Relationship management

The management of relationships is a key ingredient in successful organizational marketing. Relationship marketing concerns the shift from activities of attracting customers to activities concerned with current customers and how to retain them. Customer retention is crucial since small changes in retention rates have a significant effect on revenues. At its core is the maintenance of relations between a company and its suppliers, channel intermediaries, the public and its customers. The key idea is to create customer loyalty so that a stable, mutually profitable and long-term relationship may be developed. The idea of relationship marketing implies at least two essential conditions. First, a relationship is a mutually rewarding connection between the parties so that they expect to obtain benefits from it. Second, the parties have a commitment to the relationship over time and are, therefore, willing to make adaptations to their own behaviour in order to maintain its continuity. An absolutely central feature of relationship marketing is the role that trust plays in creating satisfaction between parties in the relationship. Building trust is a very effective way of increasing satisfaction and developing long-term relationships.

The reality of organizational marketing is that many suppliers and buying organizations have been conducting business between themselves for years. Lucas, for example, has been supplying components to Rover, and its antecedents, for over 50 years. Marks & Spencer has trading relationships with suppliers that stretch back almost a hundred years. Such long-term relationships can have significant advantages for both buyer and seller. Risk is reduced for buyers as they get to know people in the supplier organization and know who to contact when problems arise. Communication is thus improved, and joint problem solving and design management can take place. Sellers gain through closer knowledge of buyer requirements, and by gaining the trust of the buyer an effective barrier to entry for competing firms may be established. New product develop­ment can benefit from such close relationships. The development of machine-washable lambs' wool fabrics and easy-to-iron cotton shirts came about because of Marks &. Spencer's close relationship with UK manufacturers.

Closer relationships in organizational markets are inevitable as changing technology, shorter product life cycles and increased foreign competition places marketing and purchasing departments in key strategic roles. Buyers are increasingly treating trusted suppliers as strategic partners, sharing information and drawing on their expertise when developing cost-efficient, quality-based new products. The marketing implication is that successful organizational marketing is more than the traditional manipulation of the 4-Ps: product, price, promotion and place. Its foundation rests upon the skilful handling of customer relationships. This had led some companies to appoint customer relationship managers to oversee the partnership, and to act in a communicational and coordinated role to ensure customer satisfaction. Still more companies have reorganized their salesforces to reflect the importance of managing key customer relationships effectively. This process is called key, or national, account management.

There are a number of activities suppliers can engage in to build relationships with key customers. One of the most popular ways is through the provision of technical support. This can take the form of research and development co-operation, before-sales or after-sales service, and providing training to the customer's staff. The supplier is thus enhancing the customer's know-how and productivity. Suppliers can provide expertise to their customers. Examples include the offer of design and engineering consultancies; and dual selling where the customer's salesforce is supplemented by the supplier. Suppliers can support the resource base of customers by extending credit facilities, giving low-interest loans, agreeing to co-operative promotion, and accepting reciprocal buying practices where the supplier agrees to buy goods from the customer. The net effect of all these activities is a reduced financial burden for the customer. Finally, suppliers can improve their relationships with customers by improving the level of service offered to them. This can involve providing more reliable delivery, fast or JIT delivery, setting up computerized re-order systems, offering fast, accurate quotes and reducing defect levels. (The case described in e-Marketing 3.3 shows how the Internet can be used to facilitate improved service delivery). In so doing the customer gains by lower inventory costs, smoother production runs and lower warranty costs. By creating systems that link the customers to the supplier, for example, through re-order systems or JIT delivery, switching costs may be built, making it more expensive to change supplier.

In summary, relationship marketing is a key aspect of organizational or B2B marketing. However, it is not limited to this sphere. Marketers of consumer goods and services are increasingly interested in the possibilities for building relationships with customers, and recent technological developments have given rise to a new 'industry' in customer relationship management (see Chapter 5).

3.3 e-Marketing