Lecture 2a- Relationships

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Lecture 2a

Relationships

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Relationships

RM theory suggest that relationships add quality to marketing

transactions (Mitchell 2001, p.33).

Real human exchange is much richer than market exchange

They not only exchange money for goods, they share ideas, opinions,information and insights

They have a say. They tend to form affections, bonds, ties of loyalty, feelings ofobligation and so on.

They share and exchange values

The people whose values are most in tune with those around them tend to formthe strongest, most supportive bonds (attachment / link /friendship) with otherpeople.

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Relationships Forming

Are consumers equally interested in building and

sustaining relationships as companies?

Two characteristics must be present for an exchange

situation to be described as relationship (Barnes andHowlett 1998, p.16):

The relationship is mutuallyperceived to exist and

is acknowledge as such by both parties

The relationship goes beyond occasional contact

and is recognized as having some special status

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Relationships Forming

-

Contd

According to Palmer, regardless of what m

arketing

strategies are implemented by the supplier, buyers

frequently have no wish to enter into a relationship

with a company.

It is probable that situations exist where the seller

may want to develop relationship whereas the

customer is happier with a transactional approach

(Bund-Jackson, 1985, p.34)

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Categorizing relationships

Organizational relationships

Can an individual customer have relationships with

organizations or relationships must always be interpersonal?

Although social relationships are always between

individuals (employees) but the customersupplier

(company) relationships (of whatever level or closeness)

frequently continue despite the loss of any organizational

personnel initially involved.

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Organizational relationships (Contd)

If an employee leaves then human capital is lost. Embedded

knowledge, however, is part of structural (construction/organization)

capitalthat does not disappear with the employee and is, in effect

owned by the company. E.g. clubs or charities

In the case of football clubs individual fans may be deeply

attached to a particular player until they leave for another club.

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Learning relationships

Are relationships built on knowledge?

When customers tell a company something about themselves,

then it is the responsibility of the company to customize its offeringto that customer. From that point the relationship has started

The more the customer tells the company, the more valuable

they become provided the company continues to adapt its product

or service to meet the more and more specific customer needs.

Developing competitive advantage identifies relationship

learning as an important way to create differential advantage

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Motivational Investments

Four types of active relationships in addition to no

exchange:

Bilateral relationships (both parties are motivated highly enough toinvest in a relationship)

Seller-maintained relationships

Buyer-maintained relationships

Discrete exchanges (are low-involvement, purely transactionalrelationships)

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Higher-level relationships

Higher level and closer relationships are more common

in business to business environments.

We shall discuss in detail when we are studying

chapters 8 and 9.

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Relationship loyalty

The phrase loyalty marketing is frequently used

interchangeably with RM. It is used for developing

sustainable competitive advantage.

Assumption:

loyalty translates into an unspecified number of

repeat purchases from the same supplier over a

specified period (Kendrick, 1998)

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Defining loyalty

A more comprehensive definition of loyalty may be:

The biased (i.e.-random) behavioral response (i.e.re-visit), expressed over time, by some decision-

making unit with respect to one (supplier) out of a set

of (suppliers) which is a function of psychological

(decision making and evaluative)processes resulting in

brand comm i tment (bloemer and de Ruyter, 1998,

p.500)

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Antecedents (past history) to loyalty

Read text book page 41

Both customer loyalty models described in page 41

suggested that customer satisfaction sustains loyalty.

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Loyalty-Type Behavior

Three ways of considering customer re-patronizing

behavior (Uncles 1994, p.342):

Switching behavior (The customer turns against you)

Promiscuous behavior (The customer flits among an array ofalternatives)

Polygamous behavior (The customer may be more or less loyal toyour brand than any other)

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Loyalty Schemes

Customers actively seek an involving relationship with their

brand which in turn offers psychological reassurancesto the

buyer and creates a sense of belonging.

The proposed benefit of loyalty schemes,for loyal and

heavy or frequent customers, is having this sense of

belonging reinforced(Uncles,1994, p.341).

Switching behavior (The customer turns against you)

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Loyalty Schemes (Contd)

Goal of loyalty programs (Bolton et al, 2000, p.95):

to establish a higher level of customer retention

to increase customer satisfaction

to add value to customers

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Motives for setting up loyalty schemes (Hart et al, 1999, p.

546):

Building lasting relationships with customers by rewardingthem for their patronage

Gaining higher profits through extended product usage

and cross-selling

Gathering customer data (and development into

information)

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De-commodifying brands (i.e. differentiate from the

crowd)

Defending market position (against a competitors

loyalty schemes)

Pre-empting (anticipate/block) competitive activity

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Would companies do something intelligent with the

information they collected from customers?

When a company hand a customer a loyalty card, the

company immediately create the expectation in the

mind of the consumer that the company is now going to

study their behavior and that, in return, they expect thesupplier to do something intelligent with that information

(Kelly, 2000, p.263).

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Loyalty in Context

Do costs outweigh advantages in loyalty programs?

According to OMalley, loyalty programs:

arenot much more than sophisticated sales

promotion

According to Ward et al., 1998,p.85:are reinforcing mechanisms

they reward the already loyal rather than anyone

else

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Unrealistic Relational Development

Why would a buyer avoid having a

relationship with the supplier?

Unrealistic customer relationship development:

According to Palmer (1996,p.20), a number of unrealistic customer

scenarios exist:

where there is no reason why, or little likelihood that, a

buyer will purchase again from a supplier.

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Unrealistic Relational Development (contd)

where buyers want to avoid a relationship as it may lead to

dependency on a seller

where buying processes are formalized in a way that prevents

either party development relationships based on social bonds

where a buyers confidence lowers the need for risk reduction

where the costs associated with a relationship put the buyer at a

cost disadvantage in a price-sensitive market.

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Low Likelihood of Repurchase

A buyer who is unlikely ever to re-patronize a supplier

will:

see no benefit from relationship formulation and

be annoyed by the tactics associated with it (e.g.

data capture)

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- Dependency Avoidance

- Formalized Contracts

- Low-risk situations

-Price-sensitive markets

Read text book page 47 - 48

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Unrealistic Supplier Relationship Development

Why would suppliers avoid

developing relationship with buyers?

Scenarios whereby suppliers are avoiding a relationship:

where there is no reason why a seller would ever see

a buyer again

where a seller seeks to avoid a relationship in which

it becomes dependent on a buyer

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Unrealistic Supplier Relationship Development(Contd)

where buying processes become formalized in a way that

prevents either party developing relationships based on social

bonds

where the seller has little opportunity to develop relationships

due to the undifferentiated nature of the market

where the ethos of the industry makes relationship-building

inappropriate

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- Low likelihood of repurchase

- Dependency avoidance

- Formalized contracts

-Undifferentiated markets

-Price-sensitive markets

Read text book page 48 - 49

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Lecture 2a- Relationships