RELATIONSHIP MARKETING (RM)

Application: Marketing Communication, NPD/NSD, Sales

The Concept

Relationship marketing (RM) is a relatively recent addition to the more established marketing theory. It suggests that companies can have a relationship with their customers, whether businesses or consumers. By understanding their customers in a systematic way, and by managing deepening levels of interaction with them, revenue and profit will increase. For many firms (particularly in business-to-business marketing) this has codified intuitive approaches that have been at the heart of their business for many years.

RM is an approach to marketing based around ongoing relationships with customers. It is, or should be, radically different from the “four Ps”-based, throw it out there, broadcast marketing techniques of the mid 20th century. This focuses on the buyer as a human being and gives attention to the interaction between human beings in transactions. It suggests that organizations seek to understand their buyers’ motivations and purchase habits through, among other things, research and analysis of buying data. They then create communications programmes directed at these buyers which are more targeted, personalized, and relevant. As buyers respond to these, the supplier can adjust their plans further, creating a virtuous circle of improved profitable engagement.

The approach is based on the assumption that long-term mutual value is created for both sides if the buyer, and an interactive relationship with the buyer, become a focus of the supplier’s policies, processes, and people. The marketing of the firm then stresses enduring profitable relationships, rather than individual random transactions.

Profssor Evert Gummerson (Gummerson, E., 2003) suggests that relationship marketing “is based on interaction within networks of relationships”. In other words, effective marketing needs to emphasize communication between people who know each other, and others, to varying degrees. From this perspective, markets are a set of networks comprising relationships between people. The complex inter-related sets of different relationships, and their influence on decision making, need to be understood, mapped, and enhanced. This has led, in some circles, to the phrase, “network marketing”. In fact, there is evidence (in the professions, for instance) that this view of a market (which is nearer to behavioural economics, see behavioural aspects of marketing) has allowed certain suppliers to buck economic trends by stimulating and exciting networks of premium customers during recession.

The basis of relationship marketing is the interaction between two people, at least one of whom represents an organization. (In consumer marketing, for instance, a marketing manager is trying to establish relationships between the firm and many individuals.) However, as these people have interaction with others, there are really two interconnecting networks of relationships through which information flows. These networks flow in and out of the supplier firm, embracing competitors, industry commentators, and professional associations. Figure R.1 tries to show, for instance, a representative in a firm who has a business relationship with a representative in a customer firm; they, in turn, have links to both a competitor and the trade association. The supplier can strengthen the messages and input to the contact by developing a link through the trade association. However, they need to be aware that any innovative ideas and proposals are likely to be communicated to a competitor.

Figure R.1: A representation of the inter-relationships between the principles in two business-to-business relationships

These relationship networks have “nodes” where suppliers can bring great influence to bear. The web sites of industry commentators, influential conferences, and industry-specific research groups are examples of these. They should be identified and influenced by marketers. In fact, mapping relationships and networks is fundamental to the success of the approach. For instance, academics have proposed three levels of categorization which describe the development of relationships in business marketing: “activity links”, essentially normal business transactions; “resource ties”, exchanging and sharing resources, and “actor bonds” which are created between people who influence each other (see AAR model). These concepts can be used to map and categorize communities and networks which are valuable to the firm. For example, non-executive directors are very influential in the purchase of many items. Some suppliers therefore buy databases of board representatives and then map those who influence their customers. Proactive marketing programmes are then created to reach these people.

Marketing communication should be planned and developed as part of RM strategies. For example, an important fundamental tool of RM is database marketing, often based on “Customer Relationship Management (CRM)” systems. These systems hold details of customers and have a facility (called “campaign management”) which controls communication with them. They register customers’ interests and preferences. They also allow marketing managers or account managers the chance to edit communications from their firm before they are sent. They can edit out communication pieces which are unwanted or irrelevant to individual customers. This facility alone can solve a very common service problem: erratic and uncoordinated mailings to customers. Once these systems are in place, marketers planning any communications to customers (from hospitality invitations, through to generic campaigns) must iron out any conflicts with other communications at the planning stage. Relationship marketing therefore introduces a discipline into the communications processes of the firm that removes potential dissatisfaction.

The marketer should use specific techniques to communicate through the mapped networks. For instance, “word-of-mouth” is one of the most powerful determinants of reputation. The marketer sets out to influence this through PR, viral marketing, and publicity. They seek to use the networks and moments of contact with customers to enhance reputation. Business buyers, for instance, use their professional networks to gain information on service providers. In fact, these networks are often the most influential source used prior to purchase. A strong reputation and positive word-of-mouth will therefore yield work for suppliers. It will increase the propensity to buy.

The marketer can also communicate to customers through internal networks (see internal marketing), particularly in a large firm which will be dominated by interconnected relationships of people. These might be people who have been in the same firm for a decade or more, who have learnt to trust each other by working on projects or in managerial teams. They are circles within circles and networks of trust. There might be, for example, a network of specialists around the world concentrating on one business sector. The people involved have a common interest and rely on their internal network to receive information. Their leaders and the immediate group of contacts with whom they work daily are much more relevant to them than other messages. So gossip becomes more effective than the deluge of emails, magazines, and other publications. Marketing specialists can map these internal networks and target communications through them. This is a form of viral marketing, where word-of-mouth is used to influence the behaviour and motivation of a company’s people. It is a powerful internal marketing mechanism if used effectively. Moreover, all of these networks will interconnect with customer networks, and so good, credible communications from the leadership through these internal networks will also influence customer thinking.

History, Context, Criticism, and Development

Many successful business leaders have adopted approaches similar to RM before it was identified and codified. For instance, Lord Sieff, who ran the famous British retailer, Marks & Spencer, during some of its most prosperous years, was asked why, in the mid 20th century he put such emphasis on service and offered no argument refunds on defective goods. He is reported to have said that, if a young couple marry and move into an area, there is the likelihood of many years of profitable purchases from their growing family. Why damage that over an argument about one defective sweater? (see Sieff, M., 1986). This early example of what later become known as the “lifetime value of buyers” epitomizes relationship marketing. The life cycle of the buyer’s engagement with the firm is the priority, rather than one transaction.

RM began to emerge during the 1970s and 1980s from several sources. First, consumerism in various Western economies forced companies to respond to their needs more. This, tied to a greater emphasis on customer service and responsiveness across many businesses, forced marketers to consider ways in which they might communicate with their customers more effectively. Secondly, a growing emphasis on database marketing and direct marketing, together with increasingly sophisticated technology, allowed them to move away from solely using broadcast marketing communication. Finally, research and thinking from the developing body of knowledge around services marketing and business-to-business marketing, contributed to this trend. In academia, researchers studying these fields began to uncover the effect of networks of relationships and the importance of repeat customers. The growth in research around services marketing and network marketing gradually became integrated into the modern view of relationship marketing.

In the real world, though, the concept itself started largely in the consumer products industry, and led to the creation of tools such as Customer Relationship Management (CRM) systems and data warehousing. It has since been applied to many different markets, including business-to-business and professional services. For many it fills a large gap in marketing theory by recognizing the role of human relationships and communications in the buying and selling process. Since the early 1980s marketing practitioners and academics have been exploring, researching, and testing RM. Marketing thinking steadily moved away from an emphasis on broadcast mass communications using the 4 Ps and principles founded on the consumer markets of mid-century America. It had a profound effect on many marketing practices. It changes marketing communication, for instance, from erratic broadcast messages to personal and intimate, two-way communication. This has led in some places to it being called “interactive” or “responsive marketing”.

Voices and Further Reading

• Gummerson, E., Total Relationship Marketing. Butterworth-Heinemann, 2003.
• “Relationship marketing is marketing based on interaction within networks of relationships.” Gummerson, ibid.
• “In practice, relationships and networks and interaction have been at the core of business since time immemorial. … The sad story is that relationships have too long gone noticed in research and education. Are we beginning to discern the marketing content of Japanese keiretsus, Chinese guanxies, global ethnic networks, the British school tie, trade between friends, loyalty to the local pub, and so on?” Gummerson, ibid.
• Payne, A., Handbook of CRM. Butterworth-Heinemann, 2006.
• “Although the term CRM … only came into use in the latter part of the 1990’s, the principles on which it has been based have existed for much longer. CRM builds especially on the principles of relationship marketing, the formal study of which goes back 20 years but the origins of it, involving building relationships of mutual value between suppliers and customers, have existed since the start of commerce. However, what has changed over the past decade is a series of significant trends that collectively shaped the opportunity better to serve customers through information-enabled relationship marketing, or CRM.” Payne, ibid.
• Üstüner, T. and Godes, D., “Better sales networks”. Harvard Business Review, July–August 2006.
• “The term ‘social network’ refers to a person’s set of direct and indirect contacts … Managers often view sales networks only in terms of numbers of direct contacts. But someone who knows a lot of people doesn’t necessarily have an effective network, because networks often pay off most handsomely through indirect contacts”. Üstüner and Godes, ibid.
• “Relationship management can be institutionalized, but in the process it must also be humanized.” Levitt, T., 1983.

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