International Marketing and Purchasing Group

International Marketing and Purchasing Group 2004 Conference Title: Relationship management versus brand management in SME Business-to-Business marketing. Authors: Maurizio Catulli University of East London Business School Longbridge Road Dagenham Essex RM8 2AS Jonathan Gander University of East London Business School Correspondence to Maurizio Catulli m.catulli@uel.ac.uk + 44 208 223 6221 1 Abstract The adoption of a relational perspective when designing and delivering a company’s marketing activities has become increasingly prevalent (De Wulf, 2001; Nancarrow et al, 2003; Lemon, et al, 2002). Though initially aimed at industrial and service markets (Grönroos, 1994) technological advances in database design and capability enabled firms to apply relationship management principles and practices to mass consumer markets (O’Malley and Tynan, 1998; Winer, 2001; Corner and Hinton, 2002). This widespread application needs to be viewed with a degree of caution, for, as O’Malley and Tynan (1998) observe, there has been a tendency to approach the relationship paradigm without sufficient critical analysis. This paper investigates the ability of the relational perspective, when placed against the idiosyncrasies of specific small to medium sized firms to inform the firm’s marketing activities. The central thesis of Relationship Marketing (RM) is that the arguably traditional approach to marketing based on distinct transactions (Kotler, 1972; Grönroos, 1994) does not adequately describe the more frequent and iterative exchanges between businesses and their customers. The RM approach is interactive, based on the development of a dialogue between business and their customers characterised by the attempt to learn and understand each other’s needs rather than a communication exchange based on the attempt to persuade and manipulate (Grönroos, 2000). Another cornerstone of RM is that of trust (Selnes, 1996). Trust being seen as an essential ingredient in facilitating such exchanges of information required to build the relationship. With the RM approach to marketing shifting the attention of the company from a short term transaction oriented goal to a long-term relationship-building goal, the notion of a customer life cycle value (Grönroos, 1982) or Time life Value (TLV) (Jackson, 1994; Hwang et al, 2004) becomes an important decision factor for the management and measurement of marketing activities. Valuing customers over their whole potential spend rather than maximising on single transactions 2 (Andersen, 2001) encourages companies to give customer retention (CR) a prominent role in their marketing strategy. This longer term view is supported by research suggesting that a 5% increase in customer retention rate can increase the net present value of customers by between 25 per cent and 85 per cent (Ahmad and Buttle, 2001) or even 95% (Reichheld, 1996). Concern has been expressed at the widespread application of RM and its attendant concepts of CR and LTV (O’Malley and Tynan 1998). Some detractors have dubbed RM a “popularised buzzword” (Coviello et al, 1997, p 26); while others question whether RM is supported by a robust theoretical framework (Gummeson, 1987). It is argued that it is inappropriate to implement a relationship approach in consumer markets, as, in addition to the cost of communicating individually to such large markets there is also a question mark over whether consumers wish to be in a relationship with a firm (O’Malley and Tynan, 1998; Andersen, 2001; Zinkhan, 2002). In addition some argue that such relationships can be characterised as coercive, a result of switching costs erected by the company in an attempt to ‘tighten the grip’ on the customer (Andersen, 2001). Whilst business to consumer RM approaches have been criticised, business to business practices appear more fertile for RM approaches (O’Malley and Tynan, 1998) due to more complex customer requirements creating a greater need for customisation (Homburg and Rudolph, 2001) and a degree of structural symmetry (Tikkanen and Alajoutsijarvi, 2002). RM practices in a business-to-business context include the creation of ‘bonds’ at the social, financial and structural level (Berry and Parasuraman, 1991) and reciprocal adaptation, where both supplier and buyer modify their performance to accommodate the other partner’s needs (Ahmad and Buttle, 2001). RM as a route to increased CR in the business to business sector is not without challenge. An alternative to the 2 way personalised dialogue advocated by RM approach, a more symbolic communication (Aaker, 1991; Ringberg and Gupta, 1993) between the business and its customers through the management of a brand is available (Michell et al, 2001). Here customer retention is increased through the 3 notion of loyalty; the propensity to re-purchase a supplier’s product or service due to favourable attitudes toward the brand held by the customer (Gerpott et al, 2001). This paper takes concern over RM’s applicability and investigates whether the customer retention strategies advocated as part of a RM approach work in the small, medium enterprise (SME) business-to-business sector. Specifically asymmetric business-to-business relationships (Ringberg and Gupta, 2003), involving routine purchases of products and services that represent a limited proportion of the customer’s spend. Through case study analysis of a UK SME, we discuss whether the deployment of relationship management or brand management approaches is a more suitable use of such a company’s resources. References Aaker, D. (1991), The Management of brand Equity, Free Press Ahmad, R., Buttle, F. (2001), “Retaining business customers through adaptation and bonding: a case study of HDoX”, Journal of Business and Industrial Marketing, Vol 16, No 7, pp. 553-573 Andersen, P.H. (2001), “A foot in the door: Relationship Marketing Efforts Towards Transaction Oriented Customers”, Journal of Market-Focused Management, 5, PP 01-108 Berry, L. and Parasuraman, A. (1991) Marketing Services: Competing through quality, Free Press New York Corner, I. and Hinton, M. (2002) “Customer Relationship Management systems: Implementation risks and relationship dynamics” Qualitative Market research 5, 4. 239 Coviello, N.E., Brodie, R.J and Munro, H.J. (1997), “Understanding contemporary marketing: development of a classification scheme”, Journal of Marketing Management, Vol.13, pp. 501-52 De Wulf, K. Odekerken-Schroder, G. and Iacobucci, D. (2001) “Investments in Consumer Relationships: A cross-country and cross industry exploration” Journal of Marketing 65, 4. 4 Kotler, P. (1972) “A generic concept of marketing” Journal of Marketing 36 46-54 Lemon, K., White, T. and Winer, R. (2002) “Dynamic customer relationship management: Incorporating the future into the service retention decision” Journal of Marketing 66 1 Gerpott, T., Rams, W.;Schindler, A, (2001) “Customer Retention, loyalty, and satisfaction in the German mobile cellular telecommunications market” Telecommunications Policy 25 p.249-269 Grönroos, C (1994), “From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing”, Management Decision, Vol 32 No 2, 1994, pp. 4-20 Grönroos, C (2000),”Creating a Relationship Dialogue: Communication, Interaction and Value”, The Marketing Review, 2000, 1, 5-14 Gummeson, E. (1987), “The new marketing – developing long-term interactive relationships”, Long Range Planning, Vol 20, pp. 10-20 Homburg, C, Rudolph, B (2000), “Customer Satisfaction in industrial markets: dimensional and multiple role issues”, Journal of Business Research 52 pp 1533 Hwang, H, Jung, T., Suh, E. (2004), “An LTV model and customer segmentation based on customer value: a case study on the wireless telecommunications industry”, Expert Systems with Applications, 26, pp 181-188 Jackson. D.R. (1994), “Strategic applications of customer lifetime value in the direct marketing environment”, Journal of Targeting Measurement and analysis for marketing, 3(1) pp 9-17 Michell, P., King, J and Reast, J. (2001) “Brand Values related to industrial products “ Industrial marketing management 30, 415-425 Nancarrow, C. Rees, S and Stone, Merlin (2003) “New Directions on customer research and the issue of ownership: A marketing research viewpoint”, Journal of database marketing and Customer Strategy Management Sep 2003 11, 1 O’Malley, L,; Tynan, C. (1998), “Relationship Marketing in Consumer Markets – Rhetoric or Reality?” European Journal of Marketing, Vol. 34, No 7, 2000, pp 797- 5 Reichheld, F. (1996) The loyalty Effect Cambridge MA: Harvard Business School Press Ringberg, T and Gupta, S (2003), “The Importance of understanding the symbolic world of customers in asymmetric business-to-business relationships”, Journal of Business and Industrial Marketing, Vol 18, no 6/7, pp 607-626) Selnes, B (1995), “Antecedents and consequences of trust and satisfaction in buyer – seller relationships”, European Journal of Marketing, Vol 32 no ¾, pp 305322 Tikkanen, H.,Alajoutsijärvi, K (2002), “Customer Satisfaction in industrial markets: opening up the concept”t, Journal of Business and Industrial Marketing, Vol 17, No 1 Tikkanen, H.,Alajoutsijärvi, K, Tähtinen, J (2000), “The Concept Of Satisfaction in Industrial Markets”, Industrial Marketing Management, Vol 29, issue 4, pp 373-386 Winer, R. (2001) “A framework for Customer relationship management”, California Management Review Vol 34, No.4 Zinkhan, G. (2002) “Relationship: Marketing: Theory and implementation”, Journal of Market-focussed Management 5, 83-89 6