The Interface between Transactional and Relational Orientation in Small Service Firm's

Marketing Behaviour: A Study of Scottish and Swedish Small Firms in the Service
Sector
Author(s): Claes M. Hultman and Eleanor Shaw
Source: Journal of Marketing Theory and Practice , Winter, 2003, Vol. 11, No. 1
(Winter, 2003), pp. 36-51
Published by: Taylor & Francis, Ltd.

Stable URL: http://www.jstor.com/stable/40470082

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 THE INTERFACE BETWEEN TRANSACTIONAL
AND RELATIONAL ORIENTATION IN SMALL
SERVICE FIRM'S MARKETING BEHAVIOUR : A
STUDY OF SCOTTISH AND SWEDISH SMALL
FIRMS IN THE SERVICE SECTOR

Claes M. Hultman
Orebro University, Sweden.

Eleanor Shaw
University of Strathclyde, Scotland, UK.

This paper presents and discusses findings of a cross-country study of small service firm marketing behaviour
findings demonstrate that small service firms are flexible in the marketing approaches that they adopt. They reve
firms are transactional and relational orientated in their marketing activities and that for growing firms, market
are used to create short-term transactions and form relations with key stakeholders. This finding implies that tran
relationship marketing should be regarded as complementary. The findings presented also demonstrate that th
approach selected by participating small firms is determined by a range of customer characteristics of which rep
is only one. An integrated framework containing elements of transactional and relational approaches is pr
appropriate way of describing the marketing behaviours of investigated firms.

INTRODUCTION research attention. Of the alternative perspec

marketing which have mushroomed over the past d
The marketing literature identifies a number ofis perhaps the concept and practice of relat
alternative
marketing approaches. A cursory review ofmarketing
marketing which has received greatest attention fr
textbooks reveals that a managerial approach topractitioners
marketing and researchers (cf.: Jackson 1985;
which involves planned manipulation of marketing mix
Gummesson 1987; 1994; 1996, 1997; Christopher et al
1991; Webster
variables has been widely written about and suggested as the1992; Berry 1993; Morgan and Hunt 1994;
preferred school of marketing thought (cf.: Howard 1957;
Gronroos 2000). The reason for this is understandable: for
McCarthy 1960; Kotier 2000). However, as the marketing
most developed economies, service sector industries have
come to dominate their industrial base and contribute
subject has evolved and developed, alternative perspectives
including Maxi-marketing (Rapp and Collins 1994); more to their gross national product than
significantly
Database marketing (Davies 1992); Value-added marketingsectors.
manufacturing
(Nilsson 1992); Postmodern marketing (Brown 1995) and
Entrepreneurial marketing (Morris and GordonThe 1987; Hills of a relational approach to marketing has its
emergence
1988; Hills and La Forge 1992; Morris et al 1994;roots
Collinson
in both the services marketing literature (Berry and
and Shaw 2001; Bjerke and Hultman 2002;) have received1991; Gronroos 1991; 1994; 2000) and the
Parasuraman

36 Journal of Marketing THEORY AND PRACTICE

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network approach to industrial marketing which has been LITERATURE REVIEW
developed by the Industrial Marketing and Purchasing
Group (see for example Axelsson and Easton 1992; It was mentioned above that as the subject of mar
Hakansson 1992). While work in these areas has developed developed and evolved, a range of approaches to
over the past twenty to thirty years, it has not been until can be identified within the literature. Of these, r
fairly recently that the term, 'relationship marketing' has marketing, most likely as a consequence of a
attracted such popular, global appeal. Increasing use of service sector, has received significant att
'relationship marketing' within the vocabulary of marketing reviewing the relationship marketing literature,
theory and practice should not however be interpreted to that many researchers propose and discuss re
suggest that it is a new phenomenon. Recent research has marketing as an alternative approach to tr
suggested that while the relationship marketing label may be marketing. Specifically, it has been argued t
new, the practice of establishing and building, "long term. . . considering which marketing approach to
committed, trusting and co-operative relationships with organisations will select from either a transa
customers" (Bennett 1996) is a long established marketing relational approach (Jackson 1985; Gronroos 1991
practice (Sheth and Parvatiyar 1995) especially within reason we have decided to briefly review the tran
professional services (Larson, 1977; Hart and Hogg 1998). relationship marketing literature before cons
applicability to small firms.
While increasing research interest in current relationship
marketing practices has been described as a paradigm shift Transaction Marketing
(Christopher et al 1991; Gronroos 1994; Sheth and
Paravatiyar 1995 Pels 1997), research in this area is not In the late 1950s and early 60s the 'Manageria
without its criticisms. Recent papers acknowledge that a Marketing' (Howard 1957; McCarthy 1960) em
scarcity of empirical research about the practice and activity become the dominant perspective within the m
of relationship marketing has created a number of gaps in literature. Within the managerial perspective, m
our current understanding about the processes and dynamics regarded as a management 'problem' and the
involved in creating and developing relationships (Blois how to analyse, plan and inclement marketing act
1990; 1997; Saren and Tzokas 1998; Sheth and Parvatiyar the ultimate purpose of selling organisational
1995). Particular to our interests in small and growing firms, Hence, within the managerial perspective the tra
a further gap to be identified is the lack of empirical data exchange is at the core (Bagozzi 1974; 1978; 197
about the relationship marketing strategies and activities
employed by small firms. We feel that this is an important No other representative of the managerial sch
gap to address for two reasons. First, the governments of more prominent than Philip Kotler. In his m
most developed economies are increasingly interested in the edition of Marketing Management (2000) he states
small firms sector as a source of innovation, creativity and marketing process consists of analysing market
economic and social wealth. Secondly, the establishment opportunities, researching and selecting target markets,
and growth of large numbers of small firms, the marketing designing marketing strategies, planning marketing
approaches and practices of which the marketing literature is programs, and organising, implementing, and controlling the
largely unaware, have fuelled significant growth within marketing effort. . .(and to) transform marketing strategy into
service sector industries. This paper presents empirical marketing programs marketing managers must make basic
evidence from a cross-country study of the marketing decisions on marketing expenditure, marketing mix, and
approaches and practices utilised by small and growing marketing allocation" (p.86-87). The American Marketing
firms in Scotland and Sweden. By doing so, it seeks to Association offer a similar definition of marketing based on
address some of these research gaps and consider the extent the mix: "marketing is the process of planning and
to which relationship marketing theory is relevant to the executing the conception, pricing, promotion and
marketing activities and practices of small, growing firms. distribution of ideas, goods and services to create exchanges
The paper is presented in five sections. First we review the that satisfy individual and organisational objectives" (1985).
relationship marketing literature contrasting it with
transactional approaches to marketing. Second, we briefly Hence, the well-known 'Marketing Mix' continues as the
discuss the small firm sector in Scotland and Sweden and main concept offered by the managerial school as an
question the extent to which current relationship marketing instrument for understanding how transactions are created.
Within this perspective, managers have control of
theory is applicable to small firms. We then present research
questions and describe the research methodology. Research'decision-variables' related to four main categories, the
findings are then presented and discussed before drawingproduct, the price, the place and the promotion: the '4 Ps'.
conclusions, offering recommendations and identifying
Although Borden (1964) introduced the marketing-mix
managerial implications. concept in the 1950s, it was the work of McCarthy (1960)
that has positioned the 'marketing mix' so prominently
within marketing literature. In tracing the development of

Winter 2003 37

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the marketing mix it appears that the idea that marketing the marketing manager can target and position products
activities, besides price, can influence demand emerged within a defined segment of the market which will respond
early in the minds of several researchers. In his history of in a planned and desirable manner. Within such a
the marketing mix, Gronroos (1994) provides examples of perspective then, the customer reacts to the marketing mix
economists (cf.: Chamberlain 1933; Robinson 1933) whose and is unable to engage in those interactions with the
thoughts on this topic predate much of what has since been organisation, which it is argued, are necessary for the
published within the marketing literature. Chamberlain's building of long-term profitable relationships.
theory of monopolistic competition recognises that all
aspects of the product: its location, communication and price
may be altered with subsequent effects on demand. Later Relationship Marketing
Kjare-Hansen (1945) and Rasmussen (1955) in Denmark
and Mickwitz (1959) in Finland introduced "parameter Most severe criticisms of the managerial perspective on
theory". Based on foundations laid by Frisch's (1933) marketing and the concept of the
"action parameters", this theory argues that advertising can marketing-mix can be traced to European academics. In
be expected to impact on demand in the same way that in particular, those involved in service marketing and
micro economics, a relationship exists between price and advocators of the relationship school of marketing have
demand. Gronroos (1994) claims that parameter theory "was been vocal on the above mentioned shortcomings of the
theoretically more developed and more realistic than the 4Ps marketing mix. As a term 'Relationship Marketing', was
of today's mainstream marketing literature" (p. 351) and first introduced in the service marketing context by Berry
argues that it is a Nordic predecessor to the marketing-mix (1983) and has been described as the latest 'product' in the
concept. However, since its introduction, McCarthy's (1960) evolution of the marketing discipline (cf.: Christopher et al
description of a marketing mix comprised of product, price, 1991; Gronroos 1991; 1994; Gummesson 1999). While
promotion and place has widely become regarded as an there are competing definitions of what is meant by
'infallible' guide for the effective planning and 'relationship marketing' (for a discussion see for example
implementation of marketing strategy (Gronroos 1994; p.4). Hunt 1997; Coviello et al 1997), common to all is the
Gronroos believes that within the literature, the marketing importance attached to the acquisition and retention of
mix has become an 'indisputable paradigm' (p. 5). Kent customers. It is the building of long-term interactive
(1986) agrees that the marketing mix is the Zeitgeist of this relationships, particularly with customers, that has been
period, and concurs that within the literature it has become identified as the most important benefit accruing to
'(t)he holy quadruple ...of the marketing faith... written in organisations adopting a relational rather than transactional
tablets of stone' (p. 146). approach to their marketing strategy and activities (Webster
1992). This characteristic is captured by Gronroos (1991,
This description is not to suggest that these and other 1994) who argues that the purpose of relationship marketing
researchers are without criticism of the marketing mix. Kent is to, "establish, maintain, and enhance relationships with
(1986) contends that, while very popular, the marketing mix customers and other partners".
is too simple and misleading to be effective in today's
business environment. Going further, Dixon and Blois Unlike transactional marketing, within the relational
(1983) postulate that the marketing mix does not in fact perspective, the focus is on creating a series of sequential
complement the fundamental marketing concept of rather than individual exchanges. As a consequence,
'exchange' as its components are actively controlled by the relationship marketing is concerned with acquiring,
marketer, with the consumer a passive receiver of their maintaining and enhancing relationships with customers and
impact. Most concerted criticism however has been posed other stakeholders. It has been suggested that this can be
by the services marketing literature (Rafiq and Ahmed achieved by firms engaging in a number of activities
1993). This literature argues that applied to contemporary including building trust, reputation, goodwill and creating
marketing, the marketing mix is an anachronism as it positive personal statements (Morgan and Hunt 1994;
focuses on the exchange between marketing and customer as O'Malley and Tynan 1997; Pels 1997). Such activities may
an isolated transaction. Gummesson (1999) explains that not be performed with an intention to create a direct
currently, as successful marketing is dependent upon a transaction (but are definitely marketing activities) and may
relationship between buyer and supplier, the focus on also be done in parallel with other activities related to
discrete transactions encouraged by the marketing mix transactional marketing. Such activities do however have
concept is at odds with contemporary marketing practice. the effect of 'tying' customers to the organisation by
building interpersonal switching barriers (Ford 1980, 1990;
Despite these criticisms and the emergence of a services Easton 1992; Storbacka et al 1994; Shaw 1997).
marketing mix, the principles and purposes of the marketing
mix have remained virtually unchanged. Organisations While definitions of relationship marketing emphasise that it
embracing the concept of the marketing mix believe that by is a management approach which recognises the importance
manipulating a series of inter-related marketing decisions, of building relationships with the various stakeholder groups

38 Journal of Marketing THEORY AND PRACTICE

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 in which organisations are embedded, researchers in the appropriate. In his recent text he states (Gronroos 2000, p.
field do not advocate that organisations should engage in 252):
relationships with all of these groups (Gummesson 1994).
Rather, it is argued that to be effective, organisations Marketers of consumer packaged goods will
adopting a relational approach to their marketing activities probably benefit most from a transaction-type
should consider creating a portfolio of profitable, usually, strategy, although this is not necessarily the case.
long term relationships (Gronroos 1994; Hunt 1997). Service firms, on the other hand, would normally be
Research, which has considered how marketing managers better off by applying a relationship-type strategy.
should select those customers with whom their organisation Manufacturers of consumer packaged goods have
will benefit from developing a relationship, suggests a mass markets but no immediate contact with their
number of alternative approaches. ultimate customers, while service firms almost
always have such contact, sometimes on a regular
Some like Gronroos (1991; 1994) and Dwyer et al (1987) basis, sometimes only at discrete points of time
believe that in selecting an effective marketing approach,
organisations will benefit from considering the types of Having identified that, according to their purchases, certain
products, which their customers buy, and also the type of buyers are better suited to a transaction approach and others
markets within which they themselves compete. This to a relational approach, Gronroos concludes that
thinking and some suggested marketing and management organisations adopting different approaches will invest in
implications are captured by the 'Marketing Strategy different activities. For organisations adopting a relational
Continuum1 (Gronroos 1991; 1994b; 2000), shown in Figure approach, it is suggested that by combining sophisticated
1. Transaction marketing, where the focus of marketing is on database management techniques with direct marketing,
creating individual transactions, is placed at one end of the large organisations are able to personalise and tailor the
continuum. At the other is Relationship marketing where marketing communications that they make with the
the purpose is to build relationships with customers. thousands of individual consumers comprising an
anonymous mass market (Sheth and Parvatiyar 1995;
FIGURE 1
Sargent and West 2001). For firms adopting a transactional
THE MARKETING STRATEGY CONTINUUM: MARKETING
approach, other activities are identified as eligible; in
AND MANAGERIAL IMPLICATIONS (ADAPTED FROM
GRONROOS, 1994b, p.ll) particular, manipulation of the marketing mix has been
proposed as an appropriate tool (cf. Kotler 2000).
Transaction»! Relationship
The strategy continuum | An alternative approach which considers customer
marketing marketing
characteristics as a criteria for selecting 'key customers'
Consumer^ <- Consumer-^,
with whom the 4- Industrial
organisation -»>
will benefit by developing a .4- Serv
Tiie product continuum I 1
packaged durables goods relationship has been suggested (Turnbull and Wilson 1989;
goods
Webster 1992). Building upon the argument that key
Implications:
features of relationship marketing are the cost savings and
benefit of customer loyalty which are created by
Time perspective: Short-term focus Long-term focus
concentrating on acquiring and maintaining relationships
Price elasticity: Sensitive to price . Less sensitive to price
Dominating quality Quality of output Quality of interactions with customers, work in this area argues that certain
dimension: (technical quality) (functional quality) customer characteristics can be used to identify those with
whom the customer
Measurement of customer Monitoring market share Managing organisationbase
can most profitably share
satisfaction: (indirect approach) (direct approach)
relationships. Criteria, which have been suggested for this
Customer information Ad hòc customer surveys Real-time customer
purpose, include: the lifetime value of the customer;
system: . feedback systems
customer profitablity; sales turn over by customer and
Interdependent between Interface of no or limited Interface of s
marketing, operations strategic importance importance to success likelihood of repeat business.
and personnel:

The role of internai No or limited importance Substantial strategic importance Each of these approaches to selecting a portfolio of valuable
Marketing: . . to success to success
.0 relationships has been criticised as unrealistic (Barnes
Building upon Lovelock's (1983) classification, Gronroos 1995; Liljander and Strandvik 1995; Pels 1997). For
argues that what a seller offers the market lie along a example, Pels (1997) and Liljander and Strandvik (1995)
continuum from consumer packaged goods at one extreme, argue that using product classifications to determine
to services at the other. Organisations will select either a whether a transactional or relational approach should be
transactional or a -relational approach depending on what is adopted is unrealistic. They cite examples of transaction
offered to the market. Specifically he argues that when marketing being used within industrial markets and of
consumer packaged goods are purchased, a transactional relationship marketing being used within consumer
approach should be selected. In contrast, where consumers packaged markets and conclude that rather than using
purchase a service, he identifies a relational approach as product classifications, more sophisticated criteria which

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account for the complexities of the market place should be and Stanworth 1986; Bannock 1991; Storey 1994) ove
employed to help in the selection of a portfolio of customer constitutes a 'small' firm. For the purposes of cross-c
relationships. Saren and Tzokas (1998) agree that the studies such as the one presented here, statistical def
product continuum may not be a realistic way of deciding developed by the European Community (ENSR 19
when relational marketing should be used. Building on the Table 1) are useful.
TABLE 1
work of Normann and Ramirez (1993) they argue that
EUROPEAN DEFINITIONS OF FIRM SIZE
regardless of whether an organisation offers a good or a
service, the very existence of an offering, "is an indication
of a relationship between the provider (firm) and its
Large firms = 500 + employees
customers" (p. 188). While in its most basic form, the
'relationship' may only be comprised of a transaction Medium firms = 200-499 employees
exchange, this they argue "provides first indications that all
transactions should be seen as a manifestation of Small firms = 20-1 99 employees
relationships and... the continuum is nothing but a mis- Micro firms = l-9employeed
representation of reality" (p. 188). Instead, they recommend
that by regarding all transactions as opportunities to form
While a universal definition of a 'small firm
relationships and recognising that different types of
and statistical descriptions can be criticised
relationships can be created, practitioners are able to offer
that they fail to account for the heterogene
products with which they can create long-term relationships
with their customers. Saren and Tzokas (1998)firm sector (Curran and Blackburn 1994), th
are also
that small firms are not simply scaled down
critical of suggestions that customer criteria should be used
larger counterparts (Wynarczyk et a
to help organisations create a portfolio of profitable
numerical definitions are debated, the chara
customer relationships. They argue that work in this area has
tended to concentrate on the economic value of customers by small firms which distinguish them fro
counterparts are agreed upon: uncertainty
and on difficulties in handling relationships with them. To
place; innovative product offerings designe
illustrate this criticism they cite the example of
needs of differentiated, niche markets and
'complaining' customers. Work in this area implies that
evolution through which they progress as t
given the time and effort spent in maintaining relationships
larger enterprises.
with customer who complain, such customers should not be
included within the organisation's portfolio of relationships.
Another important distinction between
In contrast Saren and Tzokas reason that such relationships
differences that can be identified between t
may in fact be beneficial to the organisation, providing them
large firms and the 'owner-managers' of sma
with information which will help improve for example,
combined ownership and management has i
customer service. This suggests then that while
the aims and objectives of an organisatio
consideration of customer characteristics may be a useful
activities in which it is involved. For exam
selection criteria, a more comprehensive customer profile
growth motives may not be as central to t
based upon a range of customer characteristics may be a
owner-managed firms as they are to fi
more realistic way of creating a portfolio of valuable
ownership is divided from its management
customer relationships.
more limited resource base from which small firms are
managed has implications for the activities in which small
If then, fundamental principles governing the practice and
firms engage and for the ways in which they respond to the
management of relationship marketing are debated, to what
environments in which they exist. Small firms have neither
extent do they apply to small firms? This is the key research
the time resources to invest in strategic planning nor the
question addressed by the research presented in this paper.
budgets to manage comprehensive information systems.
SMALL SERVICE FIRMS Yet, small firms are an essential component of Europe and
America's current stock of businesses. The fact that small
firms do exist and survive in increasingly dynamic and
Small firms are important generators of economic growth
competitive environments is often credited to their
and are now accepted as constituting an integral part of most
world economies. In both the UK and Sweden, small firmsin the marketplace and implies that the tactics
flexibility
employing no more than nine people account forwhich aboutthey
95%adopt and the activities in which they are
involved,
of the total stock of business. Since the publication of the while different from those of their larger
counterparts, are effective.
Bolton Report (1971) in the UK and the Birch Report (1979)
in the US, small firms have attracted the interest and
While and
attention of American and European researchers the entrepreneurship and small firm literature
governments. Small firms are however difficult recognises
to definethat small firms are not scaled down versions of
and there is much debate in the small firm literature (Curran counterparts, this has only recently been
their larger
recognised by the marketing literature (Collinson 1999;

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Carson 1999; Gilmore and Coviello 1999; Hills 1999; Shaw independent of a larger organisation. It was also decided
1999). Consequently, a scarcity of empirical studies of small that case-firms had to be located close to the researcher to
firms' marketing practices questions the validity of using enable her to visit them regularly for extended periods of
existing marketing knowledge to understand the marketing time and that they had to have been trading for a minimum
behaviours of such firms. of three years. This latter criteria allowed the researcher
access to participants' understanding of the ways in which,
Particular to relationship marketing, while the notion of over time, case-firms had made decisions about the ways in
building long term relationships with loyal customers is not which they would approach Marketing. In Scotland a
new within the small firms sector, especially small service sample of advertising and design agencies were identified as
firms, few studies have sought to consider the extent to suitable case-studies.
which relationship marketing theories are of relevance to
such firms. Additionally, given the lack of empirical The Swedish sample comprised of a range of small
evidence of the processes involved in creating and professional service firms including high technology,
developing relationships, it is surprising that few studies construction and hospitality services. In both samples, case-
have explored the relationship marketing practices of small firms dealt with industrial customers. The Swedish sample
firms which have significant experience of this activity. differed from the Scottish sample in one way: case firms
were categorised as either 'growth' or 'non-growth' firms.
This paper seeks to draw upon the findings of empirical data To be classified as a 'growth' company, firms had to have
collected during a cross country study of small Scottish and at least a 10% annual growth in at least one of: profit,
Swedish service firms to demonstrate the types of marketing turnover and/or number of employees in the last financial
activities in which such firms engage. By so doing, the paper year. To be classified as a 'non-growth' company, firms had
will consider the value of using existing marketing theories to have experienced less than a 10% annual growth, no
and concepts to understand the marketing approaches and change or a reduction in these indicators. Additionally, case-
activities used by small, growing service firms. firms had to been trading for at least 5 years; be managed by
one or more owner-managers and be independent of any
RESEARCH PROBLEM AND METHODOLOGY other organisation.

The in-depth study for which purposive sampling is suited

In light of the discussion presented so far, we argue that a
demands that the number of cases included in the sample is
number of gaps exist in the relationship marketing literature.
significantly less than when probabilistic sampling is used
There is a lack of empirical evidence about the contents of
(Easterby-Smith et al 1991). For these reasons, five Scottish
the relationships which organisations share as well as about
and seven Swedish firms were involved in the research. In
the processes by which these relationships are established,
both countries a variety of qualitative methods were used
developed and created (Blois 1997). Despite the contribution
including in-depth, unstructured and semi-structured
which they have made to growing the service sector, few
interviews with owners, staff, clients, competitors and
studies have sought to explore the marketing activities of
industry bodies. This was supplemented by data collected
small firms. As relationship marketing is not new to the
during conversations and participant observation and also by
small firm sector, we argue that by engaging in a study
company documentation, for example: financial reports,
which explores the marketing practices of small service
product descriptions and market plans where available. The
firms, this paper contributes in two ways. First, it considers
purpose
the extent to which existing marketing theories areofof
in-depth interviews was to acquire a detailed
understanding of participants' opinions and perception of
relevance to small service firms. Secondly, by presenting
actions and events. Most interviews were taped for later
data about the marketing practices of such firms, this paper
transcription and field notes were also taken. Once
provides empirical insights about the criteria which small
collected, data from both countries was inductively analysed
service firms use to select customers with whom they will
by sorting and comparing data in the search for common
benefit by sharing a relationship as well as about the ways in
themes and patterns germane to the research problem.
which these relationships are created and developed.

EMPIRICAL FINDINGS
As little is known about how small firms market their
services and deliver customer satisfaction, an inductive
approach was adopted. Specifically, case-studies wereTable 2 below summarises the findings of this r
which are discussed in more detail below.
selected because they permitted the researchers to get close
to small service firms, penetrate the realities of their owner-
managers and staff and ultimately, develop a detailed, Marketing Approach
grounded understanding of their marketing activities (Glaser
and Strauss 1967; Yin 1989; Maykut and Morehouse 1994). A company was regarded to adopt a transactional mar
In Scotland, this suggested that case-firms should employapproach
no when the respondents explicitly said th
more than 10 staff including owner-managers and would focused
be activities to take immediate orders or to crea

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 TABLE 2 TABLE 3
SUMMARY OF FINDINGS MARKETING APPROACH ADOPTED BY INVESTIGATED

Num

Marketing Approach • no participatingsmall firm used

Swedish Scottish
only transactional marketing;
• 83% of participatingsmall firms sample sample
engaged in both transactional
and relationship marketing; Focus on only Transactional marketing 0 0
• 17% of participatingsmall firms
practiced only relationship Focus on only Relational marketing 2 0
marketing.
Focus on both Transactional and Relational
Selection of Marketing Approach • selection of relational or trans- marketing 5 5
actional marketing is deter-
rmined by client Total
characteristics;
• a range of criteria are used to
distinguished between key
appare
clients (relational approach) and that th
on-the spot clientsCtransacticnal busy
approach).
divisio
Purpose of Transactional • to facilitate on the spot mana
Marketing transactions and contribute to emplo
cash flow.
In pra
taking
Purpose of Relationship • to acquire and retain customers;
Marketing • to generate positive word of provid
mouth; speci
• to increase client base and, in profes
some cases, also resource base
price,
(both at low cost).
exchan
Relationship Activities • activities use by small firms to to be
acquire and develop relation- mentio
ships with clients included:
flexible pricing hospitality;
bartering-exchanges . At an
thirty
immediate sales or cash flow as well as when they generally want
claimed to have a short-term orientation towards customers. someth
In contrast, a relational marketing was presumed when come
respondents said the firm was seeking to build trust and firm t
develop social sentiments with customers and, in general,
when firms were long-term oriented in their marketing In con
activities. This description fits with that of Morgan and Hunt contai
(1994) which suggests that, "understanding relationship for a
marketing requires distinguishing between a discrete could
transaction and relational exchange" (p.21). Using these additi
descriptions, none of the investigated service firms in either found
the Scottish or the Swedish sample were found to practice follow
only transactional marketing. Nor did we expect to find that! suppli
Surprising however, it emerged that in only 2 Swedish firms advice
and none of the Scottish sample adopted only a relationship new p
marketing strategy. More commonly it was found that all of des
firms in the Scottish sample and S in the Swedish study also no
engaged in activities which could be described as both
transactional and relational oriented (Table 3). One e
relatio
Data collected from Scottish firms, particularly in the busy the in
pre-Christmas period revealed that all case firms engaged in client
both transaction and relational marketing. It became compe
firms

42 Journa

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communication was an important marketing tool for all company accounts. Additionally, these exchanges as
case-firms: in the development of case-firms as they encouraged r
business. This finding provides evidence of one of the
Word of mouth - that's how it works. I tried when I in which the adoption of a relational approach to mark
started. I put an ad. in Scottish Business Insider and activities had the effect of increasing the switching co
it was like that size (motions with his fingers) for key clients. Building upon arguments presente
three months, and it cost me like £800 or something, transaction costs theory (Powell 1987, 1990; Blois 1
a huge amount of money really for something that Ebers 1994), these findings suggest that having negot
didn 't even get any response at all. It was wrong; bartering-exchanges which might not be available
ad. agencies and design studios don't advertise other agencies, key clients became more closely ti
unless it's the owner's ego or to snub a rival if case-firms resulting in their repeat business and loyalty
they 've picked up a big amount of work. (Owner-
manager, case-firm 2) An extract from a critical incident interview with the ow
manager of case-firm 5 provides a useful description o
Information gleaned from key clients was identified by all normative expressions contained within some of
owner-mangers as having had a positive impact on the relationships which case-firms shared with key-cl
development of their firms: When asked to describe his agency's acquisition o
We have never advertised, people you meet and word largest design, the owner-manager explained:
of mouth are important. I used to go to a disco a lot
and from that, do a lot of work for various night They are strictly governed by competitive tendering
clubs - that put me onto a guy who installed a lot of processes, but I played football with the guy who
the sound and lighting who had his own business heads up the department, that created the
and, it just kind of follows that pattern. We 've never opportunity originally, that we were included on the
really had a strategy, it works from one client to the tender lists. (Owner-manager, case-firm five)
next just through word of mouth and basically our
business has grown through referrals. (Owner- Findings from the Swedish sample were similar. Out
manger, case-firm 3) 7 investigated firms, all but one competed in indu
markets. The exception, a country hotel, competed in
While has been 'speculated' that relationships between segments, private consumers and business users. This
small firms and their customers often comprise more than in particular was relational oriented in its marke
the straightforward exchange of goods and/or services for behaviour. Like each of the Scottish firms, a numb
monetary payment, there is a lack of existing empirical buyers were regarded as 'key clients' and the hotel
evidence with which to substantiate these speculations. clear policy which aimed to build relationships wi
Bartering-exchange contents were identified by comparative customers while keeping both segments separate
analysis of the data collected from staff and owner- company kept records of each guest and had regular
managers. Staff in all Scottish case-firms revealed that, with contact with those regarded as important for sales, a
'certain clients', owner-managers had negotiated 10 times a year. Analysis of these registers established
arrangements which provided them and their staff with customers were very loyal. Most consumers did retur
access to a variety of either free or reduced priced goods and each year but each second or third year. As the manage
services. Included within these negotiations were free and "We know now which customer to look after in partic
reduced haircuts and meals (case-firm 1); reduced priced Special events were arranged as a part of the atmosph
clothing and jewellery (case-firm 3), free entry into local the hotel but also as a reason to keep in contact and to
night clubs (case-firms 1, 3, 4 and 5) and free beer and wine sales. The owner has become a celebrity and his pub
(case-firms 1 and 2). When asked about these arrangements, has had a positive impact on the hotel. These acti
common to the explanations offered by these owner- facilitated relational efforts. The owner tried to maint
managers was the finding that these exchanges had been very large personal network. Different events
negotiated for one of two reasons: either because the in-kind advertised traditionally in newspapers. In this case wh
payment was valued by owner-managers and their staff or offered to the customer differed to some extent. For
because owner-managers wanted to encourage the repeat organisational buyer, a place for professional meetings
business of key clients they believed would be attracted a pleasant atmosphere was provided while indi
towards the payment of design at a cost below its market consumers were provided with a place to relax, again w
value in return for a mixture of in-kind and monetary pleasant atmosphere.
payment. The impact which such relationships had upon the
development of case-firms cannot be underestimated. Four of the remaining six investigated Swedish firms
Bartering-exchanges provided firms with access to resources advanced or high-tech knowledge based companies
at a low cost and often in a manner which permitted their marketing orientations were similar among three of
acauisition to be 'hidden' as it was not recorded in There was a clear transactional orientation to acquire

Winter 2003 43

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customers; for example a low price (even a price below The seventh company was an engineering company in the
costs) was used to create a transaction. We found that the 4 construction sector. Due to legal restrictions many of their
Ps model was appropriate in explaining how these firms sales were generated from markets where seal-bids were
created the first transaction and hence acquired customers. necessary responses to calls for tender. All of their other
sales were found to depend on personal contacts and
However later, these firms spared no effort in developing relationships. Their marketing effort involved maintaining
loyalty with new customers. Relationship marketing their network and seeking to become involved in projects at
concepts were used by them to retain customers and both an early stage.
orientations were deliberately used in parallel. As
formulated by the manager in one company: "whenever they Particular to the Swedish data, if we separate growing from
have the same need our company shall be the first thing the non-growing firms, a distinct pattern emerges. Growing
customer thinks of' This was accomplished by a firms used transactional and relational approaches to a
combination of activities such as: regular sales visits, larger extent. In table 4 we can see that four of five growing
delivering speeches at conferences, arranging seminars, ü firms used transactional and relational marketing
establishing personal relationships with customers and an approaches and only one growing and one non-growing
outstanding performance in customer service: no effort was engaged in activities that could be classified as
spared to satisfy customers. 'transactional'.

TABLE 4
The fourth of the high-tech companies was relational as well
MARKETING APPROACHES OF GROWING AND NON-
as transactional oriented in their activities. They have built a
GROWING SWEDISH SMALL SERVICE FIRMS
well-known global reputation and sought to maintain good
relations with some very large multinationals. Beside then- Growth Non-gr
firms firms
reputation, respondents also emphasised the personal aspect
of this business. As the manager said: Focus on only Transactional marketing 0 0

But when you have received a good reputation you Focus on only Relational marketing 1 1
will be asked the next time they need something - Focus on both: Transactional as well as
you know the right people and have a good relation! Relationalmarketing 4 1
This is how we got our contracts. We do not have any
other marketing. We work with people not Total

companies. We depend on people in our business.

Man to man! If it is good chemistry between the Select
individuals you can work together regardless of
where you are in the world. The f
factors which influenced case firms in both countries to
For this case-firm, the focus was very much on using engage in relationship marketing. For all firms involved in
technology and outstanding performance to create satisfied the research, the decision to invest in relationship marketing
customers who would provide referrals. This particular was influenced by perceptions about their clients. The client
company was well established as it had been trading for a characteristics used to identify customers with whom a
significant period of time and among the investigated firms, relationship should be developed are identified in the Table
data collected from this firm suggests that over time, as the 5 below. As can be seen from this table, a number of
firm gained reputation, the importance of a relational indicators were employed to identify those clients towards
approach increased. Customers knew about the firm' whom a relational approach should be directed.
capabilities and revealed that the fact that the firm was Comparative analysis of data indicated that, 'ideally', a
closely related to some large multinationals had enhanced relational approach was directed towards 'key clients'
it's reputation: in a way such relationships provided possessing at least one, but more often several of the criteria
credibility or portfolio prestige for the firm. presented.

TABLE 5
The sixth company, a low-tech oriented service firm,
emphasised the use of long term personal relations as an
important business tool and gave priority to old customers. Size of cont

This firm also had an explicit interest in transacting with 'on

Reputation &
the spot' customers and regarded such customers as another
segment towards which a more transactional oriented Likelihood of r
marketing strategy using low price and standardised product
offerings was employed. Portfolio P

44 Journal of Market

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As well as identifying key accounts by the amount of IMPLICATIONS AND CONCLUSIONS
business which they generated, case-firms decision to invest
in relational marketing activities was also influenced by the Empirical evidence presented above demonstrates t
extent to which they believed clients to have a network of firms engaged in both transactional and relati
important contacts from whom additional business could be marketing. This finding is supported by Brodie et
acquired. In assessing the networks of clients, 'key clients' Their study found that participating firms engaged
were identified as those which had a valuable network either 'medium' or 'high' levels of each of the following t
because of their large size or as a consequence of their marketing: transaction-based marketing; da
reputation locally. Clients identified as such were described marketing; interaction-based marketing and n
as key accounts because it was felt that potentially they marketing (pp.396-400). They also established t
could expand the client base of case-firms by introducing majority of firms in their sample practised more
and referring them to potential clients. One example of this type of marketing approach and that combinations
is provided by a Scottish firm. As a consequence of transactional and relational marketing approac
directing a significant amount of hospitality towards a client coexist:
within the drinks industry which was regarded as having a
large referral network, one agency benefited from four There appears to be a movement towards increased
additional pieces of business. customer orientation (at the very least), if not full
efforts to improve customer understanding, and
Likelihood of repeat business was also used to identify key develop synergistic relationships and partnerships.
clients. An extract from an interview with one of the Overall, it may be concluded that the study provides
Swedish firms provides an illustration of this: evidence to support the perspective that marketing
needs to be practised as an integrative activity
If a customer comes with an order of SEK 50,000 and involving personnel from across the organization,
you neglect it, it is very hard to get the million SEK with the emphasis on facilitating, building and
order. But if you have successfully completed some maintaining relationships over time. On the other
SEK 50,000 orders and through that have received a hand, this should not be done at the expense of
good reputation, you have a relation to the customer neglecting the transactional aspects of marketing
and with a personal relation you have a much better activity, (p. 402)
chance to get the big order. ... This is how we get
new customers - we do not have any other In a study of Swedish industrial firms Gustafsson et al
marketing. And it does not matter which country you (1998) found there is potential for firms to use both
are in. ... The customer calls us, we are well known transactional and relational marketing in combination with
in the industry. It is important to us to integrate with emerging electronic network technology. Their study found
the customer. ... There is a heading in our contract that the approach selected is partly dependent on the extent
specifying what the customer shall do. Instead of to which the goods offered are standardised: for
writing what we do not do - we specify what the standardised products, transactional marketing was found to
customers are expected to do. be more typical; for tailored products, relational-marketing
was favoured.

Related to this, frequency of customer needs was also found The findings presented above suggest that transactional and
to impact upon the adoption of a relational strategy. Where it relational marketing are complementary rather than
was understood that a customer would have more frequent competing approaches to marketing. This implies then that
needs, a relational approach was adopted to cultivate while the relationship paradigm is useful for describing and
repetitive exchange analysing some aspects of small firms' marketing behaviour,
it is not sufficient. Rather, it can be argued that as the
The final factor found to influence whether case-firms relational contents of exchanges between case-firms and
adopted a transactional or relational approach was the extent their customers appear to support actions relating to
to which customer needs allowed case-firms to undertake transactional exchanges, a useful metaphor is that these
complex work which would demonstrate their technical or relational aspects serve as catalysts in a chemical process!
creative strengths and contribute to their portfolio prestige.
This is to say, for clients commissioning complex projects, The variety of marketing activities in which case-firms were
case-firms would develop a relational strategy which found to engage are illustrated in Figure 2. However,
provided them with close communication with clients to regardless of whether a firm adopts a short or long-term
ascertain their exact needs and develop products which involvement with its customers, its survival is dependent
simultaneously satisfied these and demonstrated to future upon sales. For the entrepreneur or small firm owner-
clients the technical and creative strengths of case-firms. manager, the creation of sales is one of the most critical and
important daily concerns: his/her mind constantly focuses

Winter 2003 45

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 FIGURE 2 FIGURE 3
SOME EXAMPLES OF MARKETING ACTIONS IN THE MODIFIED MARKETING STRATEGY CONTINUUM
INVESTIGATED FIRMS

"""""""""" Proportion of activities in chosen marketing strategy [.

100% oy0
oriented actions >v Transaction*! orientation: | ■

• Traditional, 4P-related marketing .actions '

0% 100%
'hook' new clients in temporary segments 1 Relational orientation: |

• Temporary price reductions to create sales /

CTransactional • .Special actions and offers to create sales and 1 j ""^ A_ ■'■■^"■^■■■■■■■■■■■■^■■■■^■■■■bbbì B C D
Position of chosen strategy: ""^ ■'■■^"■^■■■■■■■■■■■■^■■■■^■■■■bbbì

'
The chosen marketing strategy may be positioned at any point along the strateg
extreme end-positions contain marketing activities of a 100% transaction^ chara
a 100% relational character (E). Most of the investigated firms chose combined
positioning themselves somewhere between the extreme positions (A) and (E).
strategies contain elements of both orientations. In the case of (Ç) a balanced
f chosen (equal number of transactional and relational activities). In the case of (B
transactionaJ (B) or relational (D) approach dominates.

/ Relational oriented actions >y

/ • Creation of personal In this modified continuum,
sentiments ' the various marketi
/ • Creation of administrative ties in which a firm ' invests can be categorised
and bonds
I • Investments in reputation and referrals transactional oriented
J (where the purpose is dir
' • Intentional links to client's R&D- / transactions) or relational orientated (where th
'^ functions S to create long term relationships). As proposed i
X. • Actions to boost client's satisfaction s^
these activities can vary in range from 0 - 100%
total marketing activities. A pure relational orie
%) means that all marketing activities are direct
on creating transactions. This focus is demonstrated acrossa favourable climate for repeat transactions and
each of the case firms and suggests that transactional actions are taken to make the buyers buy! Sales
marketing involving manipulation of the marketing mixconsequence
is of buyers1 actions and need for th
still an important concept for understanding the marketing pure transactional strategy involves only actions
sales.
actions taken by small firms to create sales. However, as we
expected, the marketing-mix does not cover all types of
activities in which case-firms engaged, including: the
We expect, however, that many firms are not to
creation of reputation through word of mouth and referral any of these extreme points but instead use a com
market-ing; goodwill; long-term personal relations and trust
the two strategies. Transactions are facilitated b
This finding concurs with the conclusions drawn byactivities but such activities are often not sufficie
Coveillo & Brodie (1998): sales. In figure 3, a firm that uses a combined s
takes full advantage of both a transactional and
Conceptual frameworks should therefore attempt to orientation will be positioned in the middle. In t
integrate the two perspectives, recognizing that firm version of the marketing strategy continuum su
and market characteristics can influence marketing marketing approach was not possible.
practice, (p. 185)
We believe that most companies perform tr
We can conclude then that the marketing behaviours marketing
of off and on, and by doing so, firm
case-firms cannot be fully described by either the transaction
necessarily deprive themselves from engaging in
or relational paradigm. Instead, a framework that integrates marketing activities.
all types of marketing activities in order to create both
transactions and long term customer relationships may be
Aspects of the marketing mix are a natural com
more appropriate. daily business life. However, entrepreneu
necessarily think in terms of the marketing-m
Accepting this, we propose that Gronroos' marketing
make decisions in order to create transactio
Hultman 1998). In fact, the creation of transacti
strategy continuum is modified to give firms the opportunity
to engage in both transactional and relational marketingan entrepreneur usually has to think of each day
approaches at the same time. A modified marketing strategy
marketing-mix may still be a valid concept, eve
continuum is presented in figure 3 below. service firms, despite its limited explanatory and
abilities. Important for future research then is t

46 Journal of Marketing THEORY AND PRACTICE

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learn much more about the interactions between relational a range of resources including information and advice
and transactional marketing activities when they are used in the building of trust and normative connections w
parallel. customers which can increase switching costs
encourage their repeat business.
MANAGERIAL IMPLICATIONS
In taking such decisions, the findings presented suggest
Particular to practising entrepreneurs and small the
business
owner-managers of small firms must consider the n
owner-managers, the findings presented in this andpaper
characteristics of the clients which they serv
suggest a number of managerial implications which are by using the criteria detailed in figure 4: siz
particular,
captured in figure 4 below. contract, referral value, frequency of customer ne
likelihood of repeat business and portfolio prestige, sm
FIGURE 4
firm owner managers will be able to distinguish betwe
FRAMEWORK FOR SELECTING A MARKETING APPROACH
'key' and 'on the spot customers9. Once customers h
been classified in this way, it is recommended t
S^ Client type ^^'
/ ■ size of contract? ' marketing activities which are relational in their orienta
^^^ ■ referral value? '_ are directed towards 'key* customers while those which
^t^^l ■ frequency of customer needs? ^^^^^
^^^^' ' POrtfo'io prestige? y^^^^^^ transactional in focus are directed towards (on the s
customers. Such decisions are resource effective as by th
nature, relational activities incur more time and resour
and are better directed towards those customers with w
/ n e spot ' X Key Client '.
a long term relationship involving customer loyalty
/ Trans^onal appro«* ' / repeat
Re]ationál Approach '
transactions can be developed.
1 Marketing mix J I Select range of relational activities I
Having determined the marketing approach to be used
particular clients, owner-managers must then consider
type of marketing activities which should be emplo
Where a transactional approach has been selected,
Specifically, the findings presented suggest that in planning
findings presented suggest that the marketing mix wi
marketing activities, small firms should not restrict to their
appropriate in encouraging transactions. This may invo
selection to only a relational or a transactional approach.
for example, the offer of a standardised product at a red
Instead, they suggest that small firms may benefit by the
price. In contrast, where a relational approach has b
adoption of a range of activities which can be described as
selected, the findings presented suggest that a rang
both transaction and relational. By engaging in activities
both to first acquire and then retain relationships w
transactional and relational activities, the findings presented
key clients including flexible pricing, hospitality
in this paper suggest that small firms will benefit in a
bartering-exchanges are available. Such activities c
number of ways. Simply put, these findings suggest that the more time and resources but when directed tow
involve
use of both transactional and relationship marketing can
key clients, their use can be instrumental in developin
benefit small firms by securing transactions while also
relationship and producing die transactional and relatio
producing a range of relational benefits including: access to
benefits which this paper has demonstrated can result w
new customers through referrals and introductions; access to
a relational approach is adopted.

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AUTHOR BIOGRAPHY

Claes M. Hultman, (Ph.D., ) is professor of marketing and chair of the Business Faculty at Öreb
Dr. Hultman is a scholar and an experienced consultant. He is the author of books and articles in mar
is currently on the editorial board of different scholarly US- and UK journals. He serves on the Boar
companies. His special interest is Entrepreneurial Marketing in growing businesses.

AUTHOR BIOGRAPHY

Eleanor Shaw (Ph.D., ) is a lecturer in marketing at the University of Strathclyde. Eleanor's docto
impact which social networks have on the development of small, professional service firms. Her
interests are in the areas of: small firms, entrepreneurship, industrial networks and relationship
area of small firm networks and presented at both European and American marketing and small
a founder member of the Academy of Marketing's Special Interest Group in the Marketing/Entr
which she is presently Academic Co-ordinator

Winter 2003 51

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