Service marketing


Published on

Service Marketing

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Service marketing

  1. 1. Close to the Customer: but<br />is it Really a Relationship?<br />James G. Barnes<br />MemorialUniversity of<br />Newfoundland, Canada<br />Journal of Marketing Management, 1994, 10, 551-570<br />
  2. 2. Introduction<br />Everyone is developing relationships. Customersare being invitedto have relationships with telephone companies, banks, autodealers, airlines, and other suppliers of products and services.<br />Relationship marketing is being touted as an effective strategy toguide companies into the next millennium<br />Recently/ there has beenwidespread reference to relationship marketing in the popular literature,and the concept has been embraced by many companies andorganizations. <br />There is little consensus, however, on what theconcept means and even less consistency in how it is practised<br />
  3. 3. Introduction<br />What is relationship marketing? Practising marketers and articlesin the trade press use the term in one way, while authors inacademic journals seem often to be referring to something quitedifferent.<br />
  4. 4. Introduction<br />Thispaperreviewsthreeapproaches to describing relationship marketing which are reflected in the recentliterature and raises a number of questions which appear to have gone unanswered.<br />
  5. 5. Relationship Marketing as Customer Retention<br />Strategiccompetitiveadvantage can no longer be delivered on thebasis of coreproductcharacteristicsandwherecorporateprofitability has beenshowntobe linked closely with satisfying existing customers<br />Recent growth in interest in developingcustomer relationships is supported by a relatively new body ofresearch evidence (for example, Reichheld and Sasser 1991) that it really is moreprofitable to keep customers for the long-term.<br />It makes a great deal of sense to keep existingcustomers happy, rather than devoting high levels of marketing effort to thestemmingof customerturnover<br />
  6. 6. Berry ,in one of the earliest articles on the subject, treated relationshipmarketing in a general sense as keeping, not just getting, customers<br />He advocateda number of relationship strategies, including a core service strategy, customization,augmentation, relationship pricing, and internal marketing, as a means ofdeliveringrelationshipmarketing<br />Most authors who have written on the subject ofrelationship marketing have accepted, without question, the principle that retainingcustomers, rather than constantly seeking new ones, is a sound businesspractice.<br />While most see the establishment of a relationship as a key element in theretention of customers, few have raised issues relating to which customers shouldbe retained or how such a retention-oriented relationship should be establishedandmaintained<br />Alsorelationship marketing leadstolongtermprofitibality is simplistic, andbagsthequestion of howandwithwhomsuchrelationshipsareto be establishedandwhat form theyshouldtake<br />Relationship Marketing as Customer Retention<br />
  7. 7. Relationship Marketing as "Locking-in" the Customer<br />While many companies have indeed been practisingrelationship marketing formany years in dealing with end consumers, it is in the field of business-to-businessmarketing that the idea of establishing long-term relationships has had a longhistory of acceptance and effective practice<br />Jackson (1985) drew a clear distinctionbetween a situation where an industrial marketer has the potential to establish along-term relationship with a customer, and another where the customer isinterested primarily in the transaction and in getting the highest level of satisfactionfromtheimmediatesale<br />
  8. 8. While industrial marketers have paid considerable attention to buyer-seller relationshipsand advocated their establishment and cultivation, it is again not clearthat the motivation for such relationships was mutually-felt or that there wasnecessarily commitment from both sides. <br />Turnbuand Wilson (1989), for example, advocated the establishment of long-term buyer-seller relationships through thecreation of structural and social bonds between the companies. <br />A structural bondwas defined as a situation that pertains when "the two parties make investmentsthat can not be retrieved when the relationship ends, or when it is difficult to endthe relationship due to the complexity and cost of changing sources<br />Relationship Marketing as "Locking-in" the Customer<br />
  9. 9. Relationship Marketing as "Locking-in" the Customer<br />An examplewould be the training oftechnicians on one type or brand of equipment only.<br />Socialbonds are created when an interpersonal relationship exists between the twoparties, and were considered by the authors to represent less binding elements of arelationship, moreeasilybroken.<br />Simply stated, a structural bond between buyer and seller makes it difficult forthe buyer to change suppliers. The buyer is locked in, a captive customer, becausethe costs involved in making the break can not be justified<br />
  10. 10. Relationship Marketing as "Locking-in" the Customer<br />In examining the role of relationship marketing within commercial banking,Perrienet al. (1992) observed that banks have recognized, in a highly competitivemarket, the value of increasing the retention rate among existing customers. Onemeans of increasing their retention rate is to increase customers' switching costs.<br />They further observe that "increased switching costs are a direct consequence of areal bank-customer relationship." In situations such as these, the customer iseffectively "locked-in" by such tools as a long-term mortgage with penalties forreopening. <br />Frequent-buyer clubs perform essentially the same function, that ofdeveloping "loyalty" by virtue of the customer returning to the same company inorder to continue to accumulate "points". There may or may not be an affectivecomponent to the loyalty or the relationship<br />
  11. 11. Relationship Marketing as "Locking-in" the Customer<br />A broader, more positive and mutually-rewarding perspective on buyer-seller relationshipswas offered recently by Han et al. (1993) who seem to view closerelationships not as barriers to exit or a way to "lock in" a possibly-unwillingcustomer, but as part of the shift towards "partnering" with single-source suppliers,the benefits of which include enhanced performance, purchasing costreduction, and increased technical cooperation. <br />The most successful buyer-sellerrelationships appear to be characterized by mutual trust between buyers andsellers, based upon exchange of information and continued exhibition of commitment,andsatisfactory performance of the partners' respective roles.<br />
  12. 12. Relationship Marketing as Database Marketing<br />The establishment of long-term relationships between buyers and sellers mayrepresent an obvious strategy in an industrial setting, where detailed knowledge ofand close on-going contact with customers is both desirable and characteristic oftheinteraction<br />As technology has become more widely available and as companies have recognizedthe value of tracking and understanding the behaviour of their customers,the use of databases has become accepted as a means of knowing more aboutcustomers and their purchase behaviour. <br />Customer databases have become commonplacein many companies as technology has become more readily available.<br />This appears to have led to a situation where many practitioners and authors havedrawn a close linkbetween relationship marketing and database marketing<br />
  13. 13. Relationship Marketing as Database Marketing<br />Petrison and Wang (1993) link the establishment of a relationship with customersdirectly to the avaibilityof database technology, suggesting that the roots ofrelationship marketing lie in the ability of companies to know their customers, theirlikes and dislikes on an individual basis, thereby enabling them to "target" thecustomersmoreeffectively.<br />Copulsky and Wolf (1990) view relationship marketing as the maintenance of acontinuous relationship with customers, incorporating three key elements: <br />(1) theestablishment of a database of current and potential customers;<br />(2) delivering adifferentiated message to these customers based upon their characteristics andpreferences; and <br />(3) tracking each relationship to monitor the cost of acquiring thecustomer and his or her lifetime value<br />
  14. 14. Somethingmissing ?<br />These three views of relationship marketing appearto miss the mark in terms ofdefining when a relationship with a customer truly exists, or when one can even beexpectedtoexist<br />The simplistic equating of relationship marketing to customerretention begs the question of why customers are retained.<br />Congram (1991) offersseveral reasons why it is important to retain existing customers, including thelower costs of serving returning customers, the positive effect on profits, and thecreation of company advocates who spread positive word of mouth.<br />
  15. 15. Congram (1991) also refers to relationship building as the "service counterpart ofbrand loyalty in consumer goods.<br />But there would appear to be some fundamentalaspects of a relationship missing from this analogy. Repeat business alone doesnot constitute brand loyalty, in that there may be many reasons why a customerwould purchase the same brand over and over again. A customer may deal with aparticular company because it is convenient to do so, or may purchase a particularbrand on a regular basis because, although it is not the preferred brand, it is theonly brand carried by a convenient retail store.<br />Although the brand is boughtregularly, the customer can not be said to be loyal to it. Customer retention alsodoes not provide conclusive evidence of the existence of a "relationship" in that acustomer may have a variety of reasons for returning to the same service provider.<br />He or she may continue to deal with a service provider because there is no realoption, as is the case with many public utility companies, or because he or she is amember of a frequent-flyer or frequent-shopper program<br />
  16. 16. Those who view relationship marketing as the "locking-in" of customersthrough the erection of barriers to exit, are similarly defining a relationship as acontinuous series of interactions, without reference to the deeper feelings whichare generally associated with other human relationships<br />Where a customercontinuesin a relationship witha supplier because switching costs are too high tojustify a change of suppliers, that customer is trapped in a relationship against hisorher will.<br />What often passes as a relationship,therefore, is really a pseudo-relationship in that it is one-sided, with customerskept in the relationship against their wiil, locked into dealingwith asupplier because the costs of leaving the relationship are perceived to be too high.<br />
  17. 17. It is interesting that some authors view the establishment of a database as aprecursor to the development of a customer relationship. What is missing in thisview is any evidence of caring about the customer. <br />The establishment of the"relationship" is viewed as collecting pertinent information about customers,usually relating to their demographic and psychographic characteristics and theirbuying behaviour, and then using this information to direct appropriate targetedmessages to them; an example of what Hogg et al. (1993) refer to as "what we do tocustomers." <br />The relationship is viewed simply as contact, or as knowing as muchabout customers as possible so that we can market at them, with little concern forwhether they are willing participants in this relationship or whether they view it assatisfying.<br />
  18. 18. QuestioningRelationships<br />Much of the writing on relationship marketing has left important questions unanswered.For example, few authors have attempted to address the question ofwhen a relationship truly exists. <br />What is the true nature of a relationship? <br />Wheredoes transactional marketing end and a relationship begin? <br />Under what circumstancesis it realistic for a marketer to consider establishing relationships withcustomers? <br />Can a relationship be said to exist with a bank or an airline or asupermarket, or is therelationshipnecessarilywiththeemployees of thecompany ?<br />
  19. 19. Hogg et al. (1993) have questioned the authenticity of relationships. <br />In an insightfularticle devoted to an examination of the meaning of relationship marketing,these authors observed that the decision to initiate what is considered a customerrelationship is usually one-sided in that the company decides unilaterally to build arelationship with its customers. <br />These authors are particularly critical of companieswhich purport to be building relationships through the creation of customer databases,which have generally been established without the consent of customers.<br />The data maintained on customers are often shared throughout an organization(and occasionally outside), usually without the consent or knowledge of the customer,withattendant issues of privacy and confidentiality of information<br />
  20. 20. Berry (1983) identified three conditions for the concept of relationship marketingto be useful: <br />(1) the customer must have an ongoing or periodic desire for theservice; <br />(2) the service customer must control the selection of supplier; <br />and (3) theremustbe alternatesuppliers<br />
  21. 21. These latter comments from marketing authorson the subject of relationshipssuggest that there is more to a successful relationship with customers than merelytrying to retain them or "locking them in" with training contracts or other barriersto exit or maintaining a database on them<br />Several authors have suggested that it isuseful to view the contact between marketer and customer on a continuum<br />The existence of a continuum ranging from the interaction involved in the purchaseof a chocolate bar from a vending machine at a motorway rest stop to therelationship between a patient and his or her physician is obvious<br />
  22. 22. What is Necessary for a Relationship to Work?<br />Many authors have observed that certain conditions must be met for a stable andpositive relationship to exist. Much can be learned from social psychologists whohave written widely on relationships. <br />Duck (1991), for example, identified severalessential elements of a relationship which included caring, support, loyalty,placingpriority on the other's interests, honesty, trustworthiness, trust in theother, giving help when needed, and working through disagreements. <br />Argyle andHenderson (1985) identified four universal rules of relationships: respect privacy;look the other person in the eye; keep confidences; and do not criticize publicly.<br />Gupta (1983) concluded that stable, friendly relationships are characterized bycommunication, trust, liking, respect, reciprocation, affection, influence, andunderstanding.<br />
  23. 23. What Does the Customer Say?<br />A number of authors have suggested, directly or indirectly, that the best way tolearnwhether the establishment of a relationship is possible or whether a meaningfulrelationship is in place is to ask the customer.<br />Duck (1987), forexample, suggested that the language used by consumers in describing their relationships ismost important in understanding those relationships.<br />In making a start at understanding relationships from the customer's perspective,the author reviewed the audiotapes of more than 40 focus group interviewswith customers of service companies in both the personal and business-to-businessmarkets<br />
  24. 24. What Does the Customer Say?<br />In all of the focus group sessions, participants had been asked (amongother things) to discuss companies and organizations with which they enjoyeddealing and those with which they preferred not to deal.<br />Detailedcontentanalysisof these focus group sessions has not been completed, but preliminary indicationsare that the consumer uses language to describe his or her contact with a companythat is very similar to that which might refer to interpersonal relationships<br />
  25. 25. For example, positive comments include observations such as: "they go out oftheir way to help", "they talk with me", "they are almost like family", "they seemto genuinely care about me", "they just callto see how I am doing", "they arehonest with me", "I felt she was talking with me—one-on-one", "they deliver ontheirpromises.“<br />On the other hand, when describing companies they do not like todeal with, customers offer comments such as: "they won't give me their names","they try to avoid me", "they don't deliver when they said they would", "they justdon't seem to care", "they talk down to me", "they never apologize", "they makeme feel like I am just a number.<br />