CHAPTER 4

B2C Relationship Marketing

Introduction

The purpose of relationship marketing (RM) is the satisfaction of customers. Customers not only look for goods or services to satisfy their needs but also seek for much more holistic offerings that include everything from information about the product(s) to delivery and after sale services. In a holistic and constantly developing service offering, the outcomes such as goods, services, or industrial equipment become just one element. Knowledge about consumer needs becomes just one of the requirements. Firms should also provide customers with necessary elements to fulfill these needs. A successful implementation of these processes requires the supplier or service provider to align its resources, competencies, and processes with the customer’s value-generation processes. This approach is different from transactional marketing where customer value is considered as totally embedded in the offering itself.¹ The customer’s value-generation process involves determining the value that the company can provide to its customers and the value that the organization receives from its customers and the quest for maximizing the lifetime value of desirable customer segments by successfully managing relational exchange process.²

This chapter introduces the role and historical development of RM in business-to-consumer (B2C) markets. It describes the importance of building, developing, and maintaining long-term relationships through value cocreation in B2C markets and the outcomes of such endeavors. Furthermore, it illustrates key principles and techniques to achieve value cocreating relationships with end consumers. The chapter concludes with a case study that highlights how RM can yield superb outcomes that cannot be achieved through advertising or any other marketing communication channel.

Role and History

In the industrial era, producers used to create value through their developmental and production activities, middlemen used to provide the time and place utility, and consumers used to derive utility from this exchange, without contributing much in value creation. However, with the emergence of consumers being involved in coproduction and having interdependent relationships with producers, the concern for value creation has become an overriding phenomenon in market relationships.³

For example, in home building, buyers get involved and emotionally attached with the home building process seeking to create value for themselves. The nature of interactions between the builder and the home buyer is not related to the exchange as much as it to create a dream home for the buyer. … in the era of relationship marketing, the roles of producers, sellers, buyers and consumers are blurring. … In many instances, market participants jointly participate in design, development, production and consummation of goods and services. … consumers are directly involved as co-producers, co-designers or co-marketers. … They do not seek any particular exchange, but rather the creation of a greater market value for both through the relationship.⁴

RM can make marketing activities more effective and efficient and thus improve marketing productivity. With successful RM, marketing resources are directed toward those consumers who provide the greatest value to the firm, which in turn leads to more effective marketing outcomes. Efficiency is generated through long-term customer retention, which has been facilitated by technological advances and relational databases. In B2C marketing, marketers mostly focus on frequent user incentives, customer referral (online and offline) benefits, preferred customer programs, Internet, relational databases, mass customization, and consumer involvement in the company’s decision-making.⁵ More specifically, they use certain RM tactics such as loyalty card programs, private label credit cards, customized products or services, customized communication, opting in for personalized offers delivered via mailing and via e-mail lists, and rebate offers. For example, marketers can engage in communication with its customers constantly when customers sign up for company mailing lists (e.g., Executive Dry Cleaners opt-in direct mail). Similarly, they can send online newsletters to their customers when the customers opt in for personalized offers (e.g., the Whole Foods Fl@ vors e-newsletter). In addition, they can enable their customers to enroll to receive rebates in exchange for personal information and patronage at stores (e.g., drugstore.com and Dunkin’ Donuts), which can lead to frequent or immediate purchase behavior.⁶

The Internet strengthens relationships with end users by enabling the marketers to customize and interact with each single customer on a one-to-one basis. Thanks to its interactivity, the Internet provides a platform of ongoing two-way exchange of information, which allows marketers to build up and maintain relationships with existing and new customers and enables them to focus on individual customer, even in mass markets.⁷ The role of Internet and social media in RM is discussed in detail in Chapter 6.

Differences Between B2B and B2C Relationship Marketing

Although the main objective of business-to-business (B2B) and B2C RM is the same, which is value cocreation through mutual satisfaction, there are major differences between them. B2C relationships may be more fragile than B2B relationships because of the limited investments and availability of reasonable alternatives of both parties in B2C relationships. This fact deemphasizes the role of commitment while increasing the importance of trust and satisfaction in B2C markets as opposed to B2B markets. While our understanding of both B2B and B2C marketing is lacking, the remaining gap is both conceptually and methodologically wider for B2C relationships.⁸ Table 4.1 summarizes the major differences between B2B and B2C relationships.⁹

Why Do Consumers Engage in Relational Market Behavior?

Consumers tend to reduce their choices by engaging in an enduring loyalty relationship with marketers, which is a type of commitment made by consumers to retain chosen products, brands, services, service providers, stores, or marketers. In this situation, consumers give up the opportunity to experience another marketer, product, brand, or service that can also meet their needs. In this context, they purposefully reduce their choices by engaging in relationships, particularly when they participate in choice situations, such as purchasing convenience products. The reduction of choice is the milestone of RM behavior of end consumers. At this point, a critical question arises: why do consumers engage in relational market behavior? Answering this question and revealing the mechanism that explains such behavior are of vital importance for developing effective RM strategies. Consumers engage in relational market behavior in order to¹⁰

Table 4.1 Major differences between B2B and B2C relationships

Source: Adapted from Gruen (1995).

• simplify their extensive and limited problem-solving situations into routinized purchase behavior,

• increase efficiency in their decision making,

• avoid the need for information, knowledge, and expertise,

• achieve more cognitive consistency in their decision-making,

• reduce the perceived risk stemming from future purchase decisions,

• comply with the norms of behavior set by family members, reference or peer groups or society, and religious tenets,

• benefit from future positive reinforcement that the relationships are likely to bring.

In addition, consumers engage in relational market behavior and reduce their choices because of government mandates, employer influences, and marketer-induced policies. These actors adopt a variety of explicit and implicit processes and person mechanisms in order to reduce consumer choice. Furthermore, consumer inertia is another strong factor that leads to the reduction of consumer choice. However, we should acknowledge that RM goes beyond recurring purchase behavior and inducements. Consumer choice reduction and repeat purchase behavior are only a precursor of relationships. Greater and valuable relationships can be built between a firm and its customers only when consumers actively get involved in the firm’s decision-making processes. In other words, partners in B2C markets can achieve value cocreation only when the relationship goes beyond loyalty behavior and the firm’s inducements for such an outcome and achieves a point where both parties actively engage in decision-making and partnering and develop stronger relational bonds. “The greater the enhancement of relationship through such bonding, the more committed the consumer becomes in the relationship and hence is less likely to patronize other marketers.”¹¹

The Outcomes of Relationship Marketing in B2C Markets

Based on the literature, we classify the outcomes of B2C RM into two broad categories: consumer-level and organizational outcomes. Furthermore, we classify consumer-level outcomes into two groups: psychological and behavioral outcomes. While psychological outcomes involve perceived customer retention orientation,¹² relational benefits,¹³ satisfaction, trust, and commitment,¹⁴ behavioral outcomes include customer loyalty,¹⁵ lower incidents of opportunistic behaviors, and citizenship behaviors.¹⁶ Organizational outcomes include relationship quality,¹⁷ product and service quality, market knowledge, employee involvement, and profitability.¹⁸ Figure 4.1 demonstrates the outcomes of B2C RM.

Figure 4.1 The outcomes of relationship marketing in B2C markets

Perceived Customer Retention Orientation

Customer retention orientation is defined as “a consumer’s overall perception of the extent to which a retailer actively makes efforts that are intended to retain regular customers.”¹⁹ These efforts can be directed to products, services, or the relationship itself. The construct of customer retention orientation builds on the constructs of relational selling behavior and marketing orientation and shows similarities with the construct of relationship investment, which refers to “the dedication of resources, efforts, and attention aimed at maintaining or enhancing relationships that do not have outside value and cannot be recovered if these relationships are terminated.”²⁰ Customer retention orientation reflects consumer perceptions of the extent to which a firm invests in relationship management. A firm that engages in relationships with its customers and that treats them personally and rewards them for their loyalty can obtain benefits in terms of enhanced perceptions of customer retention orientation.²¹ These perceptions will lead customers to become loyal, engage in positive word-of-mouth, and refrain from opportunistic behaviors.

Relational Benefits

A firm’s RM efforts yield relational benefits for its customers. These benefits involve confidence benefits, social benefits, and special treatment benefits. Confidence benefits refer to the perceptions of reduced anxiety and increased comfort and confidence in the provider. Confidence positively influences commitment and satisfaction. Social benefits constitute the emotional part of a relationship and involve various benefits such as personal recognition of a customer by employees, the customer’s familiarity with employees, and the formation of intimacy and friendship between the customer and employees. Social bonds between customers and employees enable customers to develop greater commitment to the firm and yield more satisfied customers. Special treatment benefits refer to material benefits such as price breaks, faster service, or individualized additional services. Firms provide special treatment benefits as a part of RM programs. These benefits generally increase customers’ emotional and cognitive switching barriers and result in more committed and satisfied customers.²²

Satisfaction, Trust, and Commitment

RM yields three significant psychological outcomes that constitute the basis for customer loyalty: satisfaction, trust, and relationship commitment. Satisfaction refers to “the difference between post-purchase experience and prior attitude with respect to the brand choice in question.”²³ It is based on “the level of value received compared to a standard which is based on what the individual feels s/he deserves.”²⁴ It reflects a customer’s affective state stemming from the overall evaluation of his or her relationship with a retailer. Customers tend to be more satisfied with retailers who make RM efforts toward them.²⁵ Satisfied customers tend to repeat their purchase behavior.

Trust is another fundamental outcome of B2C RM. Trust in business relationships reflects the level of confidence that one party’s expected behavior will result in valued outcomes for the other party.²⁶ It is “a consumer’s confident belief in a retailer’s honesty towards the consumer.”²⁷ Therefore, trust focuses on the expectations of one party toward the future behaviors of the other party. Satisfied customers will have a higher level of trust, which will lead to a higher level of commitment and long-term orientation. In other words, relationship satisfaction precedes trust, and trust precedes relationship commitment.²⁸

In B2C RM, commitment occurs between individual customers and firms. Relationship commitment is defined as “a consumer’s enduring desire to continue a relationship with a retailer accompanied by the willingness to make efforts at maintaining it.”²⁹ In a relationship with a high level of commitment, the parties believe that the relationship is worth making efforts to maintain it.³⁰ A consumer’s permanent aspiration to maintain an ongoing relationship with a retailer is preceded by his or her satisfaction and trust.³¹

Customer Loyalty

Customer loyalty is a significant behavioral outcome of RM. This construct has been defined from both attitudinal and behavioral perspectives. From an attitudinal perspective, customer loyalty refers to “a specific desire to continue a relationship with a service provider.”³² From a behavioral perspective, customer loyalty refers to “repeat patronage, that is, the proportion of times a purchaser chooses the same product or service in a specific category compared to the total number of purchases made by the purchaser in that category.”³³ Regardless of the conceptualization perspective, loyalty might have substantial value to not only firms but also customers. Consumers tend to invest their loyalty in firms that deliver superior value relative to the offerings of competitors. When they are loyal to a firm, they can minimize time and efforts spent for searching, locating, and evaluating purchase alternatives. Loyal customers tend to forgive or ignore customer-service impediments, display lower sensitivity to prices, and engage in positive word-of-mouth about the firm or its products. In this context, customer loyalty is a strong asset for firms and a major source of sustained growth and profit.³⁴

A strong relationship exists between social aspects of the customer– provider relationship and customer loyalty. Social bonds between customers and employees foster customer loyalty. Particularly, social aspects of customer–employee relationship such as liking, tolerance, respect, and rapport play crucial role in the development of service loyalty. A greater level of confidence between customers and employees is likely to result in lower anxiety concerning the transactions and greater satisfaction, which will then lead to stronger loyalty. In addition, when a firm provides additional types of special treatment benefits as a part of the RM program, it will increase customer satisfaction and loyalty. Therefore, we can argue that relational benefits (social, confidence, and special treatment benefits) derived from RM efforts positively influence customer loyalty.³⁵

Lower Incidence of Opportunistic Behavior

Opportunistic behaviors in B2B markets were discussed in detail in Chapter 3. When it comes to B2C markets, opportunistic behavior refers to unfair customer actions. It is defined as “the deceit-oriented violation of implicit or explicit promises about one’s appropriate or required role behavior.”³⁶ Marketers who invest in RM in order to develop long-term relationships and cocreate value take the risk of potential opportunistic behaviors. For instance, in the case of “no questions asked” guarantee, customers may return used or stolen products or the ones purchased elsewhere. In the case of club membership, customers may purchase products at the member price for nonmembers. Furthermore, firms that offer loyalty cards or bonuses, such as frequent-flyer miles, face the risk of undesired transfers or sales.³⁷

Marketers can lower the risk of consumer opportunistic behaviors by increasing the levels of relationship satisfaction and commitment, which can be achieved through well-managed RM. If a customer is in an unfavorable affective state resulting from the overall evaluation of his or her relationship with a retailer, he or she will be more prone to engaging opportunistic behaviors. Therefore, marketers should seek to develop long-run relationships with high levels of satisfaction and commitment where relationship termination has economic, symbolic, or social costs for customers.

Citizenship Behaviors

Citizenship behaviors refer to “helpful, constructive gestures exhibited by members that are valued or appreciated by the organization, but not related directly to enforceable or explicit requirements of the individual’s role.”³⁸ While customer loyalty, commitment, and opportunistic behaviors are “in role” behaviors, citizenship behaviors are “extra role” behaviors through which customers provide extraordinary value to the firm by performing some of the marketers’ tasks.³⁹ Citizenship behaviors involve⁴⁰

... voluntary and discretionary actions by individual customers, which are not directly or explicitly expected or rewarded but may aggregate into higher service quality and promote the effective functioning of service firms. Customer citizenship behaviors are not required to produce and/or deliver a firm’s service, but they may help the firm and enhance its performance. Thus, customer citizenship and customer co-production differ. Customer citizenship involves extra-role behaviors in that customer do things for the firm or other customers that are not typically expected of customer.

Customers with higher levels of relationship satisfaction, trust, and commitment tend to act as partial employees and cooperate with employees in various ways that help the firm. As partial employees, customers contribute to the firm’s marketing functions through actions that are similar to those of the firm’s employees.⁴¹ Examples of such behaviors involve⁴²

... word-of-mouth advertising, participation in company sponsored research (e.g., focus groups, completing surveys, new product testing, panel membership, innovation forum, etc.), display of relationship affiliation (through T-shirts, hats, bumper stickers, etc.), making suggestions for improving products and/or processes, attending company sponsored events, voting and participation in governance (when membership form permits), policing OBs of other members, proactive communication of anticipated problems (e.g., making a cancellation even when there is no contractual penalty), and being flexible when the organization requires (such as changing delivery schedules).

Therefore, firms can increase marketing effectiveness by investing in RM, providing relational benefits, and enhancing relationship satisfaction, trust, and commitment, which will then motivate customers to engage in extra-role behaviors.

Organizational Outcomes

Organizational outcomes of B2C RM include relationship quality, product and service quality, market knowledge, employee involvement, and profitability. RM efforts enable firms to have enhanced relationship quality, which involves several components such as cooperative norms, opportunism, customer orientation, external partnership, seller expertise and conflict, willingness to invest in relationships, satisfaction, relationship commitment, and trust.⁴³ Through cooperation and collaboration, RM fosters external partnerships that cater to the mega-marketing needs of a business.⁴⁴ The deep and social contacts and interactions with customers under the umbrella of RM enhance firms’ customer orientation and willingness to allocate more resources to relationship development. Furthermore, they lead firms to refrain from opportunism and have higher levels of relationship commitment and trust.

RM motivates employees and increases their level of involvement in managing customer relationships. Furthermore, it helps the firm better understand customer psychology, needs, and wants and shifts in customer expectations because of long-lasting interactions with customers and close bonding that the firm enjoys with them. These close interactions considerably reduce information gaps with the customers and help the firm achieve information advantage with respect to competition. This strategic advantage might be helpful in acquiring new customers, launching new products and services, testing new concepts, and enhancing existing products and services. Understanding consumer psychology also helps in satisfying the customers, which may not be possible otherwise. Therefore, enhanced market knowledge along with the other outcomes of RM such as customer satisfaction, commitment, and loyalty leads to improved profitability.⁴⁵

Personalization: A Key to B2C Relationship Marketing

In B2C RM, the concept of personalization merits separate attention. Personalization is the process of collecting customer information that will help the firm develop products and services that will perfectly meet the customers’ desires and needs in a personal way.⁴⁶ In another definition, it is “the ability of a company to recognize and treat its customers as individuals through personal messaging, targeted banner ads, special offers on bills, or other personal transactions.”⁴⁷ It helps the firm maintain a long-term relationship with its customers. It is a personal relationship that the firm engages in with its customers in order to develop stronger commitment and loyalty. Marketers tend to use personalization strategy and thus take advantage of customer information and data that are either previously gathered or provided in real time.⁴⁸ They aim at delivering targeted solution to an individual customer. They customize some features of their offerings based on individual needs so that the customer enjoys more relational benefits, convenience, lower cost, or some other benefits.⁴⁹ For example, Amazon.com customizes its books and music and recommends them to a specific customer based on the customer’s desires and interests using previously collected data from them.⁵⁰

Today, many companies use personalization strategy in order to increase customer loyalty and provide more value to them particularly in the service industry. As the cost of personalization tactic is generally high because of the expensive technologies necessary for data collection and data mining, marketers should develop appropriate plans and arrangements. They should be careful about what they recommend to their customers and make sure that they offer the right products or services to the right person.⁵¹

Personalization involves individualized communication for a specific customer based on his or her stated or implied preferences (e.g., greeting customer by name, firm-driven individualization of customer Web experience) as well as customized offerings based on the customer needs and wants (e.g., a specialized form of product or service that provides a solution tailored for a specific customer).⁵² A successful implementation of personalization strategy requires staying in touch with customers, customizing relationships, and conducting relationship checkups. It is of vital importance for relationship salespeople to engage in communication regularly with customers. It plays a key role in building and maintaining relationships in a wide variety of selling areas. Salespeople can use numerous tools such as telephone calls, e-mails, newsletters, written correspondence, delegating contacts, cards, and clippings. Frequent communication with customers helps salespeople provide better customer service, understand customer needs and shifts in customer preferences, reinforce key selling points, and protect customers against competitors who are trying to make inroads. These communications should be in a personal way.⁵³ In this context, “a personal note accompanying an article about a customer’s favorite sports celebrity is worth more than a year’s worth of holiday cards, because it shows that the salesperson cares about the customer.”⁵⁴

Next, the salespeople should customize the relationship based on the customer’s personal needs, relationship needs, and product or service needs. The most important point for the salespeople is their ability to be adaptive and customize the relationship based on what they learn about the customer. In this context, they should constantly lookout for clues about customer needs and preferences. They can grasp the customer needs and preferences from what the customers say and do or from things in their environment that indicate their needs and preferences.⁵⁵ A successful implementation of relationship customization requires three stages: (1) learning about individual customer preferences, (2) matching offerings or communications to the customers, and (3) evaluating the learning and matching processes.⁵⁶

Finally, relationship checkup refers to periodic and systematic observation of customers’ personal situation to make sure that their needs are being met effectively and that they are satisfied with the relationship. These checkups also serve as a way to stay in touch with customers and show them that the salespeople care about them. They also help salespeople uncover some aspects of the relationship with which the customers are unhappy.⁵⁷

The concept personalization is closely related to customer relationship management, which is discussed in Chapter 7.

Obstacles to Consumer Engagement

Despite its many potential benefits for both consumers and firms, RM practices often receive criticism for its failure to yield desired results. One of the main reasons for this failure is customers’ disengagement in the RM programs. In this context, it is of vital importance for marketers to understand the factors that negatively influence customers’ willingness to engage in RM programs. These factors involve convenience concerns, benefit concerns, privacy concerns, variety seeking, and purchase frequency.⁵⁸

The first factor is concerns about the convenience of the participation in RM programs. Consumers feel that building or maintaining a relationship with a retailer requires spending time and effort. Consumers view RM programs (e.g., loyalty programs) favorably if the program is easy to access or convenient to participate in. Otherwise, they feel inconvenience and avoid participating in the programs. This unfavorable perception increases with time spent waiting in line, completing paperwork, or mailing in forms.⁵⁹

Second, when consumers fail to recognize the promised benefits or have concerns about the worthiness of the participation, they are likely to be reluctant to engage in RM programs. Third, privacy concerns lead consumers to hesitate to share their personal information, which is generally required during the enrollment in RM programs. The potential loss of privacy and exposure to unsolicited mails or e-mails might lead to lower receptiveness to RM programs. Consumers worry about not only the firms’ constant and repeated communication with them but also the misuse or abuse of their personal information.⁶⁰

... consumers were more concerned about situations where their personal and financial records were sold to other companies without their consent than they were about “relationship marketing” situations where a company collects and uses information to repeatedly contact its own customers. … four dimensions were central to individuals’ concerns about privacy: the collection of personal information; the unauthorized secondary use of such information within the collecting company; errors in the personal data; and improper access to the information provided.⁶¹

Finally, variety seeking leads to consumer disengagement in RM programs. Consumers who seek variety in their options and who refrain from reducing their choice alternatives are likely to avoid commitment to one firm and see lower value in RM programs that might enhance their relationship with the firm. Therefore, marketers often develop a shopping

environment for increasing consumer inertia by providing conveniences and process simplification to minimize the desire to seek other alternatives … such as home delivery by Domino’s Pizza, package pick-up service by Federal Express, and automatic teller machines (ATMs) established by banks.⁶²

Gaylord Opryland in Nashville, Tennessee has made lifelong fans simply with an alarm clock.

Source: Patrick Pelletier (CC BY-SA 4.0 [http://creativecommons.org/licenses/by-sa/4.0]), via Wikimedia Commons.

Case-in-Point: Gaylord Opryland

Gaylord Opryland,⁶³ owned by Gaylord Hotels and operated by Marriott International, is a large hotel and convention center in Nashville, Tennessee. Christina McMenemy, who stayed at the hotel three years in a row for an annual conference, was exhilarated by one of the features in her room, an alarm clock that played light music. For her, it was more than just an alarm clock. She said that she had never slept better than she did while using it. “You probably think I am insane to obsess over a clock radio,” she says. She tried to find the same clock for three years, but it was not available. She sent a message to the hotel through Twitter page during her most recent trip to the hotel, asking how she could find the same alarm clock.

• @GaylordOpryland Where can I buy this Sharper Image clock radio in my room? None in stores have the “spa” sounds & I’ve never slept better!

The response she received led her to lose her hope.

• @mommystory Unfortunately, our version isn’t available to the public, but here is a Shaper Image alarm clock like it: http://amzn.to/ADMXzL.

• @GaylordOpryland Yeah, that one doesn’t have the spa sound. Been looking for one after loving the 1 in my room for 3yr now at Blissdom. :(

She attended the conference, forgetting about the alarm clock. However, upon returning to her room, she was surprised to see a second clock along with a handwritten letter right next to it. The hotel made the best use of the opportunity and won a customer for life, indicating us how personalization was important in successful customer relationships. Indeed, the hotel went beyond winning a single customer. It also bought plenty of goodwill with people who subsequently heard about the story. This case clearly indicates us how RM can yield magnificent outcomes that cannot be achieved through advertising or any other marketing communication channel. These outcomes can be seen in Christina’s final message to the company:

You reaffirmed that there are still companies out there focused on great service, and you’ve made a lifelong fan out of me.

Key Takeaways

• Marketers seek to customize some features of their offerings based on individual needs so that the customer enjoys more relational benefits, convenience, lower cost, or some other benefits.

• Frequent communication with customers helps salespeople provide better customer service, understand customer needs and shifts in customer preferences, reinforce key selling points, and protect customers against competitors who are trying to make inroads.

• Consumer-level outcomes of RM in B2C markets can be classified into two groups: psychological and behavioral outcomes. While psychological outcomes involve perceived customer retention orientation, relational benefits, satisfaction, trust, and commitment, behavioral outcomes include customer loyalty, lower incidents of opportunistic behaviors, and citizenship behaviors.

• Organizational outcomes of RM in B2C markets include relationship quality, product and service quality, market knowledge, employee involvement, and profitability.

• Personalization involves individualized communication for a specific customer based on his or her stated or implied preferences as well as customized offerings based on the customer needs and wants.

• The factors that negatively influence customers’ willingness to engage in RM programs involve convenience concerns, benefit concerns, privacy concerns, variety seeking, and purchase frequency.