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A new paradigm of marketing: relationship marketing

                       - --serving to create customer value

1.      Introduction



For a long period, the marketing thought had been dominated by the “marketing mix management paradigm”. As stated by McKenna (1991), the marketplace was becoming increasingly dynamic and competitive, with so many choices for customers, companies facing the aim of customer loyalty, because present market segmentation is not sufficiently effective, the segments consist of customers with a variety of needs. Marketers have to alter their marketing strategy to aggregate individual consumers’ needs to profitable micro markets. (Shani, Chalasani, 1992) Therefore, Current business environments which are featured by increasingly changing markets, in respect of intensive competition and urgency in gathering updated information about diversified customers and their demands have been bringing about a growing interest among both academic and business fields about transferring from the traditional focus on individual transactional exchanges to relational exchanges (Palmer,1994) which is also addressed by a number of marketing practitioners and researchers as “paradigm shift”. Gronroos (1995) defines the purpose of marketing in this new context is to identify and establish, maintain, and enhance relationships with customers and other stakeholders, at a profit, so that the objectives of the partners involved could be met; and this is achieved by a mutual exchange and fulfillment of promises. Brodie et al. (1997) argue that relationship marketing is an integrative activity involving personnel among the organizations, emphasizing facilitating, building and maintaining relationships for a longer period of time. So, in short, as the essence of this new paradigm relationship marketing, the significance of developing, maintaining and strengthening a long-term continuous relationship between an organization and its customers through interactive and value-added contacts is becoming greater and greater.



Besides, with a notion that customer value are attracting more and more attentions as an unbeatable competitive advantage, the concept of creating and delivering customer value thus is closely connected to the idea of relationship marketing, this key development of marketing theory. However, majority of concern was given to “the value of the customer for a firm” and in a transactional context, therefore , today “ value to the customer” is gaining increasing attention by enhancing value creation and delivery through an ongoing relationship that is beyond individual transactions. Moreover, Gruen (1997) argues that competition and self-interest are primary drivers of value creation in a transaction marketing context, which only concentrates on the typical and average customers. Although it is working well in respect of marketing management, it is of no doubt to be unsuitable to the currently changing market environment. These two drivers are out of date as the independence and cooperation are becoming main force and advantage of value creation, where an ongoing, cooperative relationship is built.



In this work, I tend to illustrate how the relationship marketing is working as a device to deliver customer value. Firstly, the transition from marketing mix to relationship marketing will be illustrated, and then I will consider customer value from the viewpoint of relationship marketing,



2. Transition from marketing mix and four Ps to relationship marketing



2.1 marketing mix and four Ps



The introduction of the concept of marketing mix and the Four Ps of marketing – product, price, place and promotion could be traced back to 1960s. This paradigm originated from a notion that the marketer plays as a mix of ingredients, which then are defined as the four Ps as tools of competition to maximize profit and satisfy customers. However, with accordance to the main idea of marketing, which is that the firm is best off by designing and directing its business programs and marketing activities to fit the needs and desires of customers in specific target markets, the famous four Ps does not work effectively. (Culliton,1948.) Gronroos (1994) said the four Ps of the marketing mix are not properly capable of fulfilling the requirements of “marketing”. The usefulness of the Four Ps as a general marketing theory for practical purposes is thus to some extent questionable. The oversimplified marketing mix enables marketing to be separated from other activities within the organization and nominate outside specialists to manage other range of marketing tasks like advertising, sales promotion, pricing, distribution and so on. Thus, it seems difficult for marketing to play an “integrative role” that is able to provide other departments with the market-related missions to make the organization truly market oriented and reach coordinated marketing. Hence, a new paradigm of marketing needs to replace the old one.



2.2 relationship marketing



the earliest notion of relationship marketing (RM) from an academic perspective was proposed by Levy and Zaltman’s (1975) who argue that the goal of RM is the value maximization of exchanges, thus, people or groups need to carefully develop and maintain a patterned relationships with each other. In a narrower aspect, from Gummesson (1994) and Gronroos (1994)’s point of view, relationship marketing only refers to the relationship between organizations and their customers at that time, which is called “limited relationship marketing”. however, the relationship among firms and its suppliers, other stakeholders and in some cases, even competitors gives rise to a broader definition of RM, which is named as 'extended relationship marketing' (Mattson, 1997).



All in all, Relationship marketing does not mean just pursuing a temporary figure rise in sales but more importantly, from a long-term perspective, to enhance customer involvement and products loyalty through developing a lasting bond with its customers. While it might be used for other beneficial purposes such as facilitating product repositioning, attracting competitors’ customers, or marketing new products, apparently, the ultimate goal is increased usage for a longer period of time. With this aim in mind, relationship marketing is viewed by Copulsky and Wolf (1990) as a personalized form of communication, which crosses the previous boundaries between general advertising, sales promotion, direct marketing, and public relations.


3. Relationship marketing serving to create customer value

The basic definition of customer value was addressed by Zeithaml (1988) as a trade-off between the benefits) and the sacrifices in a market exchange activity. However, most recent studies on customer value focuses on a transactional dimension which is based on product-related issues, seldom mentioning relational dimension of customer value (Dwyer & Tanner, 2002).In 1999, Payne and Holt proposed a new concept “relationship value”, which consider customer value from a relationship marketing perspective, the focus of which is not limited to the firm’s relationship to individual customers, but a multiple relationship. However, this original concept at that stage was founded in business and services marketing, within the field of which value is understood as a kind of perceived worth measured by monetary units of various economic, technical, service, and social benefits received by a customer or a customer organization in exchange for the price of a product offering, taking into account all of alternative suppliers’ offerings and prices. (Anderson et al, 1993) This contributes to the first insight in the relational dimension of the value. Currently, relationship marketing is viewed as a pathway leading to remarkable value-creation device through a kind of cooperative and collaborative relationship, with this value contributing to bringing vast of benefits to all parties (both customers and firms) involved in the relationship (Tzokas and Saren, 1997). From the customers’ point of view, Ravald and Gronroos (1996) suggest that the value to customer can be realized by minimizing or eliminating all relevant sacrifice to be perceived by customers and those to be made in the transaction. There are other researchers such as Henning-Thurau and Klee (1997) and McDougall and Levesque (2000) who state that customer retention and customer satisfaction that comes from the fulfillment of their needs and an increase in their profits or a reduce in relationship costs, besides, Buttle (1996) believes that consistent commitment to customers and great service quality can also serve to manifest customer satisfaction. Thus, from a strategic perspective, value creation in a relationship marketing background will be analyzed.

3.1 viewing firm as a service business

The transfer from a transaction-oriented marketing strategy to the relationship –oriented one demands the market offering to expand its scope beyond their key products and services. To keep a favorable relationship in market environment, the long-term needs and desires of customer groups need to be known by various participants of market activities such as manufacturers, retailers, transportation providers and so on. As a matter of fact, today’s customers do not only expect good quality tangible goods or services for the price they pay, but also emphasize a range of accompanying service offerings except a continuous improvement of products quality. Many business markets today have been engaged in providing the later elements, such as product warranty, delivery, installment, repair and maintenance of a product. In addition, all of these activities will be executed in a holistic, trustworthy and timely manner in order to differ from competitors’ service offerings. Therefore, what matters the most is the capability of a firm, irrespective of its position in the whole distribution process, to successfully handle additional parts of the total offering except for the core part of offering better than market competitors.

value can be created by a firm internally with respect to customers, it could also be perceived from the organization’s perspective. Therefore, these extra innovative ideas in respect of service support enable customers to find them beneficial and feel like keeping a friendly business relationship with the firm, with the increased customer retention, greater total sales volumes, improved corporation operating efficiency, desirable customer feedback and decreased marketing expenditures to the firm as the outcomes of the creation and delivery of superior customer value in the form of customer satisfaction and quality improvement .