Relationship Marketing Re-Imagined

Naresh K. Malhotra, Can Uslay, Ahmet Bayraktar

• Publisher: Business Expert Press
• Year: 2016
• ISBN:
  9781631574344
• Topic: Business
• Subtopic: Marketing
• Index: Business

Marketing is arguably amidst a paradigm shift. With the emerging value co-creation perspective, a single transaction can blossom to a process in which the customer and the marketer collaborate (rather than negotiate) for best total value through products, features, delivery terms, maintenance, and financing options for both B2B as well as B2C markets. Marketers increasingly need to develop and maintain long-term, win-win relationships that extend beyond customers, such as those with distributors, dealers, suppliers, competitors and other external influencers. Business executives, marketing students, and those who are interested in learning about the transformative power of relationship marketing and CRM analytics in the business enterprise would highly benefit from reading this book.

CHAPTER 1

Introduction

Marketing is arguably amidst a paradigm shift. Marketing orientation is shifting away from creating exchanges (sales) to creating value (satisfaction) and relationships (cocreating value). Ultimately, the main objective of all marketing activities is value creation.¹ Figure 1.1 illustrates this paradigm shift in marketing orientation.

In the vast majority of cases, value is cocreated by several agents, especially the marketers and customers. For example, a healthy patient in the United States is an outcome of the joint efforts of marketers who inform the customer and doctors of the benefits of available medication or treatments and distribute the offering, the doctors who diagnose and prevent illnesses and endorse medications, and last but not least, the patient who needs to actively engage to take the medication on time, diet, and exercise. From a value cocreation perspective, a single transaction can blossom to a process in which the customer and the marketer collaborate (rather than negotiate) for best total value through products, features, delivery terms, maintenance, and financing options for both business-to-business (B2B) as well as business-to-consumer (B2C) markets.²

Point to Ponder: Can you think of a service where value is not jointly created by the marketers and the customer? How about products?

All interactions with customers represent potential relationships, some more enduring than others. Ranging from a brief single transaction (e.g., purchasing popcorn at a concession stand) to semipersistent (e.g., subsequent purchase of two Chevrolet sedan cars but then switch to Toyota, or according to a recent successful campaign “I don’t always drink beer, but when I do, I prefer Dos Equis”) to lifelong relationships (e.g., lifetime subscription to Cosmopolitan magazine; always ordering Coke). Indeed, it is possible to imagine these relationships as a pyramid, with single transactions as fad affairs in the bottom, semipersistent relationships in the middle, and lifelong relationships at the top. Price becomes more and more important as we move toward the fleeting relationships deep down in the pyramid. Generally speaking, marketers strive to turn the pyramid upside down and have more of the enduring relationships and fewer of the fleeting ones. However, as we discuss, there are exceptions to this rule. An enduring relationship may not always be the most attractive option for both the marketers and the customers.³

Figure 1.1 The paradigm shift in marketing orientation

Source: Adapted from Sheth and Parvatiyar (2000, 137).

We cannot emphasize enough that the primary means for success and survival in a competitive landscape is through differentiation of offerings (so that goods and services come to be coveted brands and signature services). The marketers’ primary assignment—generating, developing, maintaining, and managing customer relationships—are at the very heart of these differentiation efforts. The phrase managing customer relationships sounds off-putting, but in some cases that is precisely what needs to be done. According to Kotler, “smart marketers try to build up longterm, trusting, win–win relationships with customers, distributors, dealers, and suppliers.”⁴ We can extend this to competitors and other external influencers such as governments, media, nonprofit organizations, and pressure groups. During the current information age, we are witnessing the revival of the relationship orientation that was deemphasized during the industrial era.⁵ In fact, management guru Peter Drucker had powerfully argued that this is a task that needs to permeate throughout the whole organization. To him, marketing was just too important to be left to the marketing department, not matter how able.⁶

Similarly, relationship marketing (RM) is too important to be fully exposed in a single volume and has indeed become a staple theme that permeates through many business bestsellers. While customer acquisition is important, it is even more important to retain existing customers once they have tried your products and services. Having a smaller number of loyal customers might really be preferred over a larger number of customers who are defecting. Therefore, communicating with and marketing to your existing customers can be even more vital than appealing to prospective customers.

Reimagining Relationship Marketing

Marketing organizations often face two conflicting realities—reduced marketing resources while having to ensure profitable customer management. The key to resolve these conflicts lies in optimal resource allocation. Traditionally, firms have misallocated their resources. The common wisdom is that loyal customers are more profitable. However, recent evidence casts doubts on this; loyal customers may not always be the most profitable or even profitable. Therefore, for effective resource allocation, organizations should allocate resources based on the (current and potential) profitability of customers. This calls for relationship management that has been deemed to be a priority topic for both marketing management and entrepreneurship.⁷ In this book, we advocate an approach for managing customer relationships based on the use of the customer lifetime value (CLV) metric (see Chapter 7). Our premise is that measuring and maximizing CLV benefits not only marketers but also customers in measurable and concrete ways. However, in order to fully unlock the potential of the CLV metrics, it is instructive to be exposed to the history and conceptualization of RM (Chapter 2); its three main types, B2B (Chapter 3), B2C (Chapter 4), and internal (Chapter 5); and the nature of loyalty and rewards programs (Chapter 6). We conclude with a discussion on the future of RM and the frontiers of value cocreation (Chapter 8).

However, before we introduce further content, we give you a flavor of RM with a classic case, namely, that of Ritz Carlton.

The Ritz-Carlton, Boston. The room rate was $15 when it opened in 1927.

Source: The Boston Public Library.

Case-in-Point: The Ritz-Carlton

The Ritz-Carlton is the only hotel company to ever receive the prestigious Malcolm Baldrige National Quality Award and one of the only two U.S. firms to ever receive it twice.⁸ They must be doing some things right( The Malcolm Baldrige distinction is based on the evaluation of leadership, strategic planning, customer and market focus, measurement analysis and knowledge management, human resources focus, process management, and business results (sounds curiously like relationship marketing? Yes, and hopefully, by the end of this volume, things will fall into place).

The Ritz-Carlton, Boston, serves as a landmark for its home city as well as a quality benchmark for all Ritz-Carlton hotels around the globe. The Boston location redefined luxurious hospitality when it first opened in 1927 with offerings such as

• Private bath in each guest room
• Lighter fabrics in the guest room to allow for more thorough washing
• White tie and apron uniforms for the wait-staff, black tie for the Maitre d’ and morning suites for all other staff, conducive to a formal, professional appearance
• Extensive fresh flowers throughout the public areas
• A la carte dining, providing choices for dinners
• Gourmet cuisine, using the genius and cooking methods of Auguste Escoffier
• Intimate, smaller lobbies for a more personalized guest experience.

While some of the offerings in the above list may have diminished in their competitive edge during the past eight decades, the last item, personalized experience in a luxury setting is probably still the main differentiator of the hotel chain. Although he did not live to see the opening of the Boston location, the philosophy and spirit of Ritz-Carlton can be traced to Cezar Ritz, the “king of hoteliers and hotelier to kings.” Catering to the elite and wealthy, Ritz-Carlton insisted on maintaining the privacy of its guests. The reputation of the hotel was also protected, for example, vacant room lights were at times left on to project the impression of success. The hotel maintained its own upholstery and furniture. As such, they were able to customize the rooms for important guests. For example, Winston Churchill’s room was reupholstered in his favorite color, red.

Nevertheless, it took more than sufficient funds to stay at this formal establishment, and the privilege could take its toll on some guests. Guests’ backgrounds were checked regularly to ensure that they were in Who’s Who and other publications. Even the use of poor-quality writing paper could cause the denial of a reservation. At the time, Boston society was formal and so was the hotel. Management insisted on dress codes, and women could not lunch alone in The Café or enter the bar area unescorted as late as 1970(

Old wealth and aristocracy diminished after World War II; several Ritz-Carltons had to close their doors and the remaining locations had to adapt. Thus, management began targeting the international businessmen with expense accounts. By 1968, 70 percent of the guests at the Paris location were American businessmen.⁹

In the 1980s, the company was reorganized into the Ritz-Carlton Hotel Company and bought by Marriott International in 1998. Despite the tough economic times and turmoil that limited travel around the world, the bottom line of the company has also gradually improved. Today, the company operates 87 hotels in 29 countries across the globe and employs 35,000 employees. It continues to annually top the list of American Automobile Association (AAA) five diamond properties in the United States. Gold standards of Ritz-Carlton that cover its values and philosophy include the following:¹⁰

The Credo

The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission. We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed, yet refined ambience. The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.

Service Values: I Am Proud to Be Ritz-Carlton

1. I build strong relationships and create Ritz-Carlton guests for life.
2. I am always responsive to the expressed and unexpressed wishes and needs of our guests.
3. I am empowered to create unique, memorable, and personal experiences for our guests.
4. I understand my role in achieving the key success factors, embracing community footprints, and creating the Ritz-Carlton mystique.
5. I continuously seek opportunities to innovate and improve the Ritz-Carlton experience.
6. I own and immediately resolve guest problems.
7. I create a work environment of teamwork and lateral service so that the needs of our guests and each other are met.
8. I have the opportunity to continuously learn and grow.
9. I am involved in the planning of the work that affects me.
10. I am proud of my professional appearance, language, and behavior.
11. I protect the privacy and security of our guests and my fellow employees and the company’s confidential information and assets.
12. I am responsible for uncompromising levels of cleanliness and creating a safe and accident-free environment.

Let’s take a look at the some of the process and performance outcomes of the above gold standards:

• Service: Every Ritz-Carlton employee undergoes ...

Table of contents

• Cover
• Title
• Copyright
• Preface
• Book Description
• Chapter 1: Introduction
• Chapter 2: What Is Relationship Marketing?
• Chapter 3: B2B Relationship Marketing
• Chapter 4: B2C Relationship Marketing
• Chapter 5: Internal Relationship Marketing
• Chapter 6: Building Brand Equity Through Relationship Marketing
• Chapter 7: Customer Relationship Management Analytics
• Chapter 8: Future of Relationship Marketing
• Notes
• References
• Index
• Adpage
• Backcover