected to be played during the listings. Managing RM consists of a variety of ideas, all comprising of at least of the following components. The behavioural component, which refers to the customers behaviour such as repeat buying, and the emotional component, referring to establishing a relationship which goes beyond buying, to having “a share of their heart and mind” (Storbacka and Lehtinen, 2001). Storbacka and Lehtinen (2001) thought that the emotional component was crucial in establishing a relationship with the customer. However, there are other theories that do not dwell so much on the emotional component. A good example of this is Liljander and Strandvik (1995) who base a customer relationship on only the behavioural component, where they have customers who demonstrate repeat buying. Verhoef (2003) however do acknowledge Storbacka and Lehtinen’s notion of the emotional component being key, as their idea of relationship marketing implements tactics such as loyalty programmes and direct mailings. These two strategies establish an emotional bond with the customer, as they are encouraged to show loyalty to the seller, and at the same time makes good use of the behavioural component, as the loyalty will encourage repeat buying. Despite earning repeat buying from customers sounding like a profitable strategy, the costs of keeping customers may not be realistic in terms of the money the customers will spend (Ryals, 2005). As mentioned above, managing relationship marketing can be a delicate task, as the customer may not always be willing to enter into a relationship with a seller, and an attempt to thrust a customer into doing so could have the opposite of the desired effect. In the end, the key is to have happy

customers, and if the customers are happier not be in a relationship, they are more likely to buy from the seller than if they are constantly being pressured into one. This however could actually result in a subconscious relationship between customer and seller in the behavioural context, as they are repeat-buying. The company that will be critically assessed in this text is British Airways plc (BA). BA use a number of relationship marketing tactics to attract and retain customers. As an airline, BA is part of the services industry, and therefore is in frequent contact with its customers, be it through their booking website/hotline, airhosts etc. This already establishes a bond between seller and customer, but may not be enough to secure a relationship. The main area British Airways adopts relationship marketing is through the use of ‘The Executive Club’. This is BA’s frequent flyer programme, which the website describes the use as to “recognize and reward you [the customer]”. This description is a common theme used to sell a rewards programme being advertised by a company. In RM terms, the ‘Executive Club’ is used to attract new customers and keep existing customers by continually improving the quality of their experience. The programme maintains a relationship with customers because as a member of the ‘Executive Club’, every time you fly with BA you earn ‘BA miles’, which you can use to save money on qualifying BA flights. This therefore encourages customers to maintain a relationship with the seller. In RM literature, this programme could be viewed upon as the commitment stage in the following model (fig.1) of ethical RM taken from ‘An Ethical Basis for Relationship Marketing (Murphy, P., Laczniak, G., Wood, G., p.44). Establishing → Sustaining → Reinforcing ↑ Trust

↑ →

Commitment →

Diligence

Fig. 1

Now that both the seller and customer have committed to the relationship, the seller must ensure that the commitment does not decrease and that the relationship is maintained. To

ensure this, BA introduced the ‘British Airways lounges’. These lounges are available to Silver and Gold members of the aforementioned Executive Club, and also to those customers travelling ‘First’, ‘Club World’ or ‘Club Europe’ class. To move up through the silver and gold tiers of membership in the Executive Club, the customer must earn ‘tier points’ which are rewarded as the customer flies with BA. Once the customer has earned enough tier points they will be upgraded to the next tier. This continuous upgrade and reward system provides new benefits at each level and acts as a very successful diligence stage in RM, as the customer will feel they are constantly being looked after by the seller, and in return the seller is making a large profit from their customers. However, in the current business climate their may be less ‘frequent flyers’, therefore; as Ryals (2005) warns of, maintaining customers at this level may actually exceed the income from the few customers who are benefiting from the reward programmes. Relationship Marketing relies on an ethical basis consisting of virtues, the key of which are trust, commitment and diligence, without which the seller-customer relationship would fail. RM will not always be appropriate, as some customers will not always want to enter into a relationship with their service provider. A relationship in the world of marketing has some similarities to an emotional relationship between, for example, a husband and wife; however despite being able to compare one with another, there is a very important difference between the two. A husband and wife will look after and sympathise with each other, whereas a seller only has empathy, and even if they appear to be looking out for their customer, they are really looking for the customer’s money (Murphy, P., Laczniak, G., Wood, G., p.49)

References Grönroos, C., 2006. On defining marketing: finding a new roadmap for marketing. Marketing Theory Vol. 6. No. 4, pp. 395-417 Murphy, P., Laczniak, G. and Wood, G., 2007. An ethical basis for relationship marketing: a virtue ethics perspective. European Journal of Marketing Vol. 41, No. 1/2 pp. 37-57 Fournier et al. 1998. An ethical basis for relationship marketing: a virtue ethics perspective. Gundlach et al. 1995. An ethical basis for relationship marketing: a virtue ethics perspective. Gwinner et al. 2006. An ethical basis for relationship marketing: a virtue ethics perspective. Hosmer 1995. An ethical basis for relationship marketing: a virtue ethics perspective. Kollen & Kettler 2006. An ethical basis for relationship marketing: a virtue ethics perspective. Liljander and Strandvik 1995. On defining marketing: finding a new roadmap for marketing. Morgan and Hunt 1994. An ethical basis for relationship marketing: a virtue ethics perspective. Nooteboom 1992. An ethical basis for relationship marketing: a virtue ethics perspective.

Prahalad and Ramaswamy, 2004. On defining marketing: finding a new roadmap for marketing. Ryals, 2005. On defining marketing: finding a new roadmap for marketing. Storbacka and Lehtinen, 2001. On defining marketing: finding a new roadmap for marketing. Verhoef 2003. On defining marketing: finding a new roadmap for marketing. White and Schneider 2000. An ethical basis for relationship marketing: a virtue ethics perspective. http://www.britishairways.com/travel/echome/public/en_gb http://www.britishairways.com/travel/lounges/public/en_gb

Appendix Fig. 1 - Murphy, P., Laczniak, G. and Wood, G., 2007. An ethical basis for relationship marketing: a virtue ethics perspective. European Journal of Marketing Vol. 41, No. 1/2 p. 44 Establishing → Sustaining → Reinforcing ↑ Trust

↑ →

Commitment →

Diligence