Relationship Marketing Logic

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Relationship Marketing Logic Christian Gronroos Professor of Marketing CERS Center for Relationship Marketing and Service Management Swedish School of Economics and Business Administration Helsinki, Finland ABSTRACT

In modern Western economic history, the industrial revolution and the evolution of scientific management helped society to achieve other important goals and turned relationship thinking into a secondary issue. A mass-market orientation and the establishment of the middle-man in distribution channels, as well as specialisation and the division of labour, became top priorities. The dominance of the highly managementoriented marketing mix approach to marketing from the 1960s onwards, has not allowed for a relationship perspective either.

This article postulates six key aspects of a successfully implemented relationship marketing strategy: three strategic issues (service business orientation, process management perspective, partnership and network formation) and three tactical issues (direct customer contacts, customer databases, customer-oriented service system). Overall, relationship marketing is seen as a philosophy rather than a departmental function. A transition curve is described for getting from the second to the first.

ASIA - AUSTRALIA MARKETING JOURNAL VOLUME 4, NO. I

THE 'NEW' RELATIONSHIP MARKETING PERSPECTIVE: ONCE UPON A TIME

000

In a village in ancient China there was a young rice merchant, Ming Hud. He was one of six rice merchants in that village. He was sitting in his store waiting for customers, but the business was not good. One day Ming Hua realised that he had to think more about the villagers and their needs and desires, and not just distribute rice to those who came into his store. He understood tlult he had to provide the villagers with more value and something different from what the other merchants offered them. He decided to develop a record ofhis customers' eating habits and ordering periods and to start to deliver rice to them. To begin with, Ming Hua walked around the village and knocked on the doors of his customers' houses asking: •

how many members were there in the household,

•

how many bowls of rice did they cook on any given day, and

•

how big was the rice jar of the household.

This old story from China demonstrates how Ming Hua, the rice merchant, through what today would be called a relationship marketing strategy, changed his role from a transaction-oriented channel member to a value-enhancing relationship manager, thus, creating a competitive advantage over rivals who continued to pursue a traditional strategy. His strategy included three typical tactical elements of a relationship strategy: • to seek direct contacts with customers and other stakeholders (such as rice farmers); • to build a database covering necessary information about customers and others; and • to develop a customer-oriented service system. We can also distinguish three important strategic elements of a typical relationship marketing approach: • to redefine the business as a service business and the key competitive element as service competition (competing with a total service offering not just the sale of rice alone); • to look at the organisation from a process management perspective and not from a functionalistic perspective (to manage the process of creating value for the villagers); and • to establish partnerships and a network to handle the whole service process (close contacts with well-known rice farmers).

Then he offered every customer •

free home delivery, and

•

a service to replenish the rice jar of the household automatically at regular intervals.

For example, in one household of four persons, every person would consume on average two bowls of rice a day, and therefore the household would need eight bowls of rice every day for their meals. From his records Ming Hua could see tlult the rice jar of that particular household contained rice for sixty bowls, or approximately one bag of rice, and that a full jar would last for fifteen days. Consequently, he offered to deliver a bag of rice every fifteen days to this house. By establishing these records and developing these new services Ming Hua managed to create more extensive and deeper relationships with the villagers, first with his old customers, then with other villagers. Eventually the size ofhis business increased and he had to employ more people: one person to keep records of customers, one to take care of bookkeeping, one to sell over the counter in the store, and two to take care ofdeliveries. Ming Hua spent his time visiting villagers and handling the contacts with his suppliers, a limited number of rice farmers whom he knew well. Meanwhile his business prospered.

The story of Ming Hua tells us that relationship marketing is not a new concept to have emerged in the 1980s or 1990s. In modern Western economic history, the industrial revolution and the evolution of scientific management, (Smith 1950; Taylor 1947), which helped society to achieve other important goals, turned relationship thinking into a secondary issue (Gronroos 1994a). A mass-market orientation and the establishment of the middle-man in distribution channels, as well as specialisation and the division of labour, became top priorities. The dominance of the highly management-oriented marketing mix approach to marketing from the 1960s onwards, has not allowed for a relationship perspective either (Gronroos 1994b). The story of Ming Hua also illustrates the six key aspects of a successfully implemented relationship marketing strategy: three strategic issues (service business orientation, process management perspective, partnership and network formation) and three tactical issues (direct customer contacts, customer databases, customer-oriented service system). This article will look at relationship marketing as a philosophy and then examine the strategic and tactical issues.

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II is inten:stin, lhallhe$c changing demands from the martel have Iuod an impact on the SlralelY r~1d lhal para1lels the dcvelopmc:nl of n:1"lionship marteling. "The slJ'ate,ic orientation lOWards rote competencies and rnoIIn:es u the basis for su«usful and profitable madel n:lalion....ipll wessc.lbo: iuve of whal rlflll:S can do for CUSI<>n>cn in the form of" lolal Jel'vice offering, nIlhcr !han wbat they can dlJ 10 CIIS10lllCn. usillJ cxistinl products or teehnoloJies bucd on • lranSKtional mMkelinl mi. man.,ernenl

A TRAl'iSmON FRO~ A PRODUCT·ORlENTED ApPROACH TO A REsoURCE-QRlero.'TEO ApPROACH Since the 196Ol1, the martetina miJ. manaaernenl approach with i1$ 41'1 mood has ~ the mar· I
-_.

aao

~

... I

A1tbou.ah the 4Pl1 ~ still IlKfIlI as marUtin& Yati.tiles, the pbilovtphiral flJllm1alion of the marUtina

PJ 1ft

wiled 11) the _npetitive sirlIaion lbalilal bttn aJICfIina in I!lOIl indusu'ies in lbo: Wc:lIenI -'d for _ time. 1lIc!DIU markeIina; and cnnsae:tiooI orimtlilioa as """II as lbo: adversariaI appoac:tl to ~ &lid lbo: f\mf;orionaIi",ic orpni. Nilional soIutioo illhemll in the martetin. miJ. app..-li do DOl allow "iet 10 adjlul their markcI pnforrMllC'C to lbo: ckllllllCk of ~ lOdsoy. lbc:se ckmm;\l inf;:hlde mbMc:ed value ..ound lbo: ~ produn. n:liabk ~ 11). )I' . . . .y lhe prod. lICt, JIIId • lnIAWOrthy n:latiom.hip widI CUSlOII'aS. supplic:n and Oislributon. mix and Q

DOl weU

_'it.•

Figures I and 2' illll5Ulte the .... ift lowanis " ruowa::.~ n:larionaIlllPloech 10 rnan:etillJ from • pmduct.~ uans.ctional approach. III Fil\ln: I. lbo: lhree key parties of uarketin& in " uansac:tional .W"....h are ~ lbc:se an: lbo: rum n:prcsemcd by • .....utin, and/or sales c1cpu"IIlCnt. !he mukcI. and \be produa. M.urinJ (iDdudiDa Ides) is !he rnpoosibility of. dcpanmenl of specialuu.. The aIS\OfIIen an: viewed in lamS ()I( lllllrkets ()I( anonymous individu.als or OI')ll!!ip'ions. The offerilll n:vohu II'OUDI! products. p>ds or JCtVica.. AJona !he Jides of !.he Il'ianJk, tMc olher key aspet:U of marUIina 1ft c1cpiLlCYd.. _Iy, pvinl promises IIvouJh o.tm\al rnuketin, (-.-oy !DIU martetinJ) and saJa.. bepin, promises duvuah product fcatllra., and prqlarift, for tho: fulfilment of promises thfOUJb c0n-

liN_ produa dcvelupulCllL The idea ()I( marUtinJ as • 5Cq\IeIlCC of aaivities livitla; and f\.llliUiIlJ promises is not uplicitly in the InIaac:tiooW 1Il'lrl"e liven.

0." .....

FIR.1\.1 Martetinglsale.s SI3f'f

Gi"ing promius

CootinllOll' prod~

External martetin,

s..,

OeveJoprneIU

PRODUCT

MARKET

Keeping promisu ProdUCI features

Figure I. The product-oriented mltl"keling perspective: a transaction marketing approach. ....... . ~~STUL'" .... unll«l

IOU'N~L VOLUMS'.

NO.'

FIRM Full-time marketers and salespeople

Continuous development Internal marketing

PERSONNEL TECHNOLOGY KNOWLEDGE TIME

Giving promises External marketing Sales

Keeping promises Customer care/lnteractive marketing Part-time marketers

CUSTOMERS

Figure 2. The resource-oriented marketing perspective: a relationship marketing approach. In Figure 2, which represents today's market situation for a growing number of businesses, most of the elements are different. The firm may still have a centralised marketing and sales staff, here called the full-time marketers, but they do not represent all the marketers and salespeople of the firm. Markets are no longer conceived of as masses of anonymous individuals or organisations. Customers (including individual customers, households and organisational customers) like to be treated on a more individual basis. In principle, no customer remains anonymous to the firm. Finally, the product has disappeared. This is a fundamental element especially in the Nordic School approach to services. Service companies do not have products in the traditional well-defined and packaged sense of the marketing mix. However much they try to create products, they only have a set of resources and, in the best cases, a planned way of using these resources as the customer enters the arena. For manufacturers doing business with organisational buyers and users, a similar development is currently taking place. Hence, regardless of what type of business the firm is operating, it has to be able to manage key resources so that a successful total offering is developed. This offering, of course, also includes a core product of some sort, which for manufacturers is a physical good, but as this product can be offered by many other competitors in the marketplace it often becomes rather transparent from the customer's point of view. Other elements of the offering (besides the core product) that fulfil the cus-

tomer's needs, wants, desires and expectations, often over an extended period of time, become imperative to the successful fulfilment of promises given by external marketing and sales. At least four types of resources used to create customer care can be identified. They are: personnel, technology, knowledge and time. Many of the people involved have an impact on the total quality perception and satisfaction of customers, and, in addition, some may perform resales and cross-sales activities, thus becoming involved in marketing. The other types of resources also influence satisfaction and the perception of total quality, which makes them important from a marketing perspective as well. This type of marketing is called interactive marketing in the services marketing literature (see Gronroos 199Gb). The issues of what promises are given and how are they to be fulfilled becomes something that has to be addressed explicitly in marketing. Finally, continuous product development is no longer sufficient as a foundation for successful marketing. Continuous development of all types of resources, including internal marketing, become important from a marketing point of view. As the figures demonstrate, the marketing context has changed dramatically. This calls for a new marketing philosophy.

ASIA - AUSTRALIA MARKETING JOURNAL VOLUME 4, NO.1

THE RE.UnONSHIP MARKETING PHILOSOPHY Sinee!he 191'Os an ahmwi,'e approacb to maricetina, hai«I on !he UlablilJunmi and nw..agemeru of ~Ia· lion$hi.... lias emerged wMiD !he tWO mums of research emanalma from Scandinavia mil Nonllem Eunlpe. CV'mtIl&Ily ~, ICI oIher pans of !hi: Wes&em WOfld.. 11tesc IUmmli of ruean:h _ !hi: Nordic School ofSema: (iCC Berry mil Paruuraman 1993), ~ltich klob aI mmagetDml and marketin, fl'llCll. tcnicc pcnpedi,-e, and !hi: IMP Group (see HiIr'!!WJe I932), ~ltich !&kQ; • nclworl< and inacnc_ Dool lIppioch 10 ~ inW.uriaI boasines$u. A COfnrnOQ derlominawr of !hl:se IWO JChools of thou,ht is !hal man:eting is lnI:Itt. manaaemenl issue lIw!. funcaion, and thai managing rrwloa D/ GIl ~I

ilIlIol-H

(I" /tid,

nw Ii tIMe by .. -...sI

udwIn" IUtd ftJfilz.teru of,..-,iIu.' This dc:ftnilion is M1pplnDmled by a IlaIC'ment tlw SllCh a markctina approach should lead 10 a INstina relationship belwttn the pulies involved. Key aspects of such an approac:lIlO mari;etina an: thai ;1 is importanl tlOI 0II1y 10 lea CUIIorroefS and cn:ale lI'&ftI. action, (identify and csWllish) but also 10 m.a.intain and enhance ongoing relationships. This approach .~s thai markeaing hM a responsibility to fulfil as well as 10 give promises, &lid WI profiWlle busil'le$$ relltionJhips rely on tIM: capability of a finn to devel_ op t"'Sl in itself and its performance among ilS customers and other s1llkeholdcrs. InMmal ma,*~li"8 bc<;omc:) a critical i.\.SUe in relationship markeaing if

lhe organisation is 10 be wdl ~pared for ilS r>cw mari;eting wks (Gtiinroos 199Cl.. 1994b).ln a rr:<%III article aboul Il'larionship maRcting, B;llltt (1995) emphasises the "Oed for • flmllO m&/lI&e IlOl only the wIr; of givin& and fulfilling promises but also the wIr; of mabling the fulfilmenl of promises if marUting ~ 10 be ,uc"essful.

AnolhcT rdatiDftship nwteailll tkfinil>oa by 0tImnless0a (1m) potnlli out lhIft key tipa:u of Il'Iationship nwtcting. He defillll!S Il'IatioMIlip mar· kctiJl& mart.cting apprt*:lIlhM 'is hai«I on rd.· tionshi ilIIcractiOlIs and networb',

llllnl:ltt ~ 1C:fmI!hI: OI6tdOOStkftllilimofll'la· tionship marketing can. be fonnulatcd as • generic markct:ing dtcfmition: 'M~ing is 10 manage the firm', martea ",lIDoruh;ps', This defmition int"1ude5 !he fundamental l>QI:ion of maRea;ng as a pbcno"",. non basically Il'!lded 10 the Il'laIionships betwcc:n a finn and environment. It poin" out that marli:eting includes all efforts n:tjuired 10 O'1l&n'se and implement the aetivilits nccdcd to IIWIigc the interfaces with il.S environment. Theil' arc, of cout'SC, several kinds of marke,,; customers, distributOfS, supplicn, networks Df cooperating partners and so on. Transactiun-oriented activities relying heavily on the 4Ps arc a special case: wilh uncomplicaled and mo:stly non·personal relatiC/flships. This definition makes il possible 10 develop marltetinglill'ltegics ac:oordinglO • relational approach or a transactional approach depending on what suilS any aiven marl;ca situation baa (5« Oriinroos 1995b),

,IS

The coclCept of udwuase (Bagaoui 1975). wltich Iw bttn considcrcd • foundalion of ll1IItcIitli for aboultwo dcgd,c... i, l>QI: int"1udcd in any oflhc:sc clefinilions. Focvsing 011 es.el\rlngc' is ctIlISidcmIlOO oar· row • view. A It'lation>.h.ip includca IlU'h more thao udwaga. and if. tr\IiIitIJ rclMiomhip betwtt:n IWO Of acva.l businc:sa panncn; uisu. udlanaes aIloukl inc,·ilably ()Cl;Ul" fmm time 10 lime. Ho"T>u, then: is so mucb more 10 an ongoina rclalionship tlw also lias 10 be I&I;cn em: of, if Cltehanles of offerings for money an: 10 lake place. Mocrova, ..itat is 8etually ueltanged is tlOI '"tr'J $U1I;ghlforwfl'd when producu arc rq>Iaced by 1IWla£Cmeni of rnou.n:cs...,...h as per· sonne!. ledmology, knowledge and time, 10 thai lhc ft.rm can take can: of l!lc needs, wanlS, dcsircll and eapcetatioru of lIS CU)lOmers and 0lhcT panncrs. Hen«, the basic concept of nwtteling is the relalion· ship il.5Clf rather than singular e~ehangesthatOCt:ur in lhe relationship. It follows from Ihis that the c:oncepI of exchange relationship, which;s frequently used,;s a contradiction (sec Craig-Lees and Caldwell 1994). E.,change i~ a ~hOr1·lerm COflCepl where something is li~n for something, whi:~as rel&lion~hip is a long.

term concept implying an association of two parties. The combination of the two does not make sense. In order to execute relationship marketing the Ps of the marketing mix, such as advertising, pricing and selling, can and should be applied, but in addition to them a host of other resources and activities is needed. Most of these additional resources and activities relating, for example, to delivering, installing, updat~ ing, repairing, servicing and maintaining goods or equipment,or to billing, complaints handling, customer education and other activities, are not considered part of the marketing function. Most of the people involved in such activities are not part of a marketing and/or sales department. Nevertheless, their attitudes toward customers and their behaviours and ways of executing their tasks are imperative to successful maintenance and enhancement of customer relationships and other types of market relationships. In many situations their impact is more important to long-term success in the marketplace than that of the full-time marketers. As Gummesson (1990) has pointed out, a marketing department (the full-time marketers) is not able to handle more than a limited portion ofthe marketing 'as its staff cannot be at the right place at the right time with the right customer contacts'. He has coined the term part-time marketer (Gummesson 1991) for the people outside marketing departments whose attitudes and behaviours have a decisive marketing impact on customer satisfaction, their perception of quality, and their future buying and word-of-mouth behaviour. This view of marketing is based on a totally different philosophy than the marketing mix management approach. The relationship philosophy relies on cooperation and a trusting relationship with customers (and other stakeholders and network partners) instead of an adversarial approach to customers; on collaboration within the company instead of specialisation of functions and the division of labour; and on the notion of marketing as a market-oriented management approach, with part-time marketers spread throughout the organisation, rather than as a separate function for specialists only.

STRATEGIC ISSUES IN RELATIONSHIP MARKETING The three strategic issues in relationship marketing were identified as • defining the firm as a service business; •

managing the firm from a process management perspective, and

• developing partnerships and networks. All three issues will be briefly discussed in this section.

Defining the Firm as a Service Business. A key requirement in a relationship marketing strategy is that a manufacturer, wholesaler, retailer, a service firm or any supplier knows the long-term needs and desires of customers better and offers added value on top of the technical solution imbedded in consumer goods, industrial equipment or services. Customers do not only look for goods or services, they demand a much more holistic service offering, including everything from information about how to best and safest use a product to delivering, installing, updating, repairing, maintaining and correcting solutions they have bought. And they demand that all this occur in a friendly, trustworthy and timely manner. Levitt's (1983) conclusion in a Harvard Business Review article about what should accompany the sale of the mere product (having been offered these extras, the customer finds them beneficial and therefore prefers to do business with the company that supplies them), is even more true in today's business environment. In a customer relationship that goes beyond a single transaction of a product, the product is part of a technical solution involving goods, services or industrial equipment and so becomes just one element of the total, ongoing service offering. For a manufacturer, the physical good is a core element of the service offering, because it is a prerequisite for a successful offering. In today's competitive situation this core is very seldom enough to produce successful results and a lasting position in the marketplace. What counts is the ability of the firm, regardless of its position in the distribution channel, to manage the additional elements of the total offering better than their competitors. Moreover, the core product is less seldom the reason for dissatisfaction than the elements surrounding the core. As Webster (1994, p.l3) exemplifies, 'the automobile purchaser is unhappy with the car because of lousy service from the dealer; the insurance customer has problems with the agent, not with the policy'. In other words, competing with the core of the offering is not enough, competing with the total offering, where the core product becomes only one element or rather one service of the total service offering, is what counts. The transition from the product as the dominant element of the offering to management of human resources, technology, knowledge and time in order for the firm to create successful market offerings is evident.

ASIA - AUSTRALIA MARKETING JOURNAL VOLUME 4, NO.1

Services

FaciOI"}'

Customers

~

.. :;::::::::::::~~~

FaelOQ' focw; ("scientific managemenl')

.....

CUSIOmef focus

('service management')

Fisure 3. A CVS&omer focus: the fum as a service busiDe$$. In Fl~ J llle bIxk arrow from tIw: fK'lOf)' IOWaI'ds the CIlSIOrl'Itt ~ ...-..to..... "'" ._..,"'-_. ................. _. oriented &plA-=h, whefe l!le faaory and l!le man· aeemenl cf ....IIM lakes place: in lllc f......,. In' ron· sidered the key 10 MK'CUJ in the marketp1.a= Servica aft: c:onsiducd .:16_ 10 the faaory output. The lo·alled 'SC;"ntiflf; rnanaaemcnt' pbilosophy OC" 'uylcrism' (Tlylor 1947). with iu roou in early 1900s. is based on IIIis flClOfy fcaI.s. ~ver. altboup lhis ilppiClK1I1C maMfCmmc lias been lIip· ly ........·euful in thf: pW.. it no Ioqer relJens the curmil competitive sinwicn. AI _ ." appl'OIChina the end of the milknnium, I Il(W manacemenl penp«' live is nctdod. As is indialed by lIM: J«Olld atTOW in the filU.e. lOin, f!(lm the CIIJIOrner IOW&tds the faeWirY. the various ~it;e demenlJ the firm an: IIIe flRl tIw tbc customer sees and pcn:eives.. These 1Cl" yit;e elcmcnu create IIdMd yaJ~ fOC" the customer. ....ben:u lhc factory outpul il only I necessary pre. requi'lite fOC" yll1~,

or

1JOWm,

or

An eyer number induwies. !lWlufilCtlln:n and ICrvicc firms alike face I competitive Silllliion f01' .... lIich we, in anolIIcr conteXI. haye coined the: term 'service CQmpelilioo' and lhe:y haye to under· stand lhe nature of ''lCrvic:e ItIII\liement' as a new ~mentlJlP'OlChleam:l1O !he del1WOds of !he new competitiye $itullion (Gr6nroos 19941). The prodUCt seen as I 10111 SCTYice offenna thus bc:rome$ aseTYice. Today the: finn lhll doet not undel'$WId this bUI Cl)IIlinuel 10 compele IS if the cOre produel was ~he: mosl ;mponant 01', in the WorIl elle. the: only Important element in the offeonl. will UndO\lbl«lly suffer hardships Ind eventuilly fail. Whcn 5Crvice compelilion il lhe key 10 success for mosl firms. and

l!le produa lias to be defmedasasc:rvice.evuybusineJs bcoomes ala\ic:le business(_llpllie WcbAer 1994).

A Plocess Management Perspecth·e. An on-PII& Ielition'lllip .ilh amomen. .·hefe CUJIOmen an: Ioolring for ~-a1ue in !he touI servia: or:ation belween fUllC1ions, 1.5 is demonstrated in Fiaure 4, t"" various functions are I>Ol necessarily directing their efforlS toward the demands and expectations of the CUSlomen, Thi. ere-

ASIA AVIT....UA ..AuaTlo
[ill

tomers with the total offering needed, that it is too expensive to acquire the additional knowledge and resources required to produce the total offering themselves. Hence, it may be more effective and profitable to find a partner who can offer the complementary elements needed to develop a successful relationship with a customer (Ring and Van de Ven 1992). Partnerships and networks of firms are formed horizontally and vertically in the distribution channel US and in the supply chain. As Shelby Hunt puts it, 'the paradox of relationp ship marketing is that being an effective comr petitor in the era of network competition also means being an effective co-operator' (Hunt and Morgan 1994, p.25). This of course demands the existence of one of the key ingredients of relationship marketing, trust between the parties in a network. Without this they will not feel committed to the mutual cause. Figure 4. A process focus: the firm as a value-generating operation.

ates subvalues but not total value. Customers are not looking for a combination of sub-optimised output that does not support total value for them. For example, an outstanding technical solution and a costeffective transportation system may be optimal from the supplier's point of view, but for the customer it is often equivalent to an unreliable supplier,that is, low value.

Functions

C

tomers

o c e s s e s

Project and task force organisations are first attempts to break free from the strait-jacket of functionalistic organisation, so that the various functions are geared towards working according to the horizontal arrows shown in Figure 4. However, in order to be able to produce maximum total value in a co-ordinated relationship with customers, the firm has to go much further. A process management approach to the whole operation of the firm has to be taken. Traditional departmental boundaries are torn down and the workflow (including traditional sales and marketing activities, productive, administrative and distributive activities that involve a host of part-time marketing activities) is organised and managed as a set of valuecreating processes that enable and strengthen relationship building and management.

Partnerships and Networks. As relationship marketing is based on co-operation rather than adversarial conflict, firms will not view each other from a win-lose perspective but, rather, will benefit from a win-win situation, where the parties involved will be better off as partners. Furthermore, manufacturers and service firms frequently will find that they alone cannot supply cus-

TACTICAL ISSUES IN RELATIONSHIP MARKETING

Three tactical elements of a relationship marketing strategy were identified in the beginning of the article: • seeking direct contacts with customers; • developing a database; and • creating a customer-oriented service system. In this section we shall discuss each of them separately.

Seeking Direct Contacts with Customers. Relationship marketing is based on a notion of trusting co-operation with known customers. Hence, firms have to get to know their customers much better than they generally do today. In the extreme case, which is quite possible in many consumer service markets such as household insurance and industrial markets such as merchant banking and the paper and pulp industry, the firm can develop 'segments of one' (Peppers and Rogers 1993). In the other extreme, consumer goods to mass markets, customers cannot be identified in the same way.

ASIA - AUSTRALIA MARKETING JOURNAL VOLUME 4, NO. I

However, the lrIllflufaeturer or retailer should develop systems that provide them with as much informalion about thcircustomers as possible so thai, fornample. advertising campaigns, salcs contacts and complaints situations can be made as relationship-oricnted as possible. Modem information tcchnology provides the finn with amplc opponunitics to develop ways of s!lowing a cUitomer that he or she is known. Also in this context trlIditional advertising campaigns become too expensivc and ineffective if they cannot be better directed towards known customers SO that a dialogue can be initiated. Pureone-way manet communication cOStS 100 m"""h and produecs too linle (McKenna 1991; Rapp and Collins 1990). Quite regardless of how close to the ideal situation of segments of one a finn can get. OTIC should always usc available face-to-face eonlllCt or the means provided by informalion technology to get as close as possible to the custome:1'J.

Developing a Database. Traditionally. marketing operates with lillie or incomplete information aboot customers. in order to pursue a relationship nariteting strategy the finn caru>Ol allow such ignorance to cominue. Adatabasc consisting of cu.
profitability of the custorncn in the database. a meaSure for which SlOJ'backa (1994) has coined the tenn 'customer relationship profitability'. If such longterm profitability information is lacking. the firm may easily include segments of unprofitable customers in illl CUstomer base. C~ating a

Customer-oriented Service System. Because s"""~,;.sfully exceuted relationship markctinll tkmands tluU tl>c firm defines illl business as a service business and understands how to create and manage a total service offering (i.e_. nlanille servi~ competition), the valuc-generating processes of Ihe organisation have to be designed to make it possible to serve customers and produce and deliver a total service offering. 1n other words. the firm has to know urviu nwtliJgement.' The philosophy and principles of service management are in many respects decisively diff=nl from lhose of scientific _gemen/.' Four types of resources arc central to the development of a successful service system. namely customer.l. tech· nology, employees and time.

C..SfomU$ can take a much more active role than wlLat they arc given normally. 1lIe perceived quality of the service offering is partly dependent on the interaction with the customer and indeed feHow customers. The service system is increasingly built on fuhllOwgy. Computerised systems and information technology used in design. production, administra_ tion. and service and maintenance have to be designed from a cuStomer service perspective, and not only or mainly from internal production and pr0ductivity-oriented viewpoints.

The succe!.s of relationship marketing is to a large extent dependent on the attitudes. commitment and perfortlWlCC of tbe .,mplo~e$. If they arc nol: committed to their role as part-time marketers and are not motivated to perform in a customer-oriented fashion, tile strategy fails. Hence. succeSS in the cxternal mar_ ketplace requires initial SuCCess internally in motivat_ ing employees and gettinll their commitment to the pursuit of a relationship marketing s[rategy. Relarionship marketing is. therefore, highly dependent on a well-o'1anioe
TOWARDS A RELATIONAL STRATEGY: THE TRANSITION CURVE If a firm is to truly implement a relationship marketing strategy, it has to understand the philosophical nature of such a strategy. Although traditional means of competition, such as the 4Ps of the marketing mix, still are applicable, relationship marketing is based on a totally different philosophy of how to approach customers and other stakeholders. Common mistakes when discussing relationship marketing follow from a failure to understand this philosophical shift. We have to realise that it is a new paradigm, not just a new model that is emerging. Sometimes relationship marketing is used more or less as a synonym for direct marketing or database marketing, or for establishing customer clubs, and it becomes just another instrument in the marketing mix toolbox to be used in accordance with the marketing mix management philosophy. In other situations, relationship marketing is used as a synonym for developing partnerships, alliances and networks. However, it is much more than that and, as has been demonstrated in this article , forming partnerships and networks is only one strategic aspect of developing and implementing a relationship marketing strategy.

Relationship orientation

In Figure 5 the nature of the transition from a productbased transaction marketing approach to a resourcebased and competencies-related relationship marketing strategy is schematically illustrated as a transition curve (Strandvik and Storbacka 1996). In the beginning, firms that wish to implement a relationship marketing approach are normally still very focused on their products. Hence, only easily developed relational activities are introduced. Typical examples are customised sales letters and information bulletins, and customer clubs. Such activities can easily backfire, especially if the customer is mistreated in other respects, for example, when using a service, in a recovery or complaints situation or in just about any other interaction with the firm. Firms at this stage do not yet fully understand the philosophical nature of relationship marketing. Singular exchanges are still the basic focus of marketing. Today, most firms that are applying a relationship marketing approach are probably somewhere in this stage of the transition process. A true transition towards a relationship marketing strategy requires a focus on competencies and resources (see also Figure 2) in the relationship. The relationship itself becomes the focus of marketing. It is understood that the products themselves indeed are transparent from the customer's point of view. Gradually a firm may approach a position on the transition curve where relationship marketing both as a philosophy and a way of behaviour is genuinely appreciated.

RELATIONSHIP MARKETING

Transaction orientation

Product-based

Resource-based (Competencies-oriented)

Figure 5. Changes in the marketing paradigm: the transition curve (Adapted from Strandvik, T. and K. Storbacka, 'Managing Relationship Quality', in Edvardsson, B. et. al., Advancing Service Quality: A Global Perspective, QUIS 5, University of Karlstad, Sweden, 1996, p. 69.)

ASIA - AUSTRALIA MARKETING JOURNAL VOLUME 4, NO.1

Every firm, regardless of its business, can benefit from a relationship marketing approach. In some situations, such as business-to-business situations and in service industries, this approach is easier to implement, in other situations, such as for many consumer goods industries, it is more difficult. However, in the business environment and marketing situation that is emerging in more and more industries and in an ever-growing number of markets, a relationship marketing strategy is becoming a necessity for survival. Relationship marketing is the biggest paradigmatic shift marketing theory and practice has seen during the past fifty years. It is taking marketing thought back to its roots (Gronroos 1995a).

FOOTNOTES

I was told the story of Ming Hua, the Chinese rice merchant, by students attending a course on service management that I am teaching in an executive program at Thammasat University in Bangkok.

See Gronroos (1990b), and Gronroos (1990a). Recently Shelby Hunt has offered a definition with the same meaning. See Hunt and Morgan (1994, p. 23). In a similar way, Sheth and Parvatiyar (1994) define relationship marketing as 'the understanding, explanation and management of the ongoing collaborative business relationship between suppliers and customers'.

See Hamel and Prahalad (1994). Also, compare Dixon & Blois (1983), where the authors claim that the 4Ps of the marketing mix are more oriented towards doing something to the customer rather than for the customer.

See also Christopher, Payne, and Ballantyne (1991), and Blomqvist, Dahl, and Haeger (1993).

6

This way of illustrating the field of marketing is adapted from Philip Kotler, who uses it to illustrate the holistic concept of marketing of the Nordic School approach to services marketing and management. See Kotler (1991a).

4

Also Berry (1995), where the author analyses the nature and development of relationship market~ng from a service research perspective, and Sheth & Parvatiyar, (1995).

See Vavra (1994), where the author describes how and by whom such customer information fIles should be developed and what they should consist of.

Gronroos (1990b). The term 'service management' was originally introduced by Normann (1984).

See the special issue on service management in the International Journal of Service Industry Management (1994).

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