Lecture 2a

Relationships
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Relationships
RM theory suggest that relationships add quality to marketing
transactions (Mitchell 2001, p.33).

Real human exchange is much richer than market exchange

They not only exchange money for goods, they share ideas, opinions,
information and insights

They have a say. They tend to form affections, bonds, ties of loyalty, feelings of
obligation and so on.

They share and exchange values

The people whose values are most in tune with those around them tend to form
the strongest, most supportive bonds (attachment / link /friendship) with other
people.

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Relationships Forming
Are consumers equally interested in building and
sustaining relationships as companies?

Two characteristics must be present for an exchange
situation to be described as relationship (Barnes and
Howlett 1998, p.16):

The relationship is mutually perceived to exist and
is acknowledge as such by both parties

The relationship goes beyond occasional contact
and is recognized as having some special status

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Relationships Forming - Contd
According to Palmer, regardless of what marketing
strategies are implemented by the supplier, buyers
frequently have no wish to enter into a relationship
with a company.

It is probable that situations exist where the seller
may want to develop relationship whereas the
customer is happier with a transactional approach
(Bund-Jackson, 1985, p.34)

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Categorizing relationships
Organizational relationships

Can an individual customer have relationships with
organizations or relationships must always be interpersonal?

Although social relationships are always between
individuals (employees) but the customer supplier
(company) relationships (of whatever level or closeness)
frequently continue despite the loss of any organizational
personnel initially involved.

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Categorizing relationships
Organizational relationships (Contd)

If an employee leaves then human capital is lost. Embedded
knowledge, however, is part of structural (construction/organization)
capital that does not disappear with the employee and is, in effect
owned by the company. E.g. clubs or charities

In the case of football clubs individual fans may be deeply
attached to a particular player until they leave for another club.
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Categorizing relationships
Learning relationships

Are relationships built on knowledge?
When customers tell a company something about themselves,
then it is the responsibility of the company to customize its offering
to that customer. From that point the relationship has started

The more the customer tells the company, the more valuable
they become provided the company continues to adapt its product
or service to meet the more and more specific customer needs.

Developing competitive advantage identifies relationship
learning as an important way to create differential advantage
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Categorizing relationships
Motivational Investments

Four types of active relationships in addition to no
exchange:
Bilateral relationships (both parties are motivated highly enough to
invest in a relationship)
Seller-maintained relationships
Buyer-maintained relationships
Discrete exchanges (are low-involvement, purely transactional
relationships)
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Categorizing relationships
Higher-level relationships

Higher level and closer relationships are more common
in business to business environments.
We shall discuss in detail when we are studying
chapters 8 and 9.
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Categorizing relationships
Relationship loyalty

The phrase loyalty marketing is frequently used
interchangeably with RM. It is used for developing
sustainable competitive advantage.

Assumption:
loyalty translates into an unspecified number of
repeat purchases from the same supplier over a
specified period (Kendrick, 1998)
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Categorizing relationships
Defining loyalty

A more comprehensive definition of loyalty may be:

The biased (i.e.-random) behavioral response (i.e.
re-visit), expressed over time, by some decision-
making unit with respect to one (supplier) out of a set
of (suppliers) which is a function of psychological
(decision making and evaluative) processes resulting in
brand commitment (bloemer and de Ruyter, 1998,
p.500)


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Categorizing relationships


Antecedents (past history) to loyalty
Read text book page 41
Both customer loyalty models described in page 41
suggested that customer satisfaction sustains loyalty.

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Loyalty-Type Behavior
Three ways of considering customer re-patronizing
behavior (Uncles 1994, p.342):
Switching behavior (The customer turns against you)
Promiscuous behavior (The customer flits among an array of
alternatives)
Polygamous behavior (The customer may be more or less loyal to
your brand than any other)



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Loyalty Schemes
Customers actively seek an involving relationship with their
brand which in turn offers psychological reassurances to the
buyer and creates a sense of belonging.

The proposed benefit of loyalty schemes, for loyal and
heavy or frequent customers, is having this sense of
belonging reinforced (Uncles,1994, p.341).

Switching behavior (The customer turns against you)



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Loyalty Schemes (Contd)
Goal of loyalty programs (Bolton et al, 2000, p.95):
to establish a higher level of customer retention
to increase customer satisfaction
to add value to customers



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Loyalty Schemes (Contd)
Motives for setting up loyalty schemes (Hart et al, 1999, p.
546):
Building lasting relationships with customers by rewarding
them for their patronage

Gaining higher profits through extended product usage
and cross-selling

Gathering customer data (and development into
information)



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Categorizing relationships
Loyalty Schemes (Contd)
De-commodifying brands (i.e. differentiate from the
crowd)

Defending market position (against a competitors
loyalty schemes)

Pre-empting (anticipate/block) competitive activity


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Loyalty Schemes (Contd)
Would companies do something intelligent with the
information they collected from customers?
When a company hand a customer a loyalty card, the
company immediately create the expectation in the
mind of the consumer that the company is now going to
study their behavior and that, in return, they expect the
supplier to do something intelligent with that information
(Kelly, 2000, p.263).





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Loyalty in Context
Do costs outweigh advantages in loyalty programs?

According to OMalley, loyalty programs:
are not much more than sophisticated sales
promotion

According to Ward et al., 1998,p.85:
are reinforcing mechanisms
they reward the already loyal rather than anyone
else






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Unrealistic Relational Development

Why would a buyer avoid having a
relationship with the supplier?
Unrealistic customer relationship development:
According to Palmer (1996,p.20), a number of unrealistic customer
scenarios exist:
where there is no reason why, or little likelihood that, a
buyer will purchase again from a supplier.






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Categorizing relationships
Unrealistic Relational Development (contd)
where buyers want to avoid a relationship as it may lead to
dependency on a seller

where buying processes are formalized in a way that prevents
either party development relationships based on social bonds

where a buyers confidence lowers the need for risk reduction

where the costs associated with a relationship put the buyer at a
cost disadvantage in a price-sensitive market.






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Low Likelihood of Repurchase
A buyer who is unlikely ever to re-patronize a supplier
will:
see no benefit from relationship formulation and

be annoyed by the tactics associated with it (e.g.
data capture)






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- Dependency Avoidance
- Formalized Contracts
- Low-risk situations
- Price-sensitive markets

Read text book page 47 - 48







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Unrealistic Supplier Relationship Development

Why would suppliers avoid
developing relationship with buyers?

Scenarios whereby suppliers are avoiding a relationship:
where there is no reason why a seller would ever see
a buyer again
where a seller seeks to avoid a relationship in which
it becomes dependent on a buyer







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Categorizing relationships
Unrealistic Supplier Relationship Development
(Contd)

where buying processes become formalized in a way that
prevents either party developing relationships based on social
bonds

where the seller has little opportunity to develop relationships
due to the undifferentiated nature of the market

where the ethos of the industry makes relationship-building
inappropriate








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- Low likelihood of repurchase
- Dependency avoidance
- Formalized contracts
- Undifferentiated markets
- Price-sensitive markets

Read text book page 48 - 49







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