Relationship Marketing by Geoff Lancaster©
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1 From total quality management to customer care
There is only one valid definition of business: to create customers. It is the customer who determines what the business is. Because its purpose is to create customers, any business has two basic functions:
- marketing (customer orientation)
This far-sighted quotation came from Peter Drucker (1973) and it was originally said in 1954.
Another management thinker, who is more often associated with engineering than with management was W. Edwards Deming who has been credited with guiding the Ford Motor Company (USA) to a sharp focus on quality, not just in manufacturing, but in all of its operations including selling. He formulated a mature theory of quality in the 1970s based upon his observations of Japanese manufacturing. His theory revolved around 14 points of philosophical thinking, and he is widely regarded as being the modern quality ‘guru’. His thinking has very much changed the way that manufacturing companies operate, and this was evidenced from earlier applications in the late 1970s and early 1980s through ‘quality circles’, or self motivated works committees assigned to the improvement of quality. This tactical thinking has now been replaced by the more mature and strategic view of total quality management (TQM) that dominates present day thinking, not just in manufacturing, but in all areas of company activity.
Taeger (1992) contends that these early ideas of quality still tend to trigger mental pictures that are more related to manufacturing than to the business of selling. This is because its phraseology and concepts relate back to the origins of the quality philosophy of the manufacturing processes from whom Deming took his inspiration. Taeger goes on to say that the difficulty in measuring the success of the quality process in sales is that even when the initial phase has passed, there are rarely any positive pointers that can be identified as having been improved as a result of the introduction of TQM as part of a philosophy of selling.
Despite some negative thinking still prevails in relation to the perception of quality. It is a fact that since the 1980s many bigger companies have recognised that the key to success is the need to evolve from a production and cost dominant stance, towards one of servicing a diverse range of customers through personal contact. A key factor in this process relates to the process of relationship formation. As the strategic perspective of companies has changed from regional thinking to global thinking, the selling model is changing from a ‘transactions’ focus to a ‘relationships’ focus.
Schill and McArthur (1992) contend that as this evolution is now taking place, with marketing taking on more of a strategic dimension with manufacturing, finance and human resource management being integrated and matched to support a coherent competitive strategy to assist marketing in such matters as cost leadership and product differentiation.
As the worldwide political and regulatory climate continues to be increasingly more liberal towards the encouragement of free trade, so it becomes more difficult to sustain market leadership based on short-term sales orientated transactions. Sellers must engage in building long lasting relationships with their customers and ensure that these relationships are lasting ones. Stalk et al (1992) cite the case of Honda’s original success in motorcycles being due to the company’s distinctive capability in dealer management which departed from the traditional relationship between motorcycle manufacturers and dealers. Honda provided operating procedures and policies of merchandising, selling, floor planning and service management. It trained all its dealers and their staff in these new management systems and supported them with a computerised dealer management information system.
Customer focused quality is now essential because it involves a change from an operations centred to a customer targeted activity. As the move towards a global economy quickens, so customers demand quality in terms of their relationships with sellers in terms of increased importance being placed on reliability, durability, ease of use and after sales service which leads us to the modern notion of ‘customer care’. Customer care is a philosophy that ensures that products or services and the after-care associated with servicing customers’ needs at least meets, but in most cases exceeds, expectations.
In support of this view it can be argued that customer loyalty can no longer be relied upon because of the fact that there is greater product and service choice. According to Sasaki (1991) marketing must react to this in a positive way by integrating new customers into a company in an attempt to develop a new relationship between them and the company. Such new customers expect products or services to be in harmony with their lifestyles or values and he contends that a winning product concept is generated when designers and consumers share a contemporary atmosphere and interact with each other. In other words customers feel more ‘involved’ and this is central to the notion of customer care. He further proposes that this atmosphere can be created because of technological advancements in mature cultures where style, tastes and demand can be better anticipated and where suitable products can be developed.
This view is evidenced by Nissan, the Japanese car manufacturer, when they saw that their market share was in decline. They drastically changed their organisational structure and company philosophy to reflect as its first priority the concept of customer satisfaction. Development times were cut, leading to quicker lead times, coupled with a greater awareness of what customers wanted, and this had the effect of turning the company around and placing it in a more stable position in the market place. Furthermore, recent evidence of the success that close attention to customer needs can bring, is the case of the Microsoft Corporation which realised that the average person had little training or knowledge of computer software or programming. They replaced technical jargon with easily understandable icons and graphical representations of the tasks to be done. Microsoft is now the largest software company in the world, and its founder, Bill Gates, is now the richest.
The idea of total product quality has been explored by Brooks and Wragg (1992) when they contend that it is concerned with manufacturing companies adopting a market driven approach to TQM. This infers that market led quality can ensure that customers perceive that quality is built into both the product and the service component of the total product offering as illustrated in Figure 1:
|Conventional manufacturing perspective||Total product quality perspective|
Figure 1 Internal to external focus of total quality perspective
Market driven TQM and a total product quality for manufacturing companies are concepts upon which companies should focus. As product parity is reached between different product offerings, so companies can gain a competitive advantage by increasing the total service component of their market offerings. This is more than simply after sales service; it is a total programme of total customer care.
2 From JIT to relationship marketing
Christopher et al (1991) have directly incorporated TQM ideas, bringing together quality, marketing and customer service and have labelled the resulting mixture ‘relationship marketing’. Relationship marketing means that organisations must be designed to enable them to pick up changes in the market place on a continuing basis and this is where the quality chain must be anchored.
This is the essence of what is termed business process re-engineering where Toyota first based its pioneering ‘just in time’ (JIT) management system around the needs of customers. Work was reorganised to accommodate a variety of customer preferences in terms of the fastest possible response time and it is described as a system that delivers input to its production site at the rate and time it is needed. It thus reduces inventories within the firm and is a mechanism for regulating the flow of products between adjacent firms in the distribution system channel.
In this context it is argued that in a well-synchronised JIT manufacturing system, customer demands can be met and profits maintained or increased through a reduction in stockpiles and inventory levels which do not gain in value as they await the production process. In fact they cost the organisation money in terms of financing an unproductive resource. In such a system the supplier and manufacturer relationship is critical and close associations must be developed. This typically means a reduction in the number of suppliers and long term relationships. Rosenberg and Campbell (1985) have said that sales people spend less time selling and more time acting as liaison between buyer, engineer and their own production management. This indeed leads us later to the notion of relationship selling.
Relationship marketing means that an organisation’s marketing effort should be designed around a series of contacts with customers over time, rather than on single transactions. This means that more non-marketing people are involved, and has led to the notion of what Gummesson (1991) terms the ‘part-time marketer’ as these non-marketing people are increasingly brought into contact with customers at an operational level. He says that TQM has become an integrator between production orientation and marketing orientation and the convergence of these two approaches towards the same goal is customer perceived quality and customer satisfaction.
This view is further supported by Clark and Fujimoto (1990). They contend that the traditionally held view of marketing is too assumption based and slow to respond to new customer demands. Traditional company and marketing structures are too hierarchical and rigid and cannot respond to new segments or niches within a market. They further state that in industries ranging from cars and computers to jet engines and industrial controls, new products are the focal point of competition. Developing high quality products should be at the head of the competitive agenda for senior managers around the world.
Many companies now bring marketing into product development at a much earlier stage in the decision making process. Temporary task forces are set up as project teams that involve personnel from different departments led by a team leader or project manager to see through new products. Such people are called ‘product champions’ or ‘project champions’. In the automotive industry this normally starts at the design stage of a new vehicle when the product concept is being developed through initial brainstorming right through to the product’s launch. As a result there is continuity of interest and impetus and it is not a matter of the project being ‘handed over’ to the next stage of the development through to launch process.
At a practical level the Department of Trade and Industry (1993) have introduced what they term ‘best practice benchmarking’ (BPB). This involves an organisation forming a project team comprising people from multi-functional areas such as marketing, production, quality and purchasing. The team’s task is to obtain information on products or companies in the industry in which they operate that have a higher level of performance or activity and to identify areas in their own organisation that need improving. The team also needs to be given the facility for research on product development and quality. It is contended that because of the benefits of shared knowledge in such a multi-functional team, that companies implementing BPB should find that this will drive members of the team to meet new standards or even exceed them.
3 The notion of reverse marketing
Although buyers have the purchasing power to initiate commercial transactions, it is traditionally the case within organisational buying situations that sellers tend to visit buyers, and this indeed is the focus of this text. This is sometimes termed transactional marketing where the emphasis tends to be upon a single sale and the time horizon tends to be short-term. Quality is generally seen to be the concern of production and there tends to be an emphasis on product features and price.
To re-emphasise what was said earlier in the text, the notion of reverse marketing is where buyers tend to take the initiative and they source suppliers (sellers in other words). This is particularly applicable nowadays in retailing and in JIT manufacturing situations. JIT manufacturing has proved to be so economical and efficient that this will be an increasing trend in production line manufacturing situations where a relatively standardised product is being produced on a continuous basis. Here buyers seek to source suppliers whom they will retain for a long period. The main criterion being sought of suppliers rests upon the quality of their goods and reliability of their supplies as and when they are demanded, for in JIT situations down time on the production line as a result of faulty components or late delivery can be very expensive. This view is supported by Deans and Rajagopal (1991) who say that the cheapest component procured from driving hard bargains with multiple sources is not necessarily the least expensive in the long run. Once the cost of poor quality is factored in - downtime on the production line, rework, scrap, warranty work, legal fees, etc. - the cheapest may well be the most costly.
Leenders and Blenhorn (1988) state that many companies take a minimum of two years to achieve acceptable quality standards from supplies in the situation just described. To discuss contracts for six months or one year is meaningless. Purchasing development costs must be recovered and this has to be done over longer periods of time. Suppliers and buyers form a long-term ‘comakership’ agreement where both parties derive mutual benefits.
A T Kearney (1994) conducted a wide ranging study which concluded that the next wave of business improvement will not be obtained by looking at business in isolation, but by looking at the supply chain as a whole to find new opportunities to improve overall effectiveness. Additional areas of duplication and waste become evident and offer new sources of cost reduction. Service to the end customer can be driven to even higher standards by focussing the whole supply chain towards that goal, rather than diluting the efforts of individual companies through conflicting objectives. This broader vision is termed supply chain integration (SCI).
The report goes on to conclude that closer relationships between suppliers and customers will become a competitive necessity. It does, however, caution that a naive belief in an ill-defined concept of partnership as a universal panacea will do more harm than good. A realism is required in SCI that considers the practical difficulties of integration, the level of sophistication of the participants and the nature of competitive advantage and power within the supply chain. Each company has a different mix, or portfolio, of supply chain relationships with each operating at different levels and the key is to select the right one for the right supply chain.
It is a fact of life at the current time that the trend towards reverse marketing will gather momentum. Buyers as a group are becoming more professional and indeed such professionalism is needed in JIT purchasing situations. So how do we cope with their needs once the company is an ‘in’ supplier and a long term relationship is anticipated? This brings us back to the notion of relationship marketing. Gronroos (1990) argues that implementing the traditional view of marketing is unsatisfactory. He quotes the limitations of the ‘four Ps’ and citing that other ‘Ps’ like people and planning have to be added in an attempt to cover new marketing perspectives. He agrees with the concept basing its activities on customer needs and wants in target markets, but he argues that this still smatters of production orientation as these ideas stem from the firm and not from the market place. His redefinition of marketing perhaps sums up the concept of reverse marketing and the resultant cognition of relationship marketing when he cites:
Marketing is to establish, maintain and enhance long term customer relationships at a profit so that the objectives of the parties involved are met. This is done by a mutual exchange of promises.
4 From relationship marketing to relationship selling
Cox et al (1995) put forward a very interesting view from a procurement angle when they contend that substantial additional value could be secured in buyer/supplier relationships by securing a greater focus on the supply chain. From the purchasing point-of-view this involves an integrated approach to value acquisition from suppliers, value added from manufacturing and value delivery to customers.
Added to this view is the fact that the most important feature of buyer/seller transactional relationships tends to revolve around price, and indeed as we cite throughout the text, ‘negotiation’ is one of the key issues in the sales presentation. However, a new view has emerged, and that is the notion of ‘open accounting’. This kind of agreement is only possible when long term relationships between buyers and sellers have been established in a typical JIT production situation. Here price negotiation does not feature in buyer/seller transactions, for each side sees the other side’s price make-up. Buyers will have access to the seller’s accounts in terms of the cost build-up for components or materials that are being supplied. These accounts will show the amount of material, labour and expenses plus overheads that have been incorporated into the cost of such products. As the notion ‘open accounting’ infers complete open access is afforded. Equally, suppliers will also have access to the manufacturer’s accounts for similar analysis. A mutually acceptable margin for profit will then be agreed between the buyer and the supplier so in effect the pricing element of the marketing mix has now become redundant, which perhaps adds additional credence to the earlier view relating to Gronroos’ new definition of marketing.
All of the above suggests that certain tactics are needed to put it in place. Relationship marketing is about the strategic thinking that relates to this new view of marketing brought about as a result of reverse marketing. It is now contended that relationship selling concerns the tactical features of securing and building up the relationships implicit in relationship marketing.
Barnet et al (1995) make a very interesting observation when they say that there are striking differences between Western and Japanese approaches in the sharing of technological effort. In Europe an average of 54% of the approximately 6800 engineering hours needed to produce a new model are contributed by sub-contractors. In the USA it is only about 14% of the 4200 engineering hours needed. In Japan, the hours required are lower at 3900, but about 72% is supplied by sub-contractors. The sub-contractors’ ability to participate in product design gives their Japanese customer the advantage of sharing the work load and reducing the time to market through what is called simultaneous engineering. In such a relationship it is common for the partners to give access to and share technology.
The role of marketing is changing. Selling is often viewed as a tactical arm of marketing and its role is changing too.
As well as the changes that have been identified so far, the marketing environment is changing in other ways. The penetration of the worldwide market by satellite and cable television means that ‘blockbuster’ promotional campaigns will become increasingly difficult to sustain owing to the fragmentation of viewers’ patterns of watching television programmes. Brand loyalty will thus be more difficult to maintain. As the effectiveness of above-the-line media in general diminishes, so it will become a less attractive form of promotion for advertisers. There will be a general move towards below-the-line activity as more cost effective campaigns can now be mounted through precisely targeted direct marketing approaches. This will lead to more effective ways of generating sales leads. ‘Push’ rather than ‘pull’ promotional techniques will become more popular and of course a ‘push’ promotional strategy is very much the concern of the sales function. It will also mean a general increase in customer care programmes and this will be seen as very effective means of customer retention. Big companies, who might have viewed the unique selling proposition as being their ‘winning card’ in the past when dealing with customers, will be compelled adopt more of a small business philosophy by staying adjacent to their customers in terms of understanding their needs and looking after them after the sale.
Lancaster and Reynolds (1995) suggest some of the activities that are increasingly becoming the responsibility of the sales function when they quote an expanded role for the modern sales person. Some of these views have been taken as well as other views and extended into what can now be regarded as a modern view of the tactics of relationship selling.
5 Tactics of relationship selling
Customer retention is a prime objective of relationship selling and this can only be done in an organisational selling situation through having full regard to customers’ needs and forming long and trustworthy relationships. In such situations it can be seen that the period individual sales persons stay in particular posts will increase in terms of time. Buyers generally stay in their positions about twice as long as field sales people.
It is anticipated that under relationship selling circumstances the time in post of individual sales people will move towards that of their purchasing counterparts. Why should this be the case? It can be postulated that buyers, because of the type of role they fulfil, have what may be termed a more ‘sedate’ occupational lifestyle than the traditional sales person whose lifestyle ‘on the road’ can be quite hectic. Buyers are thus more ‘settled’ and stay in post longer. As buyers become more proactive in the market place under the notion of reverse marketing, so their lifestyle will become more akin to the lifestyle of the field sales person. Although there is pressure to purchase effectively, this is not the same kind of pressure as the pressure to sell in terms of reaching sales targets and quotas in a given period, so it is contended that it is a different kind of pressure. At the same time the role of the field sales person will also witness a different kind of work pressure under reverse marketing. The pressure will be more about serving the longer-term goal of customer retention than about sales targets and quotas. It is even contended that in such circumstances the traditional sales commission system might well disappear to be replaced by a higher basic salary plus bonuses shared by the expanded sales team under the concept of the part-time marketer, and this might also include, amongst others, production, quality and finance people.
Different qualities will be required of field sales people in relationship selling situations. Features like determination, self-motivation, resilience and tenacity whilst still important when establishing long term relationships might well be overtaken by features like acceptability, attention to detail and the general ability to ‘get along’ with people on a long term basis. To a certain extent the ‘cut and thrust’ that one traditionally associates with field selling positions will be supplanted by a calmer environment of working together as a team that not only includes members within the sales person’s own company, but also members of the buyer’s company.
Sales visits to individual customers are likely to be longer in duration and this will result in less individual sales calls being made. In fact in some situations it can even be envisaged that there might well be somebody from the supplier’s company permanently in place at the customer’s company. This in fact is already being practised in some high technology companies like those that provide computer software and hardware to large retail organisations.
At a more practical level, the following two activities which currently tend to be regarded as being ancillary to the task of selling will become more important:
- Information gathering in terms of collecting market information and intelligence is becoming an increasingly important part of the task of selling. Such information gathering feeds into the company’s marketing information system which is described in Figure 2:
MARKET INTELLIGENCE MARKETING RESEARCH COMPANY’S MARKETING INFORMATION SYSTEM (MkIS) COMPANY INTERNAL ACCOUNTING SYSTEM STRATEGIC MARKETING PLANS
Figure 2 Marketing Information System
A company’s marketing information system (MkIS) has three inputs which are marketing research, market intelligence and the company’s own internal accounting system. These are inputed into the MkIS that captures the data on a database. Marketing research is provided by the marketing department from their own primary and secondary research and from commissioned survey data. The company’s internal accounting system relates to sales analyses by customer purchases over periods of time, by customer group, by geographical area, by size of order and any other combination that may be required. Market intelligence relates to information on competitors and the products and services they supply, plus information upon how they generally ‘perform’ with their customers. It also relates to the company’s own customers. Field sales personnel are extremely good collectors of such market information and intelligence. This is precisely the area in which the responsibility of sales people will expand as collectors of such information and indeed information technology skills will become increasingly important as individual sales persons interact in terms of inputting to and outputting from the MkIS as part of their routine activities. There is, of course, an output from the MkIS and this is to the strategic marketing planning system. Thinking in business in general is becoming more strategic and long term in nature and the MkIS is the principal data input into strategic marketing plans. Therefore, the role of the individual sales person will become more strategic as the relevance of the regular reports that are made input to the MkIS which in turn inputs into the organisation’s longer term marketing plans.
- Servicing is the next area in which the role of the sales person will become invaluable. This will include a certain amount of first line servicing so product application as well as product knowledge will be important, but what we refer to here is servicing in a broader sense of serving customers on a highly individualistic basis. The notion of field sales personnel staying longer in such positions will allow them more time to acquire such skills. However, the likelihood is that such sales personnel will come from more technical backgrounds like engineering or chemistry. Servicing will also include technical advice in relation to such matters as levels of quality, arranging after sales service, setting up improved customer care programmes and even consultancy services. More practical matters like agreeing delivery schedules, expediting individual orders and occasionally progressing payment for orders supplied will also feature in this context. In JIT manufacturing situations the sales person’s company will be part of the supply chain which stretches not only forward to the end customer, but backward towards the sources of prime manufacture. Buyers could well need information on your own suppliers as part of the process of supply chain integration (SCI).
Does all of this suggest that the sales person of the future will not need to be versed in any of the skills of selling? In a word: ‘No!’ Prospecting skills will always be needed from leads that will be increasingly generated from direct marketing approaches rather than from cold calling. Skills of sales presentation will also be needed in such circumstances. Negotiation skills too will still be needed. Communication skills have always been an important part of the field sales person’s ‘armoury’, but under traditional marketing such skills have been honed in such a way as to ultimately win orders and, cynically speaking, through ‘telling them what they want (or need) to know’. Under reverse marketing, communications skills will still be essential, but the customer/sales person dyad will be more in terms of equals than of an ‘us and them’ situation.
This paper has examined trends that are now occurring in the market place, and has looked at these trends in the context of likely changes that are currently being witnessed, and will be increasingly felt, within the selling function.
It has traced the development of the movement from its earliest roots that related to quality issues through to the more mature notion of total quality management (TQM). In a more discerning market place customers desire and deserve the best in terms of quality, and the selling implications of such expectations have been discussed.
Just in time manufacturing (JIT) is growing apace as a manufacturing technique and the relevance for selling is that longer-term relationships are becoming the norm. Traditional marketing is thus beginning to be replaced by reverse marketing with buyers becoming more proactive in initiating commercial transactions that also include long term strategic relationships.
Relationship selling is the raft of sales tactics that actually delivers relationship marketing strategy to the company and to customers.
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