History of Relationship Marketing Essays

History of Relationship Marketing Essays History of Relationship Marketing Paper History of Relationship Marketing Paper Since the early beginnings of the formalization of the modern industries a need for a sales approach that addresses the specific requirements of different industries from their suppliers’ side emerged. In the early stages all efforts in this arena were individual, not formulated and depend largely on the situation, personal influences and relations. 2. 1. 1The past As early as late 19th century and the beginnings of the 20th century the need to serve mass markets started to influence, and sometimes burden, the industrial community. This situation was driven by, as well as driving at many cases, the advancements in technology and production capabilities of industries across the board. This created a production driven environment where whoever can produce and supply will be selling and profitably. By mid 20th century (post WWII) the production driven scene was changing; technological advancements pace was getting faster and the world started to see products that have comparable performance, specifications, and simply serves the purpose and this created what we know now as commoditization and fired the first bullet in modern price wars. Producers realised this shift and started to concentrate on sales and marketing activities on their quest to capture bigger market share and ensure continuity and profitability. Again there was an upwards trend in the sales and marketing theories and concept evolution, the same what happened with production earlier. This trend was driven by, and again driving at many cases, how markets perceive products and react towards certain approach. Till this point in time marketers and academics were not distinguishing between consumer markets and industrial markets; serving mass markets was the main focus. As O’Malley and Patterson (1998) note ‘there was a great need to formalize marketing; to guarantee that it worked every time’. In 1954 Borden introduced what is considered to be an early version of what we know now as the marketing management mix; a 12 variable list that marketers would have to consider in any specific circumstance of market encounter and translate them to an integrated marketing program. By 1960 McCarthy reconstructed the original variables of Borden into our well-known 4P’s framework (Price – Product – Placement – Promotion). Although this model has been heavily questioned and criticized for the fact that it is an oversimplification of market realities which is by definition complex, the same simple nature of the 4Ps ensured its increasing popularity and the rise of the ‘Marketing Mix’ theory. As a result of consolidating it under the (P) of ‘Promotion’, sales also followed the same transactional paradigm of marketing and the focus was on the transactional nature of the customer encounter; simply finishing the sales transaction in favour of the product was the target. Other marketing theories that was developed within the same period of time and took different approaches than the transactional one had no chance for survival due to the dominance of the marketing mix theory. The marketing mix (transactional theory) was developed in rather specific circumstance; it was developed in the United States to address the consumer goods markets in post (WWII) period, so it was tailored based on the needs and conditions of a specific geographical market, a specific segment, and a specific time zone with very high growth rates. Primarily, criticism originated from people operating within environments that are different from those that influenced the development of the theory, for example from Europe, especially the Nordic school, and from marketers working within the industrial (business-to-business) and service sectors. As time passed and markets evolved, pressure on the marketing mix theory started to come from the United States itself. The intra-market competition intensified considerably as the number of firms increased and the consumer goods markets changed from a growth status to one of maturity. Firms had to battle for an unvarying number of customers within markets that were becoming increasingly saturated with products. This uncovered transactional marketing as a theory and an approach developed out of growth, not stagnation or super-competitiveness, and that it was showing as not fitting in numerous, but perhaps not all, situations. Later, and in order to provide the transactional theory with dimensions to cope with the changing scene, scholars started to add elements to the mix that followed the same 4Ps legacy. Other Ps were added (public relations and politics (Kotler, 1986); people, physical evidence and process (Booms and Bitner, 1982); people (Judd, 1987); preservation (LeDoux, 1991), and some went out of the (P) way and added terms like the 4Cs (Kotler, 1991) and S 2Cs (Berry, 1990). All these attempts were only expanding on the existing approach rather than challenging the conceptual foundation of transactional marketing. In industrial and services environments the practice of transactional marketing was limiting to companies capabilities. Marketing department within a typical organizational structure has key responsibilities of market analysis, advertising, sales promotion, pricing, packaging design and distribution, where it is expected to align and integrate all other functions of the business while the reality in most cases is that ‘the rest of the organisation is alienated from marketing, and the marketers are isolated from design, production, deliveries, technical service, complaints handling, and other activities of the firm’ (Gronroos, 1994). In this context, and within an industrial (B2B) firm, the sales force should be programmed to deliver solutions designed by the ‘alienated’ marketing department while in fact they should be advocating the firm to design solutions based on customer needs since they are in direct contact with the customer, and on the other hand advocate the customer on the best fitting solution to his case based on his needs not on the firm’s marketing or production capabilities. Under the transactional approach, the sales force was required to understand the company competences (4Ps) and communicate them to their customers in order to convince with the importance of the purchase and how their offering fits the customer needs. The main qualifications of a salesperson then would be good presentational skills and in some cases sound technical knowledge if he is selling a product that involve a technical dimension. This was by far overlooking what the customer really needs, instead this approach wanted to bend the customer to fit the offering (product/service). At the end the transactional paradigm became a practice that is not a customer oriented approach to business but rather a product oriented one (Gronroos, 1994). 2. 1. 2The rise or relationship marketing By the 70s of the 20th century, the differential in the needs and the purpose of buyer-seller exchange between consumer markets and B2B markets was obvious and initiated an approach were customer retention and long-term relationship are the goal for marketing. Customers in B2B (unlike consumer markets) are limited in number and with much more sophisticated requirements and in so many cases require a tailor made solution as far as their product/service is concerned, and in so many cases the customer is an active part of the exchange where his/her opinions and needs have to be integrated within the solution rather than being delivered a standardized offering. And also, while the marketing objectives were met at the point of exchange in transactional marketing, B2B and services firms were looking to extend the relationship and ensure a continuous flow of business from their customers. Relationship marketing emerged as an alternative paradigm to transactional, where marketing efforts focus on attracting, maintaining and improving customer relationships rather than just attracting customers and making the exchange. The sales function under this new paradigm has a totally new role of relationship management where the sales force focus is to initiate, develop and enhance customers’ relationships rather than simply delivering the company offerings. In their attempt to formulate a framework for companies to adopt to be able to engage in relationship marketing, academics presented numerous theories and models in the beginning that placed transactional marketing on one side of the marketing continuum and relationship marketing on the other side and defined them as opposites. The speculation was that the new paradigm will replace the old one, and that the alternative paradigms have to be competitive when employing them into the practice rather than complementary; they simply cannot coexist. With time and more work in this area, the views changed into more developed thoughts and scholars saw that these paradigms can be used as moderators to each other where in some situations the transactional paradigm would be more effective (like in consumer goods) but utilizing relationship marketing will assist in the development of bonds and thus creation of competitive advantage. Looking on to B2B and service sectors we will notice that most of the attention generated was towards the sales function as the core for relationship building. In these sectors the one-on-one encounter is the dominating event for exchange between the buyer company and the seller company (and in many cases the only event), thus utilizing the encounter to build a long-term relationship was the focus of many literature addressing this approach. Salespeople under the new rationale are required to engage in relations and not in exchange events and nurture it and enhance it over time. This relational approach not just transformed how the salespeople work but as well highlighted some new requirements for how a salesperson profile should be and consequently how in this new environment sales management eflect the new approach and encourage it. For example working in teams including other salespeople and probably members from production, RD, supply chain, and even marketing is the approach that helps full engagement in the customer situation by the company. This requires that ‘salespeople must be orchestrators of their companies’ resourc es, directing the necessary information and expertise to solve customers’ problems and fully develop joint opportunities’ (Ingram, 1996). This requires that salespeople should be team and customer oriented to be able to perform their new role and that sales management encourage the team performance and reward it. As well sales people are required to transform into relationship managers where their main goal is to maintain long-term profitable relationships. This requires a different set of behaviours and personal qualities than that of the earlier short-term sales revenue oriented ones. Again this has its own implications of sales management where it is asked to reword not just the short-term tangible revenue but also the long-term relationship building efforts that is in most cases intangible. Under relationship marketing paradigm salespeople transformed into consultants who help their customers achieve their strategic goals. This approach to markets has been adopted by major corporations like DuPont, Starbucks, IBM, Dell, HP, 3M and Siemens among others, and the progress made by these leading sales organizations sends a clear message to others that relationship selling works and it will continue to do in the future.