Relationship

marketing
Prof. pherwani

prof. pherwani 1
Coverage
1. Conceptual foundation of relationship marketing-
evolution of relationship marketing-its significance in
Indian context
2. Relationship marketing of services vs. Relationship
marketing in consumer markets
3. Buyer-seller relationships
4. Relationship marketing in mass markets-relationship
marketing and marketing strategy
5. Relationship marketing & distribution channels
6. Role of IT in building maintaining and enabling
relationships
7. Customer profitability design and analysis

prof. pherwani 2
Introduction to relationships
Intuitively human beings & primates inclined to be in
relationships with others of the species-the disciplines of
sociology & anthropology are essentially on this premise.
o in personal relationships people tend to forego the opportunity to
exercise continual choice and instead commit themselves to a
particular person for relationship over time-true in dating,
marriage, best friends, mentoring, apprentices, business partners,
associates.
o This is also essence of learning behavior.
o Memory as a relevant construct of relationship marketing is
applicable to both from customer’s perspective & marketer’s
perspective-organizational memory is key characteristic of
RM-in which a firm retains all relevant information about
consumers to use it as a guide for future interactions-the
essence of a learning organization is creation & effective
use of organizational memory- Senge

prof. pherwani 3
Understanding customer relationships
Hugh Munro suggests-there are 4 distinct types of marketing:
1. Transactional marketing-an event during which exchange of value
[goods or services] takes place-even a series of such transactions
doesn’t mean relationship marketing-which requires mutual
recognition & knowledge between parties. each transaction is discrete,
anonymous, no formal record kept of a customer’s purchasing history,
little or no mutual recognition between parties-no meaningful
relationship is sad to exist.
2. Three categories of relationship marketing-database [focus still
on market transaction, but now includes information exchange]-
interaction [closer relationship exists when there is face-to-face
interaction, value is added by people & social processes] & network
marketing when he is able to put an individual touch & works in B-2-
B context where firms commit resources to develop positions in
relationships wit stake holders in supply chain.

prof. pherwani 4
• Total relationship marketing-according
to Evert Gummerson is- marketing based on
relationships, interactions and networks, is
embedded in total management of
networks of the selling organization, the
market, society. It is directed to long-term
win-win
Nature
delivery
relationships
of service Membership with
relationship
individual
No formal
relationship
customers and value jointly created between
Continuous delivery
Insurance- Radio station,
involved parties. Some examples
of service
police
of
relationships cable
withTV, customers recognized
college protection, light
as: house, public
enrollment, highway patrol
banking
Discrete LD telephone from
prof. pherwani
Car rental, mail 5
transactions BSNL, theatre series service, toll
1. Conceptual foundation of RM
Components of a marketing concept
Customer orientation
coordinated marketing customer organizational
activities satisfaction success
Organization’s performance
Objectives

Mktg. concept is an appealing idea but must be converted

into specific activity and one of them is- customer
orientation
And this has led to customer relationship management.
The idea is not new but benefits of use of extensive data has
created unique competencies and opened up
prof. pherwani 6
opportunities.
CRM defined- establishing multi-dimensional connections
with a customer [relationships] such that organization is
seen as a partner.
How?
 Sorting and analyzing data supplied by customer

 Data gathered from 3rd parties

 Data collected from previous transactions

 Requires a lot of time & effort to create & maintain and

are not appropriate for every exchange situation.
Result
 Marketer is able to better understand a customer’s
needs and preferences
 There is more to relationships than data-it is building
successful partnerships in business, enduring
relationships can be built upon trust & mutual
commitment
 Applying mktg. effort to build lasting relationships with
selected customers. prof. pherwani 7
Relationship Marketing process framework

Formation

Management & Evolution

governance

Performance
Evaluation

prof. pherwani 8
Formation governance & evaluation model of RM
Formation management & governance performance
Purpose . role specifications
• Innovation .communication
effectiveness .common bonds
• Improve .planning process relationship performance
• efficiency .process alignment . financial
program .employee motivation . marketing
. Rational selling .monitoring process . Strategic
. Retention mktg. . operational
. Co-op arrangements . General
strategic partnership.
Partners
• Criteria
• Process
Evolution
. enhancement
. termination
prof. pherwani 9
Harley Davidson uses web to build relationships with
customers to personalize its interactions
www.harleydavidson.com
 The firm created a club Hog-Harley Owner’s Group for bike
owners. It offers more than 650,000 members insurance,
free safety lessons, safe-riding competitions, and 1,150
local chapters that hold regular meetings
 The Internet is a two-way communication capability

What do they hope to get in return?

A feeling of goodwill among their best customers and a
sense that firm cares about more than making the next
sale-they are seeking a long-term relationship with
their customers which will be mutually beneficial.

prof. pherwani 10
o Earlier narrow meaning- customer database
management activity involving detailed information
about individual customers and carefully managed
customer touch-points in order to maximize
customer loyalty-is now broadened to encompass-
overall process of building and maintaining
profitable CR by delivering superior customer
value and satisfaction.
o Firms are going beyond designing strategies to attract new
customers and create transactions with them-they’re using
RM to retain current customers & build profitable,
long-term relationships-marketing is an art of finding-
retaining & growing profitable customers.

prof. pherwani 11
Evolution of RM
1960s Direct mail became a minor part of mktg.
mix. lists were stored on lead plates and
selections using holes in index cards and
needles. Many direct marketing associations
existed with their roots firmly in mail order &
direct marketing
1970s Direct response advertising became
important to create sales leads-the prospect
details began to be stored in simple main
frames then used around in advanced offices-
followed up using direct mail, telemarketing
and persona; sales techniques.

1980s Data base marketing-became the catch

phrase-marketers began to use computer
prof. pherwani 12
Late One-to-one marketing became vogue-
1980s marketers realized they could now use the
affordable technology to communicate with
customers individually-as a part of larger
campaign-tailoring messages & offers to
info. known & stored about customer.

Early Loyalty marketing-became

1990s fledgling discipline when marketers
realized that applying similar tech. to
lead generation & acquisition, they
could sell more to existing customers
& extend their life as customers-credit
card & airline loyalty programs
became well established parts of
prof. pherwani 13

marketing landscape around the

Historical-its roots were established 75 years ago!
1. 1933-Buttercup Bread company launched its -safety club-
where children were able to collect a range of safety tips
from wrappers of loaf bread-the more bread the mum
bought the more safety tips the kids collected
2. 1938-Curt Carlson founded the Gold Bond Stamp company-
retailers gave customers one stamp for each dollar they
spent in their shop-customers redeemed them for rewards
with the firm.
3. 1951-Ovaltine launch-where kids collected Secret Squadron
codes and then used a Oval tine Secret Squadron Decoder
Ring-to read the secret messages.
4. 1981-American Airlines launched their AA Advantage
Frequent Flyer Club
5. 1992- saw Citibank launch the first credit card loyalty
program- and other airlines also ventured into o frequent
flyer domain.

prof. pherwani 14
 Loyalty programs-some disasters
• Pan Am’s-frequent flyer program was a major contributor to its
demise-their points had no expiry dates-they were evergreen! So
passengers were able to build their points over several years-reaching
a balance value where redemption equaled almost the flight costs-at
one stage the planes were flying around North America with no fare-
paying passengers-only those with FFpoints-a recipe for certain
disaster.
• UK Green Shield Trading Stamps-were based on a revenue & a cos
redemption based on a single stamp being issued-one stamp per set
expenditure level-with some bonus stamps of double. 30% of stamps
issued were redeemed-it was too hard for people to save up stamps for
the merchandize of choice. Petrol companies started emulating issuing
40-fold stamps for some period-easier & quicker, just few weeks to get
a toaster instead of 6 months-redemption increased to 60%-cost
doubled-they had to exit-new avatar-high street catalog- ARGOS.
• Umpteen failures in India-IOC loyalty card-Binny’s coupons etc-
all seen as tactical bribes, synthetic rewards for repeat purchase-not as
recognition of loyalty.

prof. pherwani 15
prof. pherwani 16
Types of RM programs
customer type
Program type Individual Distributors/ Institutional
consumers retailers buyers/B-2-B

Continuity Loyalty programs Continuous Special supply

marketing replacement & arrangements [e.g
ECR programs JIT, MRP]
Individual Data Customer Key account
marketing warehousing & business management
data mining development
Co-marketing Co-branding Cooperative Joint marketing &
/partnering marketing co-development

prof. pherwani 17
Transactional & Relationship marketing
mutual interdependence

Relationship marketing

Competition conflicts mutual cooperation

Transactional marketing

Inter-dependence and choice

prof. pherwani 18
 Relationship orientation
Pre-industrial

industrial era

prof. pherwani

Post industrial era

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 process
relationship perspective

Value distribution value creation

exchange perspective
outcome

Paradigm shift in marketing orientation

prof. pherwani 20
RM summarized-1
• This is an approach to mktg. that seeks to establish
long-term relationships with customers based on trust
& mutual co-operation
• It involves establishments of personal contacts and
bonds between the customer & firm’s reps-the
eventual emergence of feelings within each party of
mutual obligation of having common goals & of
involvement with empathy for the other side.
• Integration of all firm’s activities concerned with
customer care-not just marketing.
• It contrasts with conventional transactional
marketing which has a short-term time horizons and
focuses securing a single sale. TM has limited
customer contact & little emphasis on customer
service. Quality is seen as a matter to be dealt with21 by
prof. pherwani

firm’s production not entire firm

RM summarized-2
• Techniques of RM-extensive provision of information on the firm &
products, personalization of communication with customers, free
gifts, attractive premium offers & careful monitoring of
relationships formed with particular customers.
• RM is characterized by total commitment to customer care-
openness-genuine concern for delivery of high quality goods &
services-responsiveness to customer suggestions-fair dealing-
crucially sacrificing short-term advantage for long-term gain.
• Suppliers attempt to create & strengthen lasting bonds
with customers -shift from making a profit on each
individual transaction towards establishment of solid,
dependable & permanent relationship with customers they
serve.

prof. pherwani 22
RM summarized-3
• Customers are seen as partners in mktg. process-not as
individuals to be influenced simply to make a one-time sale.
• Repeat orders from existing customers are much more profitable
than new business-there is no need to spend money on
advertising-visit by sales people
• Implementation of RM has been facilitated by IT that enables
firms to hold enormous databases containing extensive customer
personalized details of individual customers enabling suppliers to
customize their target promotions precisely using differentiated
message based on known individuals-tech breakthroughs have
occurred in database capacity-interconnectivity-enquiry language-
operational efficiency

prof. pherwani 23
RM summarized-4
• The expansion of Internet & broadband makes direct
interactions possible with geographically remote foreign
customers
• Direct marketing has expanded recently
• Higher customer expectations in relation to level of service
• Example of success achieved by Japanese firms that place
great emphasis on long-term commitment to customers-
suppliers-TQM-meticulous attention to customer care.
• More extensive consumer protection legislation-product
liability-unfair contract terms-product recall the world over.

prof. pherwani 24
RM summarized-5
• Market as networks- Closer relations with

Customers- suppliers
manufacturers

• has led to network marketing comprising a supply

company and other firms with which it has built solid,
reliable, long-term business relationships-it has
established links to provide mutual assistance &
support for distributing several firm’s products-
company’s own input suppliers, licensees or sub-
contractors-partners in new product research and
development.
• Within networks flow information as well as exchanges
of money and goods-social interactions improves
outcomes. prof. pherwani 25
Good relationships start with a good fit
• Companies need to be selective about the segment
they target, if they want to build successful
relationships-matching customers to firm’s capabilities
is vital-whom should we be serving?
• how customers relate to operational elements-speed,
quality & reliability, the times service is available,
physical features & appearance of service facilities
• How ell their employees can meet the expectations of
specific type of customers-personal style & technical
competence.
• Match & exceed competing services that are directed
at the same types of customers.
• A superior service in the eyes of customers who value
what the firm offers.
prof. pherwani 26
• Focus not on members from manning point of view-without considering
the value of each customers heavy users buy more frequently 7 in large
volumes & more profitable than occasional users.
• If you favor a particular restaurant, a car service, a telephone service
provider,-you are potentially a lot more attractive to the firm than a one-
time visitor-& it is tailoring it offer to attract people like you-service
hours, price, doing its best to make you loyal-other places you may feel
you are giving value but not being valued
• All segments are not worth serving & may not be realistic to retain them-
use of resources relative to the revenue they supply
• Relational customers are not buying commodity services-lowest price
seeking customers are not good target customers for RM in the first
place-deal-prone customers always seek low price
• Employees have improved daily jobs from appreciative customers.
• Attracting wrong customers typically result in costly churn-a diminished
reputation & disillusioned employees- no focus on unbridled acquisition.

prof. pherwani 27
• Firms have built strategies around serving customers neglected by
established players that didn’t perceive them as sufficiently valuable-
Enterprise Rent-A-Car targeted customers who need temporary
replacement car & avoided the big ones pursuing the business
travelers, Paychex provide small businesses with payroll &HR services,
Charles Schwab focused on retail buyers of shares. Some customers
may be difficult to please or unable to decide what they want
• Portfolio-artists & writers prepare a portfolio of their work to
show to prospective buyers-portfolio also describes a
collection of financial instrument held by an investor or the
array of loans & advanced by a bank. Goal of a portfolio is to
determine a mix of investments or loans that are appropriate
to one’s needs, resources & risk preference=contents should
change over time in response to performance of individual
elements, as well as changes in customer’s situation or
preference.

prof. pherwani 28
• Caliber of a professional firm is measured by the
type of clients it serves & the nature of tasks it
works-volume alone is no measure of its
excellence, sustainability or profitability.
• Marketers should adopt a strategic approach to
retaining, upgrading and even terminating
customers-whose retention involves cost-effective,
long-term links for mutual benefit the effort need
not target all firm’s customers with same level of
intensity.
• Its critical to understand the needs of customers
within different profitability tiers & adjust their
service levels.
• Tiering the customer base-like SIA or AMEX cards-
platinum-gold-silver
prof. pherwani 29
Significance of RM in Indian context
The earliest example is going back to 1987, when Unit Trust of
India had computerized all accounts. The culture was if the
annual dividend was coming due of 30th June, the dividend
warrants should by in the hands of investors by 25th June! UTI
was pioneer in sharp and agile Customer relationship to bond
with their growing investor domain-73 million and competing
against the following instruments:
• Hidden cash
• Dormant bank accounts and time deposits
• Post office saving instruments
• Company fixed deposits
• Gold

There was no concept of mutual funds-which UTI

pioneered later and no online trading. Pherwani
committee was formed for acceding to their suggestion
to have a parallel stock exchange and electronic
trading[ NSE is the result and its accompanying demat
culture-and this has reduced the strangle-hold of
unscrupulous brokers onprof.the
pherwaniinvesting public] 30
They had kept a parallel accounting and high-speed dividend warrant
printers with a IBM S-360S mainframe at Cochin, if the Bombay office
goes on work stoppage or sabotage-[public sector unions were restive and
local politicians with full backing of Bears –the broker category which just spoils
the market for others, yet everyday earning for themselves-UTI was called the
BIG BULL- Dhirubhai Ambani phenomenon happened few years later.] aim-
customer service should not suffer at any cost-each customer felt he
is the only one being serviced by UTI. There was a overly huge
emphasis on customer care-these words are a commodity today
only in lip-service, how do you get a public sector behemoth into a
well-oiled service machine serving 73 million investors unless there
is top-level involvement and full time dedication to s prevent service
failure. Competition is like a wounded animal waiting for a minute
failure and blow it out of proportion-the bear cartel had some papers
like Indian Express and local ministers in their pocket and since
more people were becoming UTI customers-their only method was
strong investor-support.

prof. pherwani 31
Strength of relationship over time
Strength of
Relationship connection

The-I- will-buy- level F the G point-down-

turn in relationship has
E occurred
response received response not received
G

Positive emotions
positive
relationships
The neutral level A B C D
Negative emotions
H Negative
relationships

J
The-I wont-buy-level

interest stimulated by response response

marketing-DM or advtg. expected overdue

Time prof. pherwani 32
Strength of relationship connection over time
point description
A-B Prospect unaware-no thought to open a relationship with firm
B Sees stimulation-ad-recognizes service/product-considers??
B-C Expectation & anticipation heightens as he considers need
C Realizes offering may bring some value-request information
C-D Expectation & anticipation increases strength of R-waiting for info.
D Here he expected the info. to arrive-if firm responds the , they invite
him to a Relationship-it takes 2 alternative routes

Here’s the good news track !

D-E Info. Sought-received & meets expextation-potentail customer
makes a purchase decision-crosses the I-will-buy- line
E Relationship is to be cemented-prospect buys-becomes a customer

E-F Enjoys product/service-strength of R is growing-expectations met

F Customer is so satisfied with product & supporting service=becomes
an advocate-starts recommending
prof. pherwani
to others & firm delivers same
33
level of service to others too.
Point Description
D-G Prospect still feelsNow
he should have received
the other he
information track
requested by now-he hasn’t-resulting
is slowing down of his enthusiasm & expectation-not
reverse yet-recovery possible but not easy.
G If organization doesn’t deliver information by this
point-prospect’s initial expectation hasn’t been met-
gap between expectation and delivery creates
frustration & strength of relationship begins to
decline.
G-H Nothing has happened so strength of relations hip is
damaged & takes a negative turn-its still recoverable
but only just-& it’ll take a lot of expensive follow-up
to save prospect’s expectation of relationship.

H-I Declining rate of relationship increases-& almost

nothing can be done to recover the
I The point of no return-all is lost-previously potential
customer has crossed from feeling positive about
organization & its products
prof. pherwani or services to a space
34

where they actually begin to feel negative about

Some thoughts by sages
 Each & everyone of you will make or break promises that our
brand makes to the customer-Amex CEO to employees
 A life is for one generation-good name is forever-Japanese
proverb
 Education costs money-so does ignorance- sir Claus Moser.

 What is a cynic? A man knows the price of everything and value

of nothing-Oscar wilde
 Ultimately only one really matters in service encounters-the
customer’s perception of what occurred-RB Chase
 The right people are your most important asset-Jim Collins

 The first step in managing a loyalty-based business is in finding

& acquiring the right customers-FF Reicheld.
 Strategy first and then CRM-SS Ramsey

prof. pherwani 35
• One of the surest signs of a bad or declining relationship is
the absence of complaints from the customers. Nobody is
ever that satisfied, especially over an extended period of
time-Theodore Levitt
• To err is human to recover , divine- Christopher Hart
• Marketing is about getting better business not simply more
business- David Maister
• Marketing is so basic that it cannot be considered a separate
function—it is the whole business seen from customer’s point
of view. Concern & responsibility of marketing must
therefore permeate all areas of the enterprise.-Peter Drucker
• Computations only speak only to appearances and not to
realities-Plato
• In fast-moving and dynamic industries that involve customer
relationships, product come and go but customers remain-
Valerie Zeithaml &Katherine Logan.

prof. pherwani 36
• Mind the back door while you greet new
customers-David Dove
• World did not need another me-too bank, I had no
capital, no brand name, and I had to search a way
to differentiate from other players.-Hill founder of
Commerce Bank, New Jersey.
• New York may be the most over-banked place in
the world, but the most under banked market.
there are over $ 1 trillion in deposits-it represents
an enormous opportunity
• No one has built a power retailer in this country
thru M&A you should continue to grow organically-
its easier to build a bank than fix one.

prof. pherwani 37
 RM in services
As a merchant, you’d better have a friend in each town
-an old proverb from the middle ages..

prof. pherwani 38
o Marketing is a performance rather than an object
o Reality of customers forming relationship with people rather
than goods paves way for RM
o Services are rendered on an ongoing basis-& repeated
contacts facilitates relationship.
o Product intangibility requires reselling efforts.
o Customer doesn’t know what he is getting till he has got it and
then he dwells on dissatisfaction only its then essential to
remind customers what he is getting and occasional failures
pale in relative importance.
o Improving service quality has engender customer loyalty-& its
growth fosters interest in relationships.

prof. pherwani 39
RM is on the mature stage-the
concept is well set in.
4 convergent influences have
propelled current focus on
RM:
1.Maturing of services
marketing
2.Increased recognition of
potential benefits for the firm
3.Customer advances
prof. pherwani 40
Benefits to customer Benefits to firm
o Many customers desire to be
o Profits climb steeply when a
relationship customers-for
continuously or periodically service lowers its customer
delivered servies-personaly defection rate.
important, complex or variable in
o Costs to service existing
quality-desire continuity with the
same provider.. customers are lower than
o High involvement services hold costs to acquire new
relationship appeal. customers.
o a proactive service attitude,
customized service delivery.
Examples- credit cards,
o Heterogeneity of service and
telecom, banks,
intangibility encourages loyalty. warehouse clubs vs.
Examples-medical, banking, supermarkets, online
insurance, hairstyling, personal brokers vs. full service
fitness trainers, brokers, lower cost
airlines,
3.A firm can capitalize on
improved service
prof. pherwani
investments by effective
41
o Auto-repair firms want to find customers who will
be loyal-but customers want to find auto repairers
who will evoke their relationships.
o Risk reducing benefits of having a relationship with
a given supplier, customers can reap social
benefits-it fundamentally appeals to people to be
dealt with on one-on-one basis-it’s a basic
human need to feel important.
o Service encounters are also social encounters-
repeated contacts assume professional as well as
personal dimensions.
o More knowledge able about customer’s needs and
requirements-combined with social rapport built
over years of service contact facilitate tailoring
service to need.
prof. pherwani 42
Some customer comments
 They should be my partner and more actively give
me advice on what’s calculated risk-our money is
their money too-business insurance firm
 they should take care of the detail-I want them to
be a distant extension of my company-truck leasing
firm
 They know technology & what’s best for us-
equipment service co.
 When employees come and recognize you as a
regular customer you feel good-hotel customer.
 As my assets increase they must come and advise
me regarding more coverage-personal insurance
company.
prof. pherwani 43
Share of customer
• RM leads to a different kind of thinking about nature of a business-
hitherto thought of in terms of single product & goal was to ensure a
higher share of the market more customers than their competitors
• Company objective is to achieve a higher share of customer-firm
tries to sell an individual customer as many goods and services as it
can over the lifetime of that customer’s patronage.
• He determines LTV of each of his customer and adjust its strategy
accordingly-treats its best customers differently than its other
customers-sends them right message at the right time.
• New technology allows marketer to track individual customer &
customize their marketing efforts.

prof. pherwani 44
4. Technological advances
 An expensive alternative to mass marketing-need to
be affordable
 Rapid advances in IT & communications is reducing
costs.
 Potential benefits are becoming better known.

Key tasks:
1. Tracking the buying patterns & overall relationship of
existing buyers
2. Customizing prices, promotions and service
customization.
3. Coordinating or integrating the delivery of multiple
services to same customer
4. Provides two-way communication
5. Minimizing errors and service breakdowns
6. Augmenting service offering and valued extras.
prof. pherwani 45

7. Personalizing service encounters as appropriate.

USAA, San Antonio insurance firm
o Primarily serves military clientele who are members of
the association. USAA has invested heavily on
automating insurance policy writing, member enquiry
claims, billing & other processes.
o Building a computerized , integrated customer data
base was a pivotal step, by 1994 2,6m were covered-
members & their families-spread throughout the world-
change locations frequently
o Policy changes are a simple matter-one brief phone call-
a member can insure a new car, add a driver, change an
address, effect any number of changes-member’s file is
consolidated-no handoffs to other departments are
required-transaction completion is a one-step process &
mailed the next morning.

prof. pherwani 46
Electronic imaging system at USAA-more than 30,000
pieces of information never leave the mail room.
Correspondence is scanned into a optical disk and inserted
into appropriate member’s electronic service file, which are
accessible to 2,500 service persons a col. Smiths query is
accessible on her IMAGE terminal and instant enhancement
of service encounter takes place including Smith’s last
correspondence.
o A breakdown Call gets to a customer anywhere in US in just
minutes with a service car, computerized screen
authenticates the validity and customer’s data comes alive
on the mobile screen.
o One has to experience the efficiency and rapidity of service
to change ideas on what technology is all about.

prof. pherwani 47
Walgreen-USA’s largest drugstore
o Fills 7% of all prescriptions

o Uses IT at the heart of its RM strategy-INTERCOM a

satellite-based computer system linking all 3,500
Walgreen stores in 30 states plus Puerto Rico-
maintains customer prescription records for timely
use in emergencies. Customers can obtain refill
prescription in any state-Walgreen's can reach any
pharmacy by a toll-free number 24x7 7 company will
send a prescription by overnight mail.
o It can provide patient prescription records to any
hospital emergency room swiftly.
o INTERCOM can provide customers printouts of bills &
prescriptions for income tax and insurance needs.

prof. pherwani 48
Brady’s-San Diego clothing firm uses technology for RM
 Captures customers preferences, demographic, size, style,
purchase history, hobbies, clothing assortment in its database to
customize services.
 Personalized letters are sent at start of each month to clients
having birthdays that month attaching a 15% discount coupon for
any merchandize in the store. Regular customers are notified a
week before a sale is publicly announced-allowing them a first look
at the sale merchandize. If overstocked in any items, Brady's writes
and invites them over for their odd size.
Technology advances are moving firms to segmenting
markets by groups to segmenting by individual households-it
recreates
Old fashioned relationships with tailor, corner grocer, jeweler.

prof. pherwani 49
Hertz & prof. Pherwani
• It was 2002. place London on Edgeware Road Office of Hertz Rent-a-Car Ltd.
Time 0900 hours. We wanted a car on rent to accommodate four for an
intended trip to Bath{ where ancient Roman Baths along with Roman Empire
artifacts and carvings plus a museum thrown in. outside there is a shoppers
Plaza-no vehicles allowed, you need to park far away in a Park House run by
Bath Borough}.
Girl at the counter asked for my license-it is ancient about 40 years old-but
valid. She stared at it. Passed on to her senior. I thought it is race and my
skin color and India origin-Act I, Act II, Act III all in my mind-the reality was
she observed it was my birthday, and had winked to her colleague who
rushed to get a cake. It came in 10 minutes-the time I was asked to wait,
with my thinking machine working. They celebrated it on the chin-high
counter before upgrading me to Merc 300, waiving £ 7,5 insurance and
handed over car keys! Their system knew I was a repeat customer
and had used their services 2 years back.

prof. pherwani 50
Amex
CustomExtras program uses RM to attempt
to get customers

prof. pherwani 51
Multiple levels of RM
It can operate on multiple levels depending upon type of
bonds used to foster customer loyalty=higher the level
at which RM is practiced, greater is its potential for
sustained competitive advantage.
Level 1
Relies primarily on price incentives to secure customer
loyalty-higher interest rates for longer duration
accounts in a bank, a free DVD rental after 10 paid,
frequent flier program of an airline.
Potential for sustained CA is low, because price is the
most easily imitated element of marketing mix-within
3years of AA establishment of Advantage frequent flier
program, 23 other airlines offered their own frequent
flier programs
Customers interested in price incentives are most vulnerable to
competition for strongest possible relationships a firm needs to
move to a higher level of bond.
prof. pherwani 52
2. Relationship marketing of services vs. Relationship marketing in
consumer markets
Three levels of Relationship marketing

level Primary Bond Degree of Potential for examples

customization sustained
competitive
advantage

1 Financial Low Low SIA Kris

Flyer
program
2 Social Medium Medium HOGS

3 Structural Medium to High FedEx

high PowersShip
prof. pherwani program 53
Financial bonds
• America West’s Flight Fund is a typical frequency mktg.
program. It offers travelers a chance to enjoy awards once
they have accumulated a minimum of 20,000 Flight Fund
miles. Certificates are redeemable for travel on America
West and Express & selected domestic and international
carriers-awards can also be redeemed with car rental &
hotel-9 chains-partners, Sprint LDCs, Visa card- a financial
benefit for increased patronage of America West.
• Most frequency mktg. programs are based on financial
incentives-season tickets for national games, movies
theatre-banks offer higher interest on deposits for higher
amounts-free trips for qualifying miles covered. A discount
pricing incentive to reward consumers for high levels of
spending for multiple purchases.

prof. pherwani 54
Social relationships
• Saturn owners converge on the car company’s headquarters in
Spring Hill Tennessee for a barbeque, a plant tour and a chance to
talk with other Saturn owners about their cars.
• Chrysler goes one better with one weekend for JEEP owners to
converge at the mountain town of Blending in Utah for Jeep
Jamboree-jeep owners gas-up and form a convoy to Arches Canyon
National Park, a 20 minute drive away. There for the next 2 days
and nights they get to test their vehicles on narrow roads in natures
roughest terrain-it offers a rare chance to experience the promise of
Jeep commercials-only 10% of those who own SUVs ever get a
chance to drive off-road. For Chrysler this offers a chance to bond
with the customers & establish brand loyalty. The participants
become ambassadors for the brand.

prof. pherwani 55
• Structural bonds- www.charlesschwab.com a financial
service provider provides its Velocity computer software so
that its clients can check stock quotes, evaluate portfolio
histories, get company info. Trade stocks on the internet and
solicits advice about investing options and maturity alerts-it is
creating a structural solution to an important customer
problem.
• Relationships based on structural bonds don’t depend on the
relation-building skills of the the service provider as in
traditional customer-broker relationship-but on the service
delivery system that is part of company structure.
Internet is the medium to build structural bonds.

prof. pherwani 56
Level 2
 Relies primarily on social bonds-although
aggressive pricing may be a vital element of
marketing mix. Here marketer capitalizes on
the reality that many service encounters are
also social encounters.
 It involves personalization & customization
of the relationship-

prof. pherwani 57
 HD has forged a powerful RM strategy on the foundation
of its HOGS-each dealership its own chapter. Harley-
Davidson pays the first year membership dues for the
customer who buys one of its motorcycles. It helps buyers
enjoy and use their motorcycles they sponsor & facilitate
weekend rallies, training session and other events that
brings together like-minded people. It mails a bi-monthly
magazine to HOGS members that lists national &
international riding events. 250,000 members make HOGS
program-illustrative of level 2 RM at its best. “ if customers
use the motor cycles, they will stay involved. If there is no
where to go and no where to ride the motorcycle stays in
the garage, the battery goes dead and a year from now
they will just sell it.”

prof. pherwani 58
 Social bonding involves personalization & customization of
relationship-communication with customers regularly through
multiple means, referring to customers by name during transactions,
providing continuity of service thru the same rep, augmenting the
core service with educational or entertainment activities such as
seminars & parties.
 Social bonding cant overcome a noncompetitive core product-it can
drive when competitive differences are not strong- a tolerant
customer of service failure or give a firm time to respond to
competitors entreaties.
Relational selling behaviors of life insurance sellers-staying in touch,
personalizing the relationship, sending cards, gifts.
Demonstrating a cooperative, responsive attitude.
on relational quality-client trust and satisfaction with the person
and anticipation of future interactions have a positive influence.

prof. pherwani 59
Level 3
The structural solution to the customer problems is the
base of RM
It offers value-adding benefits that are difficult &
expensive to provide & not easily available elsewhere,
they create a strong foundation for maintaining and
enhancing relationships. If marketers are also using
financial and social bonds, the foundation is even
more difficult to penetrate for the competitors.
The solution to customers problems is designed into the
service delivery system-rather than dependent on
relation building skills of the individual service
providers. The problem solution is structural and
binds the customer to company instead of the
individual who may leave the company.
. prof. pherwani 60
FedEx’s Power Ship Program which installs computer terminals in
offices of high-volume customers illustrates level 3 relationships
It consists of a series of automated invoice and shipping systems that
save customers time & money while solidifying their loyalty to, a
microcomputers terminal with modem, a bar code scanner and a
laser printer. FedEx. The system is scaled down to customer usage.
They receive free electronic weighing scale-Power Ship rates
packages with correct charges-combines package weight by
destination to provide volume discounts & prints address labels from
the customer’s own database. User can automatically prepare their
own invoice, analyze their shipping expenses and trace their
packages through Federal express tracking system-the score is 70 %
of its volume and 100,000 packages are thru Power ship systems
deployed at customer sites.

prof. pherwani 61
 Until recently-marketing focus was acquiring new
customers-marketing to existing customers wasn’t a
top priority-concentration was how to attract new
customers rather than how to retain existing ones-
retaining services consumers or consumer evaluation
of products or services was not used as a criterion.
 Five strategic elements for practicing RM:
1. Developing a core service around which to build
customer Relationship.
2. customizing the relationship to individual customer
3. Augmenting the service with extra benefits.
4. Pricing service to encourage loyalty
5. Marketing employees so that they in turn will perform
well for the customers.

prof. pherwani 62
2. RM in consumer markets

prof. pherwani 63
2. Relationship marketing in consumer markets
o Basic principle is consumers like to reduce choices by engaging in
ongoing relationships with marketers-reflected in continuity of
patronage over time-it is a form of commitment to patronize certain
selections rather than narrowing choices- this reduction of choices
is the crux of RM in consumer products-a prevalent, natural and
normal consumer practice.
o Consumers visit the same supermarkets, the same process of
purchasing, the same brands again and again-store loyalty-person
loyalty-process loyalty, all forms of committed behavior.
o Consumers engage in RM to achieve greater efficiency in their
decision-making-reduce task of information processing & increase
cognitive consistency, reduce perceived risks associated with new
choices, norms of behavior set by family tradition, influence of peers,
government mandate, religious groups, tenets, employer influence,
marketer induced policies.
o The RM here goes beyond repast purchase behavior and inducements-
repeat purchases are only a precursor of relationships.
o Bonding is created through partnering activities and value creation
more closer the bonding, the more committed the customer becomes and
patronizes other marketers less.

prof. pherwani 64
Relationship marketing in consumer markets
Consumer behavior theories & RM behavior
11.Theoretical Illustrative worksProblems Relevance to RM
approaches explained behavior

1. Buying Engel, Blackwell, Consumer problem Consumers reduce

behavior theory Nicosia, Howard & solving behavior choice thru use of
Sheth evoked set-desire
for simplification &
routinization of tasks
drive relational
behavior.

2. Learning Berlyne, Dawson, How consumer Learned experiences

conditioning Bears & Kelly, behavior is help in stimulus
generalization.
theories shimp, Skinner conditioned over Expectations of positive
time reinforcements induce
relational market
behavior
prof. pherwani 65
Consumer behavior theories & RM behavior
11. Theoretical Illustrative Problems Relevance to RM
approaches works explained behavior

3. Information Alba, Miller, Consumer ability toRM behavior helps

processing & Hutchinson, Belt process rehearse memory &
simplifies the info.
memory man information Processing task

4. Perceived risk Bauer, Beatly, Taylor Consumer risk Consumers become loyal-
reduction behavior a manifestation of RM
behavior to reduce
perceived risk-rational
behavior develops self-
confidence.

5.Cognitive,concistency, Hunt, McGuire How consumers” RM behavior reduces

balance, congruity, beliefs and feelings psychological tension by
confirmation, affect their behavior creating more consistency
in the cognitive system &
disconfirmation, reduces potential cognitive
attitudes, cognitive dissonance
dissonance-theories
prof. pherwani 66
11. Theoretical Illustrative works Problems Relevance to RM
approaches explained behavior
6. Family buying Childers & Rao, Sheth Influence of family on Consumers engage in
behavior consumer behavior RM behavior to confirm
to family norms &
interests, given the
power of family over
the individual

7. Social groups/social Blau, Coleman, Influence of social Consumers engage in

exchanges theory Goodwin groups on consumer RM behavior by
group influence behavior confirming to group
processes norms in order to avail
themselves of
socialization and avoid
conflict

8. Reference group theory Arndt, Rogers How consumer behavior is Motive to be socially
and word-of-mouth influenced by reference integrated drives
communication groups and word-of-mouth consumers to engage in
communication RM behavior in
accordance with reference
groups and WOM from
opinion leaders
prof. pherwani 67
11.Theoretical Illustrative worksProblems Relevance to RM
approaches explained behavior
9.governemnt, civic Levine & kamakura Why consumers abide Consumers engage in
responsibility, by government RM when mandated by
compliance, welfare mandates Govt. because of fear
theories of legal action, civic
responsibilities,

10.Religion patronage, Benghazi & wars haw How religion & moral Strong faith, self-
self-efficacy theories values influence efficacy, fear of
consumer behavior negative
consequences,
motivate consumers to
engage in RM
behavior, where choice
is associated with
religion

11. Employers Whyte How employers & Consumers patronize

organization influence organizations influence those mkt. behavior
the personal lives of choices formally/
individuals informally patronized by
employers
prof. pherwani 68
Circumstances when consumers terminate relationships
in consumer markets
1. Satiation-consumers seek novelty due to boredom with
current consumption
2. Dissatisfaction-if suppliers fail to match their offering with
customer expectations-which rise with very level of
satisfaction achieved& when their expectations are not
fulfilled they terminate the relationship with that marketer.
3. Superior alternative-this has a higher perceived value

4. Conflict-disagreement with the existing marketer

5. High exit barriers-if consumers experience high exit barriers,

they revolt-it is appropriate for marketer to provide an
opportunity to voice their concern, specially when choice is
restricted.

prof. pherwani 69
Consequences of Relationship marketing
1. Improvement in marketing productivity

2. Achieving marketing effectiveness

3. Individual marketing

4. Consumer involvement

5. Minimization of negative image of marketing

6. Achieving marketing efficiency

7. Customer retention

8. Making resource more productive

9. Asking consumers to do marketer’s work.

prof. pherwani 70
Future of RM in consumer markets
1. Technological advances have made it affordable and possible
2. It is economically more advantageous to retain existing customers
than constantly seek new customers.
3. Institutionalization of RM–create corporate bonding & multi-level
instead of only frontline relations
4. Extension of relationships to family members and friends of the
consumer-develop psychological bonds
5. Technology is the prime facilitator of such bonding-electronic frontline
intelligent agent interface-coupled with desirable human backup. It
will help relationship enhancement or termination.
6. Ono-to-one relationships now possible-consumers seek these.
7. Direct relationships rather than thru’ intermediaries-who are more
transaction-oriented & lack emotional attachment.
8. Relationship approach will become more prevalent

prof. pherwani 71
3. buyer-seller relationships

prof. pherwani 72
3.Buyer-seller relationships
o It is an integral part of B-2-B markets

o Relationship emerge in hi-impact areas in the buying area

o Buyers-sellers developed trust & friendship over time

supported by good quality so products & services-firms strive
to create these relationships-acceleration here creates a
stressful environment-performance expectations have
increased making successful RM more difficult-became
strategic as firms needed to achieve goals-the range
remained unexplored in the long-term.
o Buyers are developing single-source suppliers with view to
increase quality-reduce inventory-develop JIT-decrease time
to market –the intensity of which cant be accomplished with
multiple sources.

prof. pherwani 73
Ultimate aim is to reduce costs for everyone-realized by
2 models:
1. An adversarial model-buyers pit suppliers against
each other
2. Cooperative model- both parties lower costs by
working together to lower operating costs-by better
inventory management, elimination of unnecessary
risks and process simplification-Wal-Mart is the most
successful working model where a vendor also
makes money in the partnership.
Buyer-seller relationship is dyadic interaction- at both firm
and individual level [power-dependence-cooperation-
expectation-closeness]-interaction is a series of short-
term social interaction that are influenced by long-term
business processes that binds the firms together.
Technology resources of firm, organizational structure
influence these relationships.

prof. pherwani 74
o Individual’s attitude, goals, expectations influence behavior within the
interchanges. 14 of the Relationship variables can include:
1. Commitment- discriminates between stayers & leavers-an implicit or
explicit pledge of rational continuity between exchange partners-an
enduring desire to maintain Relationship.
2. Trust-one partner will act in the best interest of the other-willingness
to rely on an exchange partner-belief that its needs will be fulfilled in
future actions-other party desires coordination-will fulfill obligations &
pull its weight in the relationships-its word is reliable
3. Cooperation-similar or complementary actions to achieve mutual
outcomes with expected reciprocation over time-pro-active aspect
-both parties receive benefits of relationship.
4. Mutual goals-degree to which partners share goals-can be achieved
thru joint actions &-maintenance of relationship-influence performance
satisfaction & level of commitment-shared values-enhancement of
relationship as a whole.

prof. pherwani 75
5.Interdependence/power imbalance-power of the buyer or
seller & ability of one to make the other do depends on degree
of dependence-need to increase interdependence.
6. Performance satisfaction-sellers must deliver a high level of
satisfaction on basic elements of business transaction or risk
getting marginalized-Telco had battered suppliers for their own gain by driving hard
bargains in 1980-90-people will not take new designs to Telco because they would give it
to the lowest bidder-drying up of innovation will eventually made Telco less competitive-
performance satisfaction includes product-specific and other attributes.
7. Comparison level of alternative-quality of outcomes
available from best available relationship-dependence will be
low when many high-quality firms are available
8. Adaptation- one alters its process to accommodate the
partner-varies over lifetime of relationship-means to develop
trust early stage-in mature stage expands relationships &
creates entry-barrier for rivals

prof. pherwani 76
9. Non-retrievable investments-relation-specific commitment of resources
invested by a partner-capital-training-equipment-cant be recovered if
relationship terminates-also the amount at stake causes a hesitancy to stop-
existence of economic opportunism exists in transaction cost analysis-risk if
safeguards are not developed to control exploitation of the at-risk partner.
10. Shared technology-contributed by one-product-level-linkage of computers-
early stages strains are overcome at maturity.
11. Summative constructs-non-retrievable investments, Clalts, shared tech.
12. Structural bonds-vector of forces that creates impediments to termination
of relationship & above strengthen [by higher levels] or weaken relationship-
interaction may be greater than summation of parts.
13. Social bonds-buyers having strong personal relationships stay longer-it is the
degree of mutual personal friendship shared by buyer-seller.
14.Situational factors-may add or delete from above 14 factors

prof. pherwani 77
o Not all supplier can be appropriate partners for
cooperative relationships candidates for in-depth
relationships are:
Low
QI
amount of
operating risk* associated with
doing business
with seller
High * operating risk-
refers to risk buyer incurs
Low High because supplier’s
failure to produce quality
value added to the buyer’s product by seller goods on time or
other factors growing awry
Interpretation:
o Firms in 1st quadrant add value to the firms product have low
operating risks-makes them candidates for relationship
development- & as partners who as high value-adding makes
them important to the firm-Even at the market stage-where
higher prices can be fetched-for example Rolls Royce aircraft
engines add value to Boeingprof.Aircraft,
pherwani which is superior to Airbus
78
or other rivals and fetch consumer preference.
Process model of buyer-seller relationship
• We integrate the variables with relationship
development stages:
Active phase-during which they are center of
Relationship development process-receives a great
deal of manager’s time & energy.
Latent phase-they are important but not under
active consideration in relationship interaction-main
issues have been settled to manager’s satisfaction
& don’t need more time or attention-this construct
has become part of operating environment.
 Environment affects RM-trust may be active
initially later becomes latent till a change of a new
manager at the customer’s place, when they
become active again.
prof. pherwani 79
 A hybrid relationship-a composite of the buying & selling
cultures of the firms-these straddle markets and hierarchies-use
resources from more than one organization-has 5 stages:
1. Search for appropriate partner-awareness stage-feasible
partner-an existing buying turns into relationships to meet firm’s
goals of lowering costs thru’ JIT, TQM.
2. Defining purpose of relationship-problems arise during JV’s
M&A-difference between shared {the glue holds RM in time of
stress} & individual goals is area of conflict resolution
3. Boundaries of relationship-where does one end & another
begin? JVs have clear legal boundaries but supplier-buyer &
strategic partnerships, channel partnerships don’t have legal lines
& need clear definition-one commits most order, other commits
production resources to the relationship-altering accounting &
systems too to accommodate-creation of a governance structure-reciprocal
adaptation implies costs-clarified resources available to keep the relationship
going.

prof. pherwani 80
4. Value creation-competitive abilities re enhanced by R-it’s a joint
effort-synergistic combination of partner’s strengths-some benefit
must be seen in working together more than working alone-sharing
value created is an issue-value forms include-technology, market
access, I.T.- lower operating costs for the seller +lower prices for
the buyer can be one outcome, knowledge gained by one
embedded in the routines of another can be second, forming
complex intimate relationship-customizing of hybrid bonds come
with innovative technology-a balanced R implies both are
reasonable & get a fair share & risk-pushing too hard can damage
R
5. Hybrid stability-is the degree of creating positive outcomes for
key variables in the R-key variables-trust- performance- satisfactio
become latent in maintenance of R phase.-positive aspects of
relationships goes beyond financial issues as social bonding-trust-
cooperation-cooperation norms-commitment-create a stable atmosphere.

prof. pherwani 81
Future directions in buyer-seller relationships
o Concept-very difficult to measure a powerful variable as trust

o Model level-situational factors-buyer-seller relationships- strategic

alliance or channel relationship-time available is a variable. Buyer-
seller path to commitment ascribed to channel partners may be
different-cultures may be different-experience level may differ-level
of intensity of relationship may differ too.
o Process of relationship has to be tracked and not easy-firm needs,
roles required to maintain relationships-survival when focus alters,
o Future managerial implications-R is becoming part of creating a
competitive advantage for the system by developing sets of
relationships that create value in the network & are difficult to
duplicate.

prof. pherwani 82
o Managerial implications-firm seeks to interlock set of R’s to seek
competitive advantage over rivals-dyadic and triadic relationships-
enveloping designers, manufacturers & shippers-difficult for rivals to
replicate.
o Global businesses forge multiple relationships at a fast rate-
adversarial competitive models are replacing buy cooperative buying
where savings occur thru cost reductions in total operation rather than
price reduction focus-many hybrid relationships benefit from even
single-source buying-buying caters are thriving-it also acts as a barrier
due to its organizational reward system-for driving down costs & not
manage the R-senior managers talk about r while operations level
operate in a transactional mode making trust development & mutual
goal achievement difficult-balance needs to be restored

prof. pherwani 83
Integrating the 14 relationship variables

variable Partner Defini Setting Creating Relationshi

p
selection ng relations relationshi marketing
purpo hip p values
se boundari
es
1,Reputation
¤
2. Performance
satisfaction
¤ ¤
3. Trust
¤ ¤
4. Social bonds
¤ ¤ ¤
5. Comparison
level of
¤ ¤
alternatives
prof. pherwani 84
6. Mutual goals
¤ ¤ ¤ ¤
 Integrating the 14 relationship variables
variable Partner Defini Setting Creating Relationship
marketing
selectio ng relations relationsh
n purpo hip ip values
7. Power se boundari
/dependence
¤ ¤ es ¤
8. Technology
¤ ¤ ¤
Non-
9.
retrievable
¤ ¤ ¤
investments
10. Adaptation
¤ ¤ ¤
11. Structural
bonds
¤ ¤
12.
Cooperation
¤ ¤
prof. pherwani 85
13.
¤ ¤
Industrial selling process-
distinctive characteristics

4. Post sale
& 1. Prospecting
service

2. Preparation
3.Sale &
presentation

prof. pherwani 86
Factors-involve more than finding organizations that can use
co' product:
1. Cost of personal sales call is such that sakes manager
wants to ensure that a given firm is a viable prospect
2. reasons to avoid a particular prospect-High customer
switching costs-deep-seated loyalties to other vendors-
small potential orders-excessive service-level demands-
inefficient location-among many
3. Prospecting-thru telemarketing-referrals from current
customers-inquiries generated thru info request calls-toll-
free nos.-print media advertisements-trade shows-cold
calls, though inefficient method for finding customers-sales
leads thru databases-leads have to be worth something if
qualified this way-sophisticated lead-processing systems
reduces qualifying time.

prof. pherwani 87
• Buying decision process is lengthy-content
will have to be tailored to different members
of the customer’s organization in different
Senior
functions Managerial
levels

Financial
Quality
Costing
function
accounts
user

Commercial Design
Incoming stores & methods
prof. pherwani 88
• Buyer is vary of commercial tactics-important to
know who are influencing the buying decision-tread
carefully here-each needs working
• Preparation needs extensive research of buyer’s
structure-the way in which he will apply the
vendor’s product
• Setting of specifications-bid solicitation-
supplier selection-rules governing behavior of
purchase function-all will need special tactics
• Competition is invited too-what’s their strategy?

prof. pherwani 89
Dyadic perspective in B-2-B MARKETS
• Marketing transaction involves at least two parties-both
of which seek benefits & both of which determine the
outcome of the transaction-both have to be examined
together-this is called a Dyadic approach-a dyad is a
unit of two-in contrast to traditional approaches where
buyers/sellers are examined in isolation. There 4 key
dimensions to a dyadic relationship:
1. Relational characteristics-how we are on this customer?
How dependent they are on us? What are sources of
our respective dependencies? What are implications of
the power balance for sale?
2. Social structure-buying process centralized or
formalized –determines the buying process-level in
hierarchy for decision making-title & qualification of
sales/service level people.
prof. pherwani 90
1. Social actor-demographic
2. normative

prof. pherwani 91
Post sale stage:
It is of special consequence to the marketer, once
the sale is closed the salesperson continues to
work with customer in such areas as :
1. installation
2. training
3. servicing
4. Maintenance
5. spares
6. returns
Attempts to solidify a source-loyal relationship-
he is better informed regarding the purchase
decision process in the customer’s
organization-is in a position to reinforce key
buying influences while establishing more
personal relationship with them.
prof. pherwani 92
4. R.M IN MASS MARKETS
& STATEGY

prof. pherwani 93
 4. Mass customization
Developing, producing, and delivering affordable products with
enough variety & uniqueness that nearly every potential
customer can have exactly what he wants.
How?
 Mass customization is made possible by advances in
information, mfg. technology.
 Firms learn a lot more about current and prospective
customers & use that information to design, produce, marke
products and services
 They can communicate thru’ electronic media

Result –proliferation of products in many categories-though

more variety is not always better-lack of shelf space and
customer confusion caused by this explosive expansion.

prof. pherwani 94
 firms are increasingly applying RM in even mass markets
 Enabler is advances in CIT & Internet for order taking-
complaints
 Focus is customer retention-being less costly than acquisition

 Small increase in retention rate has a dramatic effect on

profitability the extreme some drive one-to-one Relationships
 Customer intimacy-relationships extend beyond economic
boundaries
Evoking of emotions thru broadcast media create a sense of
identity & affiliation with the firm-business process ensures
fairness of the exchange transaction-personalized service can
influence customer’s perception of helpfulness & friendliness-
evoking happiness, pride & achievement-in unfavorable conditions just the
opposite-anger frustration-customers & employees feel a sense of
commitment or connection towards each other.

prof. pherwani 95
Two-way interactions required due to its very nature of RM
Firms in mass marketing conduct RMthru marketing mix-in service firms
customers contact the organization-in mass marketing when they come in
contact with sales personnel-outside & inside & service providers-they use
stored customer information & create mail contact-newsletters, upcoming
events, contests, appointments-interactive many-to-many communications
possible-reduces propensity to switch-www.amazon.com www.ebay.com
ww.ggogle.com
Customers invest in educating suppliers about their needs & realize they
have to go all over gain with a different one if they move.
Extended time intervals-relationship occurs over time one or
more exchanges take place beyond the time of actual transaction-
involves psychological, social, economic resources-relationship
spreads over various stages of process-pre-during & after sales
interior. Multiple exchanges-have regular or intermittent transactions
hair-dresser, dentists, message therapist, or continuous transactions- decoration,
real estate, automobiles, appliance repairs & maintenance.

prof. pherwani 96
Stages of RM
Value of relationships

performance
prompt accessories upgrades
call backs by
service
η in paperwork dealer
-prompt delivery
information of -attitude
-features of sales persons
-price
-attitude
of salesmen

presale sale consumption

prof. pherwani 97
service cross-selling repeat selling
 Stages of relation building process over time between a customer
& marketer shown in the chart involve multiple episodes or
interactions-in single exchange-auto dealership or insurance —
over lengthy periods of time.
 It highlights elements which are not at the core of product offerin

 Social & psychological resources are exchanged between buyer-

seller at each stage- an important role in determining the
likelihood of R moving to the next stage.
Car sales initially provides psychological and social
resources-courtesy, respect-economic resources-test
drive, brochures-outcomes may motivate a buyer to come
back-result in to purchase-further inputs result in to
accessories, upgrading his purchase & recommend to his
friends& relatives.

prof. pherwani 98
Conditions facilitating RB
o Customer’s propensity to switch brands in packaged goods is
different from those switching their primary care physician.
o 3 product categories that should influence customer’s decision
to invest in-maintain or withdraw from R 7 relevant rational
behaviors observed at each situation.
1. Product category heterogeneity-RM is possible only when
some degree of customization is possible in mass markets-it is
major benefit to the customer & adds value to exchange
relationship. Product category heterogeneity is associated with
large number of alternatives-shampoos-complex alternatives-
PCs-significant differences among alternatives-cars-variance in
retail operations. These differences are created thru brand & image
advertising-they expand their consideration sets beyond existing
exchange partner when there is product homogeneity.

prof. pherwani 99
1. Perceived risk-customer’s decision involves risk-consequences cant
be predicted with certainty-probability of loss that may occur as a
result of alternative exclusion & importance of that loss-financial risk,
performance risk, physical risk, convenience risk-greater the risk
greater will he indulge in RM behavior to reduce social risks-trust
becomes an important factor.
2. Switching costs-one-time costs that buyers incur switching from one
supplier into another-monetary costs + non-monetary costs [mental
stress when product knowledge is low, social costs]-self evident in B-2-
B marketing [make or BPO decision]-new who switches from CVD to
DVD incurs additional costs-purchasing intensions depend upon
customer’s acceptance of switching costs-they value existing
relationships when switching costs for both monetary & non-monetary
Rs are heavy.

prof. pherwani 100

Product category characteristics for
facilitating
LOW RM HIGH
RISK RISK
HOMOGEN HETEROGE HOMOGEN HETEROGE
OUS NOUS OUS NOUS
Low Packaged Retail Airlines, Hair
switching goods, merchandi hotels, salons,
costs telecom zing, package clothing,
services restaurant delivery OTC
s medicines

High Cable computers Life Housing,

switching television, insurance child care,
costs car financial
insurance prof. pherwani
services 101
Joint effects of switching costs, heterogeneity, &
perceived risk
• Customers will have greater propensity to engage in
relationships behaviors in categories characterized by above
3 factors-high switching costs-heterogeneity-perceived risk.
• Last table shows some product categories & 3 factors which
are not independent but interaction between them also
affects R behavior-heterogeneity in computer systems may
inflate a customer’s perception of high switching costs or
risk perception of switching hair dresser may influence
perception of heterogeneity in their capabilities.
• Customer may need variety-here marketer need to develop
a wider assortment of goods & services or providers.

prof. pherwani 102

Model of the consumer’s decision to maintain, build or withdraw from a
relationship
Company characteristics
-perceived risk cumulative satisfaction
-product cumulative value
heterogeneity
-switching costs intermediate mktg.
attitudes Future value
-equity of subjective
-commitment
-norms& expectations relationship expected
-relational
-effect value
behaviors
RM effects
.perceived quality
.flexibility
.PR, promotion, warranties prior experience trust
.frequent buyer awards
.consumer licensing posts new experiences
.forums
Corporate partnerships & sponsorships
prof. pherwani 103
A customer’s decision to withdraw, build or maintain a relationship
• It is viewed from cost-benefit perspective rather than from perceptual or a
processing angle.
• It represents customer’s informal heuristic process for
evaluating decision alternatives. As trade off between
costs & benefits/utility
• A customer seeks to maximize his expected value from a
R, and his long-run assessment of future value-
alternatives with greater benefits-customization of
economic, psychological, social exchange costs-mental
processing costs-search costs opportunity lost costs.
• Trust-confidence in an exchange partner’s reliability &
integrity-his trust in the organization is a measure of
future value of RM-it is a probilistic belief that it will
perform actions that will result in positive outcomes &
not take actions that result in-ve outcomes.

prof. pherwani 104

Other factors affecting RM in mass markets
• Long-term future value & trust are considered similar to belief,
attitude or cumulative perception-customer updates these beliefs
through a sequential anchoring & adjustment process as new
experiences impact the current level-thru advtg. letters & RM .
• Influence of RM variables on subjective expected value-
where higher heterogeneity among alternatives & higher
perceived switching costs & risk exist. organization may lower his
search costs or decrease it by customization & create cumulative
satisfaction-deepen customer commitment & encourage RB.
• RB include repeat purchase, increased usage, positive W-O-M,
multi-product purchases, customer advocacy-
• RB- 4Ps-product-price-promotion-place- exploit the conditions in
RM as a two-way exchange, extended time intervals

prof. pherwani 105

• Product variables-perceived quality-warranties are central to
customer satisfaction & value perception in the delivered core
• Augmented product attributes signal product quality & increase
customer satisfaction & future value of R
• Guarantees & return policies are signals that create customer
expectations about product performance & risk-complaint
management & continuous improvement efforts reinforces employees’
use of RM practices.
• Pricing and promo practices-usage rewards-tailored
promotions
• Distribution variables that facilitate relationships-flexibility, leads
to customization, travel agents keep preferred seats, hotels car
rentals with maintained database, Ritz Carlton offer without being
asked, preferred breakfasts, newspaers,rooms-people-face-to-face
interaction by delivery/service people, over telephone, mail, effective
HR practices are critical-Star Bucks creates employee satisfaction &
is able to retain friendly courteous employees creating customer
satisfaction & increase future value of R-merchandizing efforts by
Wal-Mart- value-creating networks are managed to assist RM
• PR, Customer listening posts forums, corporate partnerships &
sponsorships-to influence customer attitudes & behaviors thru
associations-cognitive & social in nature-signals CSR.

prof. pherwani 106

Conclusion of RM in mass markets
• Attitudes [service quality], underlying predisposition
[loyalty], influence of inter-purchase durations [long-
run reputation effect insulating organizations
practicing RM, more satisfied customers, more mutual
benefits], reflection in performance [M.S., share of
customers, profits]
• Lateral relationships among groups of customer
groups-MCI’s friends & family campaign, HOGS,
Blogging, E-bay,-are important determinants of
outcomes-decides whether a customer will continue or
withdraw from a relationship-how equity is maintained
over time effect of brand loyalty and withdrawal
behavior & its effect on negative W-O-M.

prof. pherwani 107

5. Relationship marketing &
distribution channels

prof. pherwani 108

FACTOR CONFLICT VIEW COOPERATION VIEW

Profit One organization at the Both share profits

expense of the other
Relationship One is dominant Equal partners

Trust Little Considerate

Communication Limited & formal Widespread & open

Information Secretive Open & shared

Control Intensive policing Delegation &

empowerment
Quality Blame for faults Solving shared problems

Contract Rigid Flexible

Focus on Own operations

prof. pherwani Customers 109
• Integrating logistics within an firm has all the related
activities working together as a single function.
• It tackles problems from the view point of the whole
organization & looks for the greatest overall benefit.
• Integration of logistics along the supply chain in an own
organization has unnecessary boundaries between them
increasing costs, disrupting material flows. External
integration removes these boundaries to improve whole
chain-where most opportunities for cost reduction/value
enhancement lie at the interface between supply chain
partners-Christopher.
• Organizations within the same supply chain should cooperate to
get final customer satisfaction-they shouldn’t compete with each
other, but with organizations with other supply chains.

prof. pherwani 110

3 levels of integration
Supplier operations
customers
logistics activities
logistics with internal integration
Supplier operations
customers

logistics with external integration

Supplier operations
customers
This effectively gives the 3 levels of integration shown above:
• The first has logistics as separate activity within an organization
• The second has internal integration to bring them together into a single function
• The third has external integration-where organization looks beyond tits own operations &
integrates more of supply chain

prof. pherwani 111

• Classification of channel relationship management is
based on mechanisms used to control & coordinate
channel activities.
• Method used to control is fundamental to channel
management
• There are inherent conflicts of interest in
conventional channels.
• Each member in a channel has a fiduciary
responsibility towards his stakeholders-it has to focus
on long-term firm’s financial performance, besides
considering other parties’ interest.
• In a firm though each member has his won personal
goal but a common corporate goal.
• The rows in the table show 3 control mechanisms to
coordinate activities-authoritative-contractual-
normative-confirm to 3prof.inter-organizational
pherwani 112

mechanisms-hierarchical-market-clan.
Channel relationship management
Control/coordin Corporate Independent
ation mode channel-vertical firms
integration performing
channel
functions
Authoritative Rules policies Power
supervision

Contractual Incentives Terms & conditions,

compensation franchising
Relationship norms
Normative Organization culture

prof. pherwani 113

1. Authoritative control-one party using its power to
control activity of other party-internally nature of
employment legitimizes the use of this authoritative contro
mechanism to control activities of subordinates by policies o
promotion from within & supervision styles to ensure
implementation-externally one party controls others by use
of power of greater resources in its possession and highly
valued by the lesser member.
2. Contractual control-involves an agreement by parties in
relationship-Definition of their responsibilities & rewards for
performance-established by negotiation process by a priori&
can be rejected or accepted by any. these can be altered
during contract due to changed circumstances-uncertainty-
differential information-risk preferences.

prof. pherwani 114

• 3. normative control-involves a set of implicit principles or norms
that coordinate activities performed by parties that govern the
relationship-internally firm’s employees have shared beliefs &
coordinate activity-learn about norms thru informal communications
with fellow employees-externally learned thru past experiences,
interactions, market reputation-how parties will make trade-offs
between long & short-term profit opportunities-fairness norms-
flexibility norms –where conditions can be altered- impact is well
known but control mechanism is new & subtle.
• Unilateral & bilateral control-or governance mechanisms based
on how parties participate in decision-making-authoritative control is
unilateral-power is defined as the degree to which one party can
influence another party to undertake action that the 2nd party
wouldn’t have done. it doesn’t always have negative consequences
for the less powerful party-but relies on fair distribution of benefits.

prof. pherwani 115

• Multiple control mechanisms-used to coordinate the activities in actual
channel relationships-needed to have unique + & - effect on relationship-
activates that need to be done & how to do them. Unidirectional nature of
communication causes conflicts due to unmet needs & lack of mutual
acceptance of norms mostly uncodified -ambiguity exists on expectations,
coordination & miscommunication.
• Shifting focus of channel relationships-vertical marketing systems-a
centrally programmed network that is pre-engineered to chive operating
economies and maximum market impact-plan is developed by channel
management in a vertically integrated firm uses its power to ensure
implementation-associated with centralized planning & control mechanisms. There is shif
from this to contractual & normative control mechanisms due to-growing
disenchantment with vertical integration-consolidation & increasing power of the
intermediary channel firms-recognition of opportunities to gain strategic
advantages thru management of channel activities.

prof. pherwani 116

Strategic alliances
• When an organization & supplier work well
together, they may feel they are getting the best
possible results & neither could benefit from trading with
other partners-then they look for a long-term relationship
that will guarantee that this continues-this is the basis
of strategic alliances shown next.
• The supplier knows that it has repeat business for a long
time, & it can invest in improvements to products &
operations-the firm knows that it has guaranteed &
continually improving supplies.
• These are also called supplier partnering-an ongoing
relationship between firms which involves a commitment
over an extended time period & a mutual sharing of
information & the risks & rewards of the relationship.

prof. pherwani 117

Main features of alliances:
• Organizations working closely together at all levels
• Senior managers & everyone in the organization
supporting the alliance
• Shared business culture, goals, & objectives
• Openness & mutual trust
• Long-term commitment
• Shared information, expertise, planning and systems
• Flexibility and willingness to solve shared problems
• Continuous improvements in all aspects of operations
• Joint development of products and processes
• Guaranteed reliable and high quality goods and services
• Agreement on costs and profits to give fair & competitive pricing
• Increasing business between partners.

prof. pherwani 118

Spectrum of relationships

Adversarial informal contractual formal minority

joint vertical
cooperation alliance investment
venture integration

Relationship arm’s length unspecified medium-term

long-term
contract
contract

Information little more

full
Sharing

Trade with much less

little
Competitors

Culture different coming together

shared

prof. pherwani 119

 Partnerships can lead to changes in operations-the stability might
encourage suppliers to specialize in one type of product.
 They give such a commitment to the alliance that they reduce
their product range-make these as efficiently as possible &
concentrate giving a small number of customers a very high
quality service sharing information with customers without threat
of misuse to obtain trading advantage.
 Customers reduce number of suppliers as they no longer need to look
around to get the best deals-Japanese firms were the first to develop
strategic alliances & at the same time when Toyota had formed partnership
with 250 vendors, GM was still working separately with 4,000.
 Outcomes-high level of achieved service-real cost savings-growing
business-compatibility of cultures-joint IT systems.

prof. pherwani 120

Difficulties forming partnerships
• Starting point could be analyze current operations & future
plans to see if alliances will be useful-it won’t be, if it only
buys a few materials or is changing manufacturing base or is
sensitive about confidentiality or can’t find reliable suppliers.
• Most firms see potential benefits & they should start looking at
possible arrangements-form a project team to identify potential
partners, define objectives, set timetables, list resource implications,
negotiate terms.
Efforts to make it a success
• Drivers-compelling reasons for forming partnerships such as cost
reduction, better customer service or security.
• Facilitators-supportive corporate factors that encourage-such as
compatibility of operations-similar management styles-common aims
• Components-joint captivities and operations used to build relationship
such as- communication channels-joint planning-shared risks & rewards,
investments.

prof. pherwani 121

1950s businesses increased sales thru
unrelated diversification-Sears expanded
by acquiring real estate & stock exchange
firms-with increased demands on improved
returns they reverted back to core
business-this led to re-examination of firms
on which functions to perform & which to
outsource-Kmart uses independent
trucking firms to ship merchandize
between its suppliers ,warehouses &
stores.-who have unique expertise in
moving merchandize & managing
transportation & reduce costs thru
prof. pherwani 122

backloads-Kmart lost some of the

o Strategic implications of outsourcing-value-added
activities and advantages & disadvantages-Nike is
characterized by heavy outsourcing, are networked & are
winners due to flexibility or. Have inadequate control?
o Power of intermediaries-functional & dysfunctional effects of power as
control mechanism in asymmetrical channel mechanism-where one
member has more power than the other-manufacturers with their size &
scale economies have exercised more power & channel relationship has
been from manufacturers’ perspective-Wal-Mart has changed all that
today P&G regularly go to Arkansas and wait on Wal-Mart buyer plus 50
permanently stationed there-only a few years ago they had to fly to
Cincinnati and wait to meet P&G .
o Consolidation of distributive trade has been made possible by IT,
communication & logistics-earlier it was localized sourcing &
selling-industry was highly fragmented-large ones Sears & federated
Stores had a decentralized approach-scale economies have led to rise of
national Chains.

prof. pherwani 123

Manufacturers are unable to realize power over channel
members-asymmetrical relationships are inherently
unstable & less profitable for one party-now becomes less
committed to the relationship & seeks alternative more
rewarding relationships-Mfrs. No longer can use
authoritative control on channel coordination-bilateral
control mechanisms & symmetrical relationships for
managing powerful independent channel members.
• Strategic advantage thru’ channel relationship
management-to obtain extraordinary financial performance
due to logistics management-a major source of value-
added benefits to end users-greater than by other mktg.
actions-firms use distribution to differentiate their offering
information exchange & coordination has saved
consumers billions-relationship building here needs more
closer look by consulting firms-Dell, 5th largest PC
company has direct distribution as its CA & not its
manufacture or design capability.

prof. pherwani 124

1994-Merck purchased mail-order
distributor-Med co- Smith Kline
Beecham purchased Diversified
Pharmaceutical Services & Elli Lily PCS
division of McKesson for $12bn.these
intermediaries have unique resources-
exceptional information systems containing
databases linking patients , physicians,
managed care organizations, pharmacies,
3rd Party payers & pharmaceuticals
prescribed.
Merck, SK & Elli lily have been historically
R&D-oriented firms-the acquisition
prof. pherwani 125

demonstrated each company’s conclusion

Dell & pharmacy firms decided to
manage development, production &
distribution functions under their
corporate umbrellas-to what extent firms
can go beyond their efficiency to develop
CA by managing relationships in
conventional channels?
Impact of RM in a channel context differs
from its impact in supplier-manufacturer,
manufacturer-consumer or strategic
alliance context. Exclusive or sole-source
relationships do exist with key suppliers &
consumers are loyal to one brand in a
prof. pherwani 126

product category-however assortment is

Problems can arise when firms enter
into multiple relationships with
competing suppliers-hesitancy of
suppliers to share sensitive information
with other channel firms-even at the cost of
coordination fearing it may be revealed to
rivals
Assortment need limits the degree to which trust
& committed relationship can develop & strategic
advantage achieved.
Channel relationships governed predominantly by
mutually accepted explicit contractual terms,
implicit norms or relationship governed by use of
authoritative control.prof. pherwani 127

Transaction cost analysis-TCA concerned

Primary contribution of TCA is
hostages-or investments to commit
parties to maintaining relationships.
To preserve relationship-additional trust &
commitment is also needed
Agency theory focuses on use of
contractual terms to control & coordinate
channel relationships-principal-agent
structure implies unilateral control by the
principal vs., the bi-lateral control in which
both parties participate-principal offers a
menu of contracts to the agent-the
selection made by the agent reveals
prof. pherwani 128

information not possessed by the agent-

Inefficiencies in vertical integration
Vertical integration-describes the amount of a supply
chain that is owned by one organization
• If an organization wants to go beyond partnerships, it has to
own more of the supply chain-one common arrangement is to
take a minority share in another company-this gives it some say
in their operations but not necessarily control them-a mfr.
Having a minority share in a wholesaler to get some influence in
the way products are distributed.
• Another option is for two to start a joint venture, where they put
up funds to start a 3rd firm with shared ownership-a mfr. &
supplier might form a transport firm for moving material
between the two.

prof. pherwani 129

• The most common arrangement has one
organization simply buying other organization
in the supply chain, this increases its level of
vertical integration.
• If an organization buys materials from outside suppliers
and sells products to external customers, it doesn’t own
much of the supply chain & has little vertical integration as
shown in the chart next.
• If the firm owns initial suppliers, does most of the value-
adding operations & distributes products to its final
customers, it owns a lot of supply chain & is highly
vertically integrated.
• If it owns a lot of the supply side it has backward or
upstream integration, if it owns a lot of the distribution
network, it has downstream or forward integration

prof. pherwani 130

• Vertical integration is the best way of getting
different parts of the supply chain to work
together in some cases
• Ford of America has at different time owned
everything from steel mills thru to distributor
networks & repair shops
• Widespread vertical integration would be very
expensive, leading to huge organizations that spread
their resources too thinly needing specialized skills &
experience that one firm doesn’t have, reducing
flexibility to respond to changing conditions.
• Vertical integration is not necessarily desirable & its
impossible even for large firms to own much of their
supply chain.
• Heinz cant buy all the farmers, processors, steel mills,
canners, wholesalers, retailers
prof. pherwani & other firms in there
131

baked beans supply chain.

Different levels of vertical integration
Type of vertical Suppliers
Operations Customers
Integration Parts
owned by the

organization

Little

Backward

Forward

High prof. pherwani 132

6. Role of IT in building maintaining and
enabling relationships

prof. pherwani 133

 Success rate in IT applications
Organization perspective
success 20%

marginal 40%
gain

failure 40%
rejection
poorly designed system fit
prof. pherwani 134
Dealing with of IT applications on marketing side
• Information is life blood of all marketing-but effective RM
requires a highly enriched stream of information than does
traditional product or transaction-driven mktg.-critical to it are
having the right info. In timely fashion, in appropriate amount
& delivering it in right style & at the right tempo to maintain
satisfying relationships.
• Human aspect of IT has scarce information in IT-it has plenty
on systems, design, processes, applications & potentials- a
grave strategic error by firms obsessed with only technology
spending far too little time on effective relationships these
networks should support.

prof. pherwani 135

prof. pherwani 136
IT application in traditional &
relationship
Traditional marketing
marketing Relationship marketing
Suppliers push distributors & retailers Suppliers collaborate with channel
into taking their products with no members on an individual basis & IT
concern fro their preferences is aligned.

Overriding emphasis is acquiring Repeated contacts, & mutual gain fo

many customers by assembling mktg. both which is moving towards a
mix that results in this outcome. relational paradigm.

Traditional mktg. is becoming too Revolution in IT has delivered

expensive & less effective over time- unprecedented price performance fo
40%-53% A&S costs in perfume, storage, processing & delivery
cosmetics & toilet products- locally, highly intuitive interface has
information is at remote sites- spurred managers to make greater
individual use of information
prof. pherwani 137
Information needs are
cursory in information
management emphasis
is on transaction
marketing
Information is enriched
stream-more focused-more
time spent on effective
relationships that are
created & supported by IT
networks-emphasis is on
Relationship management.

Information is gathered on Increased intimacy with

sampling basis & averaged channel partners due to
into marketing messages information possible on an
that are generalized for a individual basis & used to
broad market. tailor products &
distribution.
Balance of power is with Balance of power is shifted to
providers consumers

prof. pherwani 138

Mass marketing One-to-one marketing
•IT is seen as a surrogacy to be enlisted to help
marketers re-create the operating style of
yesterday's merchants who diligently cultivated
individual relationships with their buyers-here
primary focus is on application of IT in marketing &
channel relationships.
www has created JIT information that allows
marketers to implement essential aspects of
relationship marketing

• Technology has become more affordable &

deployed across a broad spectrum of customers.

prof. pherwani 139

Virtuous cycle between IT & relationship Marketing

increased
competition
greater
new technology
Changing marketing demand for
development
Customers evolution RM

IT revolution relationship
marketing
more
affordable
& effective
• There is a symbiotic relationship-a virtuous cycle-between tech
advances and change in market relationships-impetus for RM comes
only partly from developments in IT-its driven primarily by
dysfunctionality of traditional marketing-rising
expectations of customers & greater competitive
pressures. 140
prof. pherwani
 push-pull effects are at work-Push is from
technology-pull from customer expectations
 Proliferation
of RM is in turn gives rise to IT innovations
geared to improved RM.

Web casting-a push technology-facilitates RM by

enabling marketers proactively to push relevant
information to customers. Content-focused
matchmakers use deep interviewing techniques to
match customers with exactly with exactly the right
products.-thus initiate a high likelihood of success &
endurance.
 Communities of users of books, music, movies
congregate on sites such as www.firefly.com which
makes use of info. to recommend products & services &
sustain relationships withprof.each
pherwani success. 141
• RM has been the norm before advent of mass mktg.&massmedia
Sellers had first hand knowledge of buyer & successful ones used it
over lifetimes-today with high volumes of trade it isn’t possible to know
this without sophisticated IT systems in place.
• Even this is not enough to fathom human mind- an unquantifiable,
subjectivity that is part of human behavior every waking moment.
• Oral exchange was superior with merchants who had index cards-the only
database-information is discrete bundles of fact, trivial or useful-never the
substance of thought-information offers value when presented in context
of relationships-today IT helps relate investments to relationships & returns
the customer will get.
• Old RM has been replaced by tech-enabled RM thru falling cots and
improved effectiveness-mktg. makes use of each customer’s info.

prof. pherwani 142

Effectiveness
High

1970s
1940s
1997 OLD FASHIONED RM
1997
1970

technology-enabled RM

1970 mass marketing

1997 1940
low efficiency high
prof. pherwani 143
• Marketing success comes from customer’s proximity to its
customers-not from product features alone-which can be copied-
how a firm enriches these relationships over time & leverages
them to growing base of customers and knowing about them.
• P&G transaction marketer has started paying attention to
retailers circumstances and align its mktg. to this using IT-
a virtual integration with Wal-Mart and as sale gets
recorded both firms in relationship get instant knowledge
about velocity of product movement-leading to improved
logistics & inventory management-changing the direction
from which mktg. decisions develop-from bottom up-
continuous dialogue with all members of the value chain.

prof. pherwani 144

Role of technology in RM
Salient characteristics
 Leads to truer customer focus
 Respect for customer’s time & intelligence
 Empathy for his priorities.
 Differences between individual customers become clearer-
they were blurred in traditional marketing statistical
representation of clusters or typologies that
contained benchmarks for developing one-size-fits
all, non-relational approach to marketing-
businesses have been moving away from
viewing consumers as individuals
 Modern consumer has been dehumanized, turned in
to phantoms-replaced by a statistic consumer who
resides not on the main street but in mathematical
model & market planning scenarios-real consumer
lurks on the sidelines of failed marketing programs
prof. pherwani 145

everywhere.
One-to-one marketing-instead of selling one product at
a time to as many customers as possible, in a particular
sales period, the one-to-one marketer uses customer
databases & interactive communications to sell one
customers as many products & services as possible
over the lifetime of that customer’s patronage.
• Emphasizes retaining the most valuable customers &
growing them
• Learning relationships can enhance customer
convenience by maintaining a memory of customer
preferences & tastes.
• Customer dialogues are ongoing from encounter to
encounter, creating a growing barrier of inconvenience
that serves as powerful reason for customers not to do
business with other providers-provided they continue to receive
quality products & services at a fair price.
prof. pherwani 146
 Transition can be done customer by
customer rather than by product or
division-a fir could identify its most
valuable customers & assign them the most
talented employees in the company-from mktg.
Sales or customer service-designated as
customer mangers-gradually it could expand this
number served this way.
 Technology is a heavy component of cost in one-
to-one marketing mode, declining costs make it
affordable to to transition more customers over
time cost of technology falls by 50% every 18
months-it can figure out how many can be
switched.
prof. pherwani 147
Customers as assets
• Customers be seen as assets-after years of pushing
products into market place with limited concern for
circumstances of individual customers-businesses have also
abandoned lifetime employment philosophies-a surge of having
lifetime customer philosophies has merged-a stable employee
base goes hand in hand with a stable customer base-a cause &
effect relationship exists-best employees prefer to work for
companies that deliver superior customer value that builds
customer loyalty.
• RM is essentially holistic marketing that operates within a total
economic system which dwells in numerous specimen of
interdependent human beings who generate economic value for
each other-cost of generating one unit of income from a new
customer is more than that from existing customer-income from
long-term customers is far higher-only IT usage has charted
economics of customer acquisitions and maintenance.

prof. pherwani 148

Technology impact on RM –scale economies
• Scale economies are changed in that
individualized attention now becomes possible for
a much larger number of customers, each
representing a small transaction volume-it is
possible to practice RM for a small no. of
customers without extensive use of IT, it is
impossible to do so on a large scale-rapidly
increasing affordability & capability of IT augurs
well for an ever increasing portion of customers.
• Today IT enables on a mass scale the kind of
individualized attention that marketers routinely
bestowed on customers few years ago
• IT enables marketers to collect, store, leverage
information on individual customers on a large
scale.

prof. pherwani 149

Technology impact on Scope economies
Scope economies are those characteristics of a process
that makes it easy to produce multiple products because
there are similar components made in the same way.
• Scope economics reflect the fact that technology enables a
broadening of geographic scope of relationships-expands
the time scope & range of offerings to a customer
• It expands the domain of customer relationship over time
space & categories.
• Many of these offerings may be produced by other entities-
they are packaged & assembled by the company managing
the relationship.
• It goes beyond marketing into operational and technological linkages between
companies that create a strong bond-Internet makes hitherto impossible task of
linkages possible [in referral systems, inventory management links, automatic order
processing]

prof. pherwani 150

Drivers of tech-enabled RM-Supply side
Tech changes:
1. Processing- Moore’s Law says circuit density of
computer chips-their computing power doubles
every 18 months-cost [experience-based] is
declining every 6 months-a Game console for kids
is more powerful than a 1980 CRAY supercomputer!
Microprocessor was developed in 1971-the Intel's
4004-single chip, could be made in bulk-over time
wafer was enlarged & transistors shrunk-more &
more processing power was stamped Pentium Pro
has 5,5m transistors.
1st microprocessor had 2,300 transistors-early PC users were dazzled
by Intel’s i386 chips-contained ¼ million transistors -ran at clock
speeds 20 M hertz- just 15 years later current buyers yawn over
Intel’s Pentium 4 microprocessor-55 m transistors, at speeds 2
Gigahertz-the incredibly coolprof.microprocessor
pherwani of 2009 will pack1511
billion transistors blazing along at 300 Gigahertz!
1. Data storage-trend is towards greater capacity, easier
access, lower costs-parallel with improvement in
hardware, data storage capabilities are expanding-costs
declining-in 1956 IBM launched 1st disk drive with 5 MB @
$10,000 today disk drive capacities are staggering, a
mere $2 flash disk contains 5 GB price has fallen form
$5,23 per megabyte to 0,02 cents
2. Communications-promises an even greater change of
discontinuous nature-band width usage is exploding-led
by Koreans, Japanese, Finland, US & now China-enables
interactive media & video info in every hand held-thru air
from satellites, & terrestrial wireless systems, thru optical
fiber cables, by Blue-tooth, WiFi, phone company’s co-
axial cables.
3. Displays-greater resolution, less bulk, less cost, active matrix color LCDs used
in laptops & notebook computers-flat panel displays, HDTV-digital high
definition television

prof. pherwani 152

5. Key properties of digital electronic IT-convergent &
versatile- boundary less & global-affordable-addictive-easy
and fun to use.
• Pure genius of It since the invention of programmable
computers is sheer plasticity-getting the PC to do previously
unimaginable things by just programming rightly-a dramatic
shift towards virtuality-this happened decades ago when
computers started replacing adding & tabulating machines-
PC & its peripherals are taking over office & shopfloor tasks
previously performed by stand-alone entities-churning out
physical prototypes in minutes-chips perform functions
handled by mechanical & electrical devices-convergence
means same technology can be used to perform myriad
tasks.

prof. pherwani 153

Boundary less & global
Guiding spirit of Industrial Revolution-two centuries
back was separation-the breaking up of work into its
component parts to allow mass production.
I T-the central organizing principle here is the opposite-
unification -networks of computers allow company
departments to fuse & enterprises grow so closely allied
with customers & suppliers that boundaries between them
seem to dissolve-this unification can make a division or
company across the world seem as if it is down the hall,
transforming the concept of distances- as radically as the
supplanting of stagecoaches by railways in the 1840s.
 IT is essentially unbound by geographic limitations-it is
distance-irrelevant & available anytime , anyplace.
Internet knows no global boundaries-any individual
regardless of time, location, distance has created virtual
communities to discuss, share information on any subject

prof. pherwani 154

Affordable-volume production drives down the incremental
costs f producing electronic products-evidenced in falling
prices of calculators, PCs, cell phones, microprocessors
currently-volume production can be achieved only thru
aggressive penetration pricing & targeting of the broadest
possible market.
Addictive-IT technologies are extremely addictive to users-
offer significant improvements in price, performance &
convenience over alternative means-affect vital areas of
human activity-work-socialization-entertainment-
these tech-based improvements represent a one-way
street for adopters-a property significant & fortuitous for
mktrs.

prof. pherwani 155

easy and fun to use-overtime technology evolves to hide
its complexity [TV sets used to have simple technology
inside-but had complicated interfaces-requiring users to
control tuning-vertical hold, contrast, color saturation.
Today’s TV sets are very sophisticated inside but extremely
easy interfaces]-this transition has already occurred with
web-enabled apps, accounting for its explosive growth.
• Any technological interaction that users regard as
dehumanizing will be shunned- quality of interface is
critical to adoption- high-tech companies pay a great
attention to high-touch issues.

prof. pherwani 156

Video-conferencing & work-at-home technologies are 2 recent
examples-where the dehumanization aspect is balanced by
increasing the human quotient-each can be positioned as a time&
money saving substitute for physical human contact or a way to
improve the quality of life by adding flexibility & visual
connection.
Consumer-oriented systems will have to be extraordinarily easy &
fun to use-designers will have to pay attention to crucial human
dimension or high-touch when designing high-tech systems in
mktg. as well as advertising. The great advantage is abundant
computing power & low cost of broadband communications.
In a GUI [graphic user interface]-80% of typical
microprocessor’s capability is used to create the interface
and 20% to-do-the work.

prof. pherwani 157

• Use vast amount of computing & communicating power to
hide the complexity of the system from its user-interface will
evolve to learn the user’s preferences rather than other way-
voice recognition, handwriting recognition, eye
configurations, finger print recognition are realities today.
• www has become popular today in all aspects-presents users
of multi-media GUI & instantaneous linkages to related
information anywhere. virtual shopping malls, impulse-
oriented shoppers stroll down aisles of virtual shops custom-
try them electronically-designed for them & click their
desired item.
• People can now serve themselves at their convenience at a
negligible cost, but they have to accept little or no human
contact in return.

prof. pherwani 158

Internet
• An interactive media-allows marketers to deliver
real-time, personalizes information to one
consumer at a time-provide better service at lower
cost-
• A delivery channel for IT, education, medical
advice, legal work, business process-front-end &
back-end, e-tickets, auctions, logistics info [EDI]
and money flows [EFT], knowledge [GOOGLE]
• Relationships are one of the defining qualities of
marketer-customer interactions over the Internet.-
use it to collect data, to question it, to listen to &
respond to customers-and automatic relationships
are computer-to-computer interactions online
instantly & provide instant fulfillment-

prof. pherwani 159

• this requires customer come to the marketer, reversing the
traditional marketer go to the customer.
• Technology is playing a bigger role in ways customers interact
with businesses-internet has revolutionized the nature of
customer services. Technology can replace what the human
does-you wanted to know to know if your bank has processed
one of your cheque, you had to call on your bank branch, or
await a busy signal redialing or put on wait-today you access
their website to learn your bank balance, and other related
requests-what is to be seen by the marketer is whether there is
service enhancement-not service replacement.
• Order status can be checked on site of a service provider.

prof. pherwani 160

• IT-based customer service can give customer control over all
aspects of their interaction with a firm thru a user-friendly
website a FAQ list can be most beneficial-offer an e-mail address
where they ask expert advice
• Internet allows customer service to be personalized-MyYahoo
offered by is a customizable version of popular
portal. When a visitor logs on to MyYahoo she can get local
whether, scores of teams of personal interest, prices for stock
that she has entered into their database-availability of a cosmetic
• Speed can be enhanced by using e-mail-an inexpensive way of
responding to a complaint or answering queries. C.NET covers
technology industry sends daily e-mail listing of headlines and
special features to 1000s of its subscribers-making sure of
speedy dispersion of information

prof. pherwani 161

Division of work between people &
PCs

Elements of work people do

Thinking
Creating
Making decisions
Communicating
Recognizing patterns
Taking action
Forecasting data
prof. pherwani 162
Division of work between people &
PCs
Tasks that computers perform
 Capture data
 Store/retrieve data

 Manipulate data

 Display

 Network

 Transmit

prof. pherwani 163

• FedEx saves money & enhances
customer service by transferring its
package tracking system on to the
web-using fewer customer service reps
and spending less on traditional
support services such as telephone. A
customer can learn about shipments or
drop=off locations at her own
convenience and obtain printed
records instantaneously.

prof. pherwani 164

EXPERT SYSTEM
Can be used to leverage employee skills to perform
work that previously required higher qualification-
extensive trg-years of experience
It has 3 elements:1.A knowledge base
2.an inference engine that mimics a human expert’s
reasoning to draw conclusions from facts & figures,
solve problems, answer questions
3. A user interface that gathers information from & to
user-here it identifies ROL-calculates SS /
ROQ/vendor from whom to order& at what price
prof. pherwani 165
EXPERT SYSTEM
 Gives customized advice
 Accepts incomplete data

 Trains an employee to perform at a higher level

 Captures & make available scarce expertise of

outstanding performers
AMEX- uses LARA’S BRAIN [authorizer's
assistant]which contains the expertise of its best
credit authorizers-improving quality & speed of
credit decisions dramatically & profitability.

prof. pherwani 166

• Web-based commerce has grown at an
Netexponential rate
Advertising-Online brands are making the real money [2004]

company Affiliate sales $bn. Affiliate

commissions

amazon.com $ 0,460bn. $ 0.100bn.

eBay 0,300bn. $ 0,140bn

Google $1,400 bn $1,100bn.

Google

Yahoo ! $ 1,100bn.
prof. pherwani $ 0.910bn. 167
Global online brands
AOL-
MSN

prof. pherwani 168

• Web-based commerce has to be significantly better
than traditional commerce for a widespread
transition to occur.
• Technology alone is not enough-broad band availability also
has become affordable & widespread-there are privacy,
security and payment concerns occupying industry’s mind-
encryption is a solution here.
• It requires naturalness of the interface with real time
exchange
• Electronic communities like steel exchanges, parts
exchanges emerge, only then existing distribution channels
will be disturbed.
• Web based businesses have accomplished huge interfaces
only predicted in 1990s are already a reality-& those who
have established trust are already prospering-community
precedes commerce & if thoughtfully done can actually
reinforce community & extend value to its members.

prof. pherwani 169

• Old marketing involved responding to customer queries
about product, problems, feature, upgrades , invest
heavily in customer hot lines, follow-up calls & large-scale
customer service departments-now web companies can
respond to most such needs at low cost-his visit opens
opportunities for more cross-selling & up selling.
• Cookies-an ingenious way of delivering customized information
& services to customers is use of cookies –files of information that
reside on the customer’s machine, contain information about
sites visited by customer-marketers use this information to
determine user’s preferences-they in turn view it is a violation of
their privacy-marketers need to convince them that cookies will
be used only to enhance value & reduce noise to the consumer.

prof. pherwani 170

CAROL-consumer’s anonymous reporting omnibus
link preserves consumer’s privacy while enabling
marketer to enjoy benefit of tailored targeted offering.
• CAROL travels thru cyberspace on behalf of her client’s
user-needs information about him to best represent
him-amount of info. He is willing to share is connected
to trust-it doesn’t build databases, but locates &
retrieves info for consumer for a fee vendors are linked
to a CAROL, who knows what products are suited to her
client.-bases her information gathering for clients upon
both explicit & implicit reports that clients make about
themselves. With this CAROL forays into cyberspace,
gathers relevant info. And with each online encounter
acquires more knowledge about its client.

prof. pherwani 171

Firefly- harnesses the power of word-of-mouth marketing-
collaborative filtering has changed less satisfying buying
experiences of customer on the web as compared to toll-
free & paper catalogs regime. Firms pool information volunteered by
user-computers then predict what products or services people may like & can guide
their shopping based on experience of their peers.
www.firefly.com works
by building detailed psychographic profile of members
based on their answers to scores of questions-using this
info. It identifies individuals-psychographic neighbors-other
individuals that have similar pre-depositions.-then makes
recommendations for offerings-music, movies, gadgets,
electronics all have used it, user-to user communications-
communities based on shared intersts-Merill Lynch, MCI, Dun &
Bradstreet, Reuters, Yahoo-It aggressively maintains user’s privacy &
doesn't require names & addresses unless they choose to-hires Coopers &
Lybrand to audit.

prof. pherwani 172

Data base marketing
• Can make customer contact more meaningful &
profitable
• Here communications are directed to individuals,
households or organizations by name. it invites 3 T’s:
1. Targeting messages to specific types of customers
or prospects and not others.
2. Tailoring messages to customer’s interests or
other characteristics.
3. Development of ties or long-term relationships
with preferred customers.
• Database marketing has long been used by catalogue
houses and magazines-improvements in IT have made
the approach increasingly practical for mass marketing
as well-cars, cigarettes, alcoholic beverages, foods,
personal care products & services, high-end lingerie
prof. pherwani 173
• Types of databases used in marketing-a. company’s own
customers with transaction history-ability to store &
analyze has only now become manageable due to IT
becoming affordable & user-friendly
• Marketers who don’t deal directly with customers have
now stated collecting customer names in order to
assemble databases.
• External household customer databases include customers
or subscriber lists from direct marketers or publishers-
special purpose lists derived from public records-car
registrations, births
• Database assembled from voluntary consumer responses
to questionnaires published in newspapers.
• Business & industrial database is derived from directories,
updated by periodic telephone surveys
• Very large scale databases are stored on CD & utilized on
PCs or LAN for easy implementation.
prof. pherwani 174
• RM DB have been used interchangeably-close information-
focused connection many people make between IT &RM
• It is also termed automated transaction marketing-here it is
targeted because of info. Obtained about individual consumer
either bought or captured from previous transactions-dynamics
is basically same. As conventional marketing-products are
pushed towards consumers without their active collaboration or
two-way communication that is critical to RM scenarios. Push
aspect ignores role of collaboration, building trust, essential in
RM.
• Determining real meaning & interpretation of data gathered by
computers still needs a human judgment-hence alert systems
have to be built-in to trigger human involvement at critical
junctures.
• Strongly bonded, emotionally satisfying relationships still
require periodic human presence to achieve qualitative
threshold-absence of this is compromise of authenticity in DB
marketing.
prof. pherwani 175
• Neural networks-look for unusual
patterns in marketing data
• They help spot sales opportunities-
reduce customer churn & forecast
demand more accurately.
• Neural network-based software is
available for identification and tracking
of opportunities, post-sales customer
service and the generation of new
leads using geographic and
demographic databases.

prof. pherwani 176

Drivers of tech-enabled RM-demand side
• Changing customers-a major impetus on demand side comes form the
customers in RM whose needs & expectations have changed to the point
that traditional marketing solutions simply don’t satisfy them nay more-they
are increasingly heterogeneous & don’t fit into traditional stereotype
categories-don’t respond to mass market approaches-customers have
become capricious- natural reaction to decades of marketing over-
indulgences-never ending promotions & long history of over-promising &
under-delivering have become cynical & deal-prone about marketing claims.
• They have little tolerance for under-performance & switch suppliers at the
slightest provocation-evidenced by high churn rates-30-50%-cell phones,
long distance-its like McDonalds one & done transaction s have lower
customer expectations & higher ones for long-term relationships [dentists].
• Without a heavy dose of IT its not possible to maintain relationships with
large number of customers economically & effectively.

prof. pherwani 177

• Payoff from RM is greatest in meeting long-term expectation
fulfillment, which means penalties for not doing so-dichotomy
is short-term where Relationship is not expected, are doing RM
• Customer have far more knowledge & power, due to cynical,
lack of trust in marketers-arm themselves with as much
information as possible-due to easy availability of information
from 3rd party sources-posing a thereat for traditional
marketers-allows customers to get a better deal each time.
• In RM customer knowledge is seen as an advantage-they are
more demanding in terms of quality & value but less
demanding for customer service & support-a firm can leverage
customer's knowledge & expertise to mutual advantage
provided it is capable of delivering good quality and
enlightened.

prof. pherwani 178

• In future customers may manage
relationships themselves using new
technologies & companies need to prepare
themselves for this world.
Increasing competition
• Competition intensity is higher in most
industries than ever before despite
extensive consolidation-greater the
completion-intensity higher is the
performance bar raised.
• Markets are opening up globally to best
players-the hardy survivors of Darwinian
battles that have raged for decades
prof. pherwani 179
Role of IT
 Market sampling becomes largely unnecessary when real
customer data on an individual basis is available due to
IT models.
 Even focus groups become irrelevant-IT stores, retain &
process data describing real customers on an individual
basis-it can boost marketer’ intuitive insights &
creativity of highest order because of superlative speed
& volume of quantifiable information processed-which is
its most productive role not replacement but amplification
of human faculties. It gives a platform to business for rendering
customized attention-customer retention depends upon human
qualities of relationship between supplier & buyer in pull
marketing models-IT mediated.

prof. pherwani 180

• The real consumer has lowered steadily his degree of brand
loyalty-real customers don’t abandon brands-but brands,
companies and the marketers behind them have abandoned the
customer-phantom consumer syndrome haunts business journals,
trade media which prefers dealing with tangibles-things which can
be measured, units sold, technology, unit s manufactured-& case
studies from which lessons can be applied regarding human
behavior-which is difficult to fathom-sweeping generalization about
broadly defined demographics groups-genX etc-boomers, seniors-
wrongly presuming that personality is a cause of human behavior-
none has gained the confidence of decision makers.
• Designers of IT expert systems also bear in mind that analytical protocols
based on personality typologies alone wont be productive-real customers
emotional creatures who easily feel abandoned-statistical customer are
imaginary& acquire some of the characteristics of the marketer.

prof. pherwani 181

Durability depends upon consumer's subjective measure of
satisfaction-a major challenge of IT-mediated marketing
captivity is facilitation of credible responsive dialogue- it is
the most essential psychological element in RM & depends
on 4 conditions:
1. Bilateral or reciprocal empathy-ability to identify with &
understand other person’s condition-motives & feelings.
2. Bilateral vulnerability-lowering of defenses- a prerequisite
of enduring, satisfying relationship
3. Bilateral faith-confidence in relationship will meet
expectations
4. Bilateral trust-belief that parties to relationship will morally work to its
benefit- a reciprocal empathy-it is a foundation of lasting relationship-a
good chemistry between the two- a robust understanding of real individual
consumer

prof. pherwani 182

Dialogue-is a collaborative exchange of
information-state-of-the-art in managing
dialogue in consumer-based marketing is still
primitive-Dialogue doesn’t matter in
transaction marketing-but it is critical in
relationship marketing.
• Lawyers also have traditionally discouraged
from forming close relationships with
consumers on the ground that this broadens
the company liability & risk of litigation-
marketers have to negotiate a transition of
thought from mktg. philosophies that have
been dialogue averse-people are not inclined
to sue firms to which they are bonded.
prof. pherwani 183
 Migration of Services: A BT’s Perspective
Timeline One
Voice – The Past VOICE
DATA
Timeline Two
Voice + Data – The REQUIREMENT
Present
OF

Timeline Three SERVICES

Voice + Data +
Entertainment
The Future
CONVERGENCE
Timeline Four
ENTERTAINMENT
Total
Convergence
prof. pherwani 184
The Final
Frontier
Technology
Greater affordability
Greater capability
New media/new channels

Customers
Better value Relationship
Less noise marketing
More personalization leveraging information technology

customized products & services

Marketing greater customer-control-increased

Doing less with more returns-high accountability
Loss of credibility
Poor accountability 185
prof. pherwani
Implementation issues in mind for firms making transition to IT-
enabled RM
• Early mover advantage

• Each generation of technology builds upon learning curves from previous

generation or even leap frog generations when rapid changes take place.
• Customize IT to suit the firm’s need

• Reorganize activities when business gets re-defined & processes get re-
engineered, reorganize the business activity-defining it in service terms &
importance of customer service function-recognition of its role in retention.
• Both customer service & customer acquiring must report to mktg. function

• Firm must also enable self-service by using customer –focused tools.

• Cutting-edge IT provision to sales-customer service-frontline personnel.

• FIS-the frontline information system can help firm achieve dramatic impacts
where it directly affect customers- the info. Co. needs for management
control-MIS & EIS is collected as a by-product of FIS. See block overleaf.

prof. pherwani 186

 THE M I S APPROACH THE F I S
APPROACH

CUSTO
MERS
Top management EIS
CUTTIN-EGDE IT
High-level IT
relationship support

front line
employees

Middle management MIS middle

management

support systems

Front line employees top

management
Low-level
IT-need
Transaction
support

CUSTOMERS
Frontline Information systems for relationship marketing
187
prof. pherwani
Limitations
• Lack of authenticity-an exclusive quality in one-to-one
marketing-requires periodic interventions by humans
extremely sophisticated & self-learning system-in-depth
understanding of experiential elements of service
design.
• If mismanaged, technology-intensive relationship
marketing can degenerate into an impersonal & faceless
experience by customers-results are- no referrals, no
loyalty, only a relentless price-driven customer who uses
power of technology to obtain the best price on each
transaction.
future directions
• How to speed up customer adoption of new IT-based RM
processes
• Mechanisms of sharing new value-created
• The development of authenticity in RM
• Extent to which strong customer relationship can
translate into provision of unrelated products.
• Creation of shared infrastructures
prof. pherwani to enable RM in a188
cost-effective manner.
• In moving towards tech-enabled RM there are 3
possible scenarios:
1. high-tech marketer & hi-tech customer-best
situation-maximum potential for new value-creation &
sharing
2. Low-tech marketer & hi-tech customer-worst
from marketer’s point of view-customer can cherry-
pick & play one against the other-a sitting duck-
marketer’s margins disappear-he needs to acquire
technological savvy.
3. High-tech marketer & low-tech customer-a
middle coarse-primary drawback is it is inefficient-
marketer must continue to make inexpensive low-tech
modes of doing business-& market the technology
itself-pay special attention to high-touch issues.
prof. pherwani 189
prof. pherwani 190
prof. pherwani 191
prof. pherwani 192
7. Customer profitability
design and
analysis

prof. pherwani 193

CUSTOMER PROFITABILITY
Definition of RM-Gronroos-RM is a process of identifying
& establishing, maintaining & enhancing & when
necessary terminating the relationship with customers
at a profit so that objectives of all parties are fulfilled by
mutual giving & fulfillment of promises.
• effect of RM, context, & design issues weren't focal issues
for marketers thus far-in single or multiple exchange
transactions-only price & product costs are considered &
efficiency is measured. Metrics are M.S. –sales volume-
gross margin-product cost
• As relationships become more complex the cost structure
also becomes complex-a customer purchasing only
profitable products may end up as unprofitable himself-
due to firm’s inability to account for all the non-goods
components connected to relationship.
prof. pherwani 194
• In RM encounters are called episodes [in services
marketing they are called moment of truth or
service encounter]
• Episodes –a visit to a restaurant, staying overnight at a
hotel, a trip to a place on an airline
• Relationship -implies the link between provider &
customer lasts longer than one episode. Long-term
relationship- can be described as a string of episodes.
• Total benefit or value-that the customer receives
during relationship is not provided in one episode-
delivered in small portions during a relationship.
• Some relationships are built from a series of discrete
episodes in which customer makes repeated purchases.
Or contracts with providers & receives offers on demand.

prof. pherwani 195

• Telephone, maintenance, banking services-simple episodes-cash
withdrawals from ATMs-complex ones-long-term loan negotiations.
• Customer profitability calculated from continuous info. Gathering

• Anatomy of relationships- configuration of episodes generated by

different customers –each having different impact on profitability-some
costly to produce & some inexpensive-a bank house loan episode may
occur once in a lifetime for a customer-while a ATM one is repeated &
familiar & customer assumes a greater role in production of the episode.
Relationship episode configuration matrix-can be created x-axis
describes relationship & types of episodes-not number-& can be analyzed
from customer’s or provider’s perspective [add number of episodes-a sum
of all customers who have chosen the distinct type of episode]-customer
base consist of a series of customer relationships & each episode built in
turn out of each set of activity level. Profitability can be analyzed from
customer-base level, R-level, the episode-level & the activity level.

prof. pherwani 196

Episode-configuration matrix-storbacka
1994

Customer relationship

R1

R2

R3

R4

Rn
Episodes E1 E2 E3 E4 E5
E6 Em
prof. pherwani 197
 Customer base can be regarded as fixed assets
due to long-term relationship-provider has to
choose the right customer in which to invest, to
get the return on investment.
Typical questions here:
• How is profitability of a company
distributed among customers?
• How should customer be grouped?
• Where is the biggest profitability potential?
• What is the retention rate for different
parts of the customer base?
• Is the provider losing customers in a certain
part of business?
• How should resources be allocated among
different customer groups?
• Could the processes toward different parts
of customer base be differentiated?
prof. pherwani 198
Key tool for analysis is distribution of profitability within customer
base
Distribution can be used to measure sensitivity of the customer
base since it indicates how independent the company is on a few
customers & shows the cross-subsidizing effect in the customer base-a good
comparison tool for potential & risk profiling.
Dispersion of customer profit is evident in large number of industries-some relationships are
profitable others not-proportion varies among providers-20% contribute 225% of profit in
certain industrial markets-retail banks show 20% of customers account for 130-200 % of total
profit.-thus profit distribution is skewed-they are best analyzed as ordered distribution.
Storbachoff curves-used in comparison of ordered distribution of
customer bases. y-axis shows cumulative profitability of customer base as
a fraction of the aggregated customer base profitability-the customers are
ranked on the x-axis according to their profitability-most profitable
customer is to the far left of the axis-the profitability of the 2nd customer is
added to the profitability of the 1st & the sum is compared with aggregated
profitability of the customer base.

prof. pherwani 199

PROFITABILITY DISTRIBUTION OF A CUSTOMER BASE-THE STOBACHOFF
CURVE

Cumulative fraction
Of total customer
Base profitability
1,6

1,4

1,0 AREA A
02

0,8

0,6

0,4
AREA C

0,2
01 ,2 ,4 ,6
,8 1,0
prof. pherwani 200

cumulative fraction of total customer base

• Logic –figure reveals that some customer relationships are much
more important to providers than others-the 25% or more
customers are the provider’s lifeline-also 255 or more erode the
profitability to the final level are unimportant-these may be
unprofitable due to high relationship costs-large portion of fixed
costs allocated –these customers account for a large part of
provider’s fixed cost mass-removing these customers would mean
that the fixed costs will have to be reallocated among remaining
customers, making the lot unprofitable.
• Customer-base portfolio analysis-Stobachoff index combined
with
Proportion of profitable customers can be used to follow the
development of a certain customer base over time or grade them
within same company or in widely dispersed locations it gives
sensitivity of profitability of customer bases & risk involved in
management of customer relationships in any area.

prof. pherwani 201

• If every customer was equally profitable and all customers
were profitable, the Stobachoff Index would be a linear
function & not a curve-a straight line between the points 0
1 & 0 2-the curve’s shape correlates with the equality of
distribution & degree of subsidization between profitable &
unprofitable customers.
• Based on the above discussion, an index can be developed
• Stobachoff Index-is measure of the cross-
subsidizing between customers in the provider’s
customer-base. Provider can use index as
management measure instrument that can
facilitate the assessment of different customer
bases over time.
S = A where A is the area under yellow curve
above line 0 1 & 0 2, &
T
C is area below straight line 0 1 & 0 2, white, and T is the total area A+C
-trapezoidal area
prof. pherwani 202
• It is the measure of studied customer
base’s deviation from ideal customer base.
When stobachoff index is zero, the profitability is
equally distributed-all customers are equally
profitable & all customers are profitable. as soon
as the index is greater than zero, the
profitability is unequally distributed & theoretical
maximum is 1 and this value is there if there is
one profitable customer with infinite profitability
& large number of customers with zero
profitability, and an unprofitable customer with
infinite negative profitability.

• based on the index we can analyze generic

development of customer base by combining 2
dimensions prof. pherwani 203
• The generic situations are valid when one compares
profitable companies with same level of aggregate
profitability.
• The 4 figures below show best situation will be when
stobachoff index is 0 & proportion of profitable
customers is 1. here the risks involved in dealing with
the customer base are proportionately smaller as the
company is not as dependent on small number of
customers-the need to segment the customer base
grows smaller as P approaches 1, & S approaches 0-
there would be no need to group the customer base
in ideal situations.
P= [n- n u / n], where n= total no. of customers, n
u = unprofitable customers in the customer base, and P is the
profitability proportion.
• Customer base with greater proportion of profitable
customers is preferred. Given in the next slide below is
prof. pherwani 204

showing various curve shapes.

CUSTOMER BASE PORTFOLIO ANALYSIS- verbal and graphic
depictions-
High

Proportion of
Profitable
Customers

Low
low
high
STOBACHOFF
INDEX prof. pherwani 205
Interpretation
• High stobachoff index combined with a high proportion of
profitable customers would indicate that there are a small
number of very unprofitable customers eroding aggregate
profitability-unit under investigation may radically improve its
profitability by identifying the unprofitable ones & influencing the
reasons behind the unwanted results.
• A unit who has a total cost largely variable-it would in order to
terminate its relationship with most unprofitable customers &
radically improve its result-this wont be the case in a most retail
bank where total costs to large extent are fixed.
• a low proportion of profitable customers combined with allow
Stobachoff index indicates that there may be no extremely
unprofitable customers-even though there are only a small no. of
profitable customers-the risks involved with customer base are
fairly low. As profitability is equally distributed, there is little need
for a differentiated strategy towards different customers.-hence
no need to segment the customer base.

prof. pherwani 206

• High stobachoff index combined with a low
proportion of profitable customers is the
worst case-indicates firm is essentially
dependent on a small number of customers-
a state which makes it vulnerable to
competition & potential customer defection.
The power position of the profitable
customers will be such, they may be able to
negotiate terms that will make them
unprofitable very soon-this will force the unit
to have an extremely differentiated strategy
based on segmentation of the customer
base.
prof. pherwani 207
Most profitable customer what segment spends
more with us over time,

costs less to maintain &

spreads positive w-o-
m
Best
customers

what segment costs

Normal us in time effort &
money
customers yet doesn’t provide
the
Least profitable return we want?
what
Customers segment is difficult
to

Other customers business with?

prof. pherwani 208

Segmenting customer bases
• 2 distinct segmentation needs:
1. Need to determine customer base state in terms of homogeneity over a
variety of variables describing both documented patronage behavior &
background data on customers. This analysis is labeled retrospective
[based on historical data]-more of a strategic tool helps make decisions
on price-positioning-product-discrimination, it also allows systematic
evaluation of the state of customer base in terms of possible risks &
possibilities .
2. 2nd type of analysis is labeled-prospective-deals with the provider’s abilit
to enhance existing relationships-it is operative or tactical in nature-key
issue is to find ways to enhance a particular relationship or a group of
relationships-such analysis is oriented towards creating practical
solutions as to how to approach customers-how to communicate with
them & how to influence their behavior-these solutions are transitory
because they re used basically for a campaign of different activities.

prof. pherwani 209

Steps in segmentation & targeting for services

Step 1 step 2 step 3 step 4

step 5
Identify basis develop profiles develop select the
ensure that
For segmenting of resulting measures target
segments
The market segments of segment segment
are compatible
attractiveness

 The basic segmenting & targeting of services here is same as

those for goods, except that it involves compatibility in
segments.
 Other customers are present when service is delivered-
providers must recognize then need to ensure incompatible
segments are not receiving service at the same time.
 Service providers have a greater ability to customize service
offering in real time than mfg. firms have.
prof. pherwani 210
 Segmenting is the second basic foundation of
Relationship marketing.-learning & defining who the
organization wants to have relationship with. If we
aggregate all behavior, expectation & perception
information for all customers in a particular market,
we will be overwhelmed by with variations across
customers.
 At one end service firms treat customers as
individuals & develop individual marketing plans for
each-law firm, ad agency, a large mfr. Like Boeing
will offer customized service offering, while some
offer one offering to all as if their expectations, needs
& preferences were homogenous-gas electricity.

prof. pherwani 211

• The need for segmenting the customer base is a
function of preferences-sales volume-transaction
intensity-customer profitability-key attribute is
distribution of profitability within the customer base.
• 4 Ways to segment:
1. Based on relationship revenue
2. Based on combining relationship revenue &
relationship cost
3. Based on customer profitability
4. Based on combining relationship revenue & customer
relationship profitability
• Grouping of customers is static & therefore require
additional analysis in which customers are followed
over time to identify migration patterns for both
profitable & non-profitable customers, turnover rate
of customers & degree of migration.
prof. pherwani 212
Designing customer relationships
• Cultivating relationships is the core of customer
management
• 3 key design issues:
1. Revenue that provider gets from relationship RR
2. Cost incurred by relationship RC
3. Length of relationship with a specific customer-
longevity RL
• Typical questions:
How can provider get the customer interested in
concentrating his business- larger share?
Can new price carriers for services be identified in
order to increase revenues?
How can provider change the customer’s configuration
of episodes his BB & still produce the same value
for the customer? prof. pherwani 213

How can customer loyalty be ensured?

prof. pherwani 214
Increasing relationship revenue
• It is only a share of total volume customer spends in a
particular industry-TIV, total industry volume in turn is only
a share of customer total volume CTV-customers have
certain money at their disposal & they divide this among
may sectors of their lives, including savings-housing-food-
clothes-hospitality services. Money spent in other sectors is
not readily available to the providers in other industries.
• Measure provider’s hare of TIV, the RR/TIV ratio is called
patronage concentration-it measures the actual
patronage behavior of customer-bigger the quota, stronger
the provider’s position & stronger the relationship. When
RR < TIV the customer has other relationships with other
providers & is only a partial customer-who forms a
potential for growth when firm is trying to increase
relationship volume & revenue.

prof. pherwani 215

3 ways to increase Relationship revenue:
1. By raising prices

2. By increasing the patronage concentration of

customers RR/TIV
3. By increasing RR/CTV ratio-by cross-selling products
other than own
• Price bundling-a way of revenue increasing-relates
to offering always consists of several components
that re difficult to separate from each other-sold as a
bundle-at a price that makes it difficult for a
consumer to purchase the components separately-
used as a tool to regulate demand-bundling a service
that a customer might not be interested in paying for
with a very attractive service may increase the
demand for less attractive service-increases
customer’s patronage prof.
concentration.
pherwani 216
• Price bundling can enhance attractiveness of a
specific service-common for retail banks-a/c s
bundled with debit or credit card, house loan, life
policy-bundling bank & insurance enables provider
to increase share of customer’s total potential.
• Demand for different type of components is
dependent on type of offering-intra-industry
dependence & [a bank customer uses several
instruments], inter-industry dependence [personal
financing is bundled offered in several elements]-
service packages that model the buying behavior of
ideal customer archetypes.
Risks with price bundling:
• Create resentment from customer’s side-he is
forced to buy something he may not need.
prof. pherwani 217
Decreased relationship costs
• Provider has to increase episode configuration of
customer relationship. The relevant changes are;
1. Decreasing the intensity of episodes-are lower no. of
episodes possible to generate the same amount of
business?
2. Changing to cheaper episode variants-any
substitutes for this type of episode?
3. Changing cost structure of present episode type in
order to make it cheaper to produce.
• Providers have to take into consideration the
complexity and divergence of process, the potential
role of customers, and how to script them, in order to
achieve these objectives. Also define how to regulate
the customer’s access to certain episode types.
prof. pherwani 218
Relation cost as a function of complexity & divergence
• Design & execution is a focal area of interest in analysis of R

• 2 dimensions are important:

complexity-seen as a technical description of the number of steps

required to deliver a service, every activity carries a production
cost & adding cost-carrier steps increases the cost of service-
complexity is a cognitive issue from both perspectives-
technically simple episodes can be regarded as complex if
employees and customers are unfamiliar with the type of step &
are inexperienced performers of their tasks-they both drive costs
adding new activity to the episodes will add to direct costs of
relationship, while cognitive complexity will add to indirect cost in
that both employees & customers spend more time in actual
production process's

prof. pherwani 219

• Divergence-design & execution of process can be analyzed on
basis of divergence of process
• It pertains to amount of adaptation allowed in the process
• It can also be divided into technical divergence-relates to idea
that there are several options that are built into the process
from which customer chooses during episode process-making
options available means each is different for each discrete
episode-it increase as a function of both the number of decision
points & range of potential choices available at each point-it is
also called option personalization-which can be delivered by
programmed personalization -elements scripted into the
process that acknowledges customer as an individual-using his
name, greeting him-in customized personalization employee
makes a cognitive effort to assist the customer called
-cognitive divergence. See chart overleaf:

prof. pherwani 220

are the most expensive to produce & thus generate high
relationship costs. Episodes in Q I are the cheapest to
produce & thus generate less costs
conclusion-providers should reduce the divergence &
complexity of relationship

COMPLEXITY

LOW QI Q II
DIVERGENCE

HIGH

Q III Q IV

LOW prof. pherwani HIGH 221

• Divergence drives both direct & indirect costs
• Divergence requires more competencies from performers
during episode
• Production process is longer and more complicated.
Decreasing customer costs thru customer participation
• Concept of customer management implies that customers
are regarded as partial employees-their participation is
viewed as important-how to create value jointly? How they
both perform during episodes? Each enacts his role to his
own satisfaction-the code that influences the role playing is
called a script-both have their own scripts-elaboration
defends upon experience 7 less explicit it is to role player.-
changes in script would encounter more resistance from the
experienced role player-discrepant role expectations reduce
efficiency

prof. pherwani 222

• When role players read from different scripts-communication is
inhibited & considerable confusion results-which ahs negative effect
on productivity
• All relationship processes consist of scripted activities & discretionary
activities-which seem to have been invented as they become necessary in
order to produce the service. The script consists of explicit codes in form of
work standards, directives & written or oral instructions on how to behave in
the episode & implicit rules that direct behavior-implicit scripts dominate.
• Behavior settings influence the customer-program sets the stage
for customer & contact resource [the human component] & tells
him how to perform. Episodes are designed either to have a very
low-level of discretionary steps-low level of divergence- or a strong
setting program of experienced player .Changing scripts require many
learning captivities-for both-includes changes in implicit & explicit steps-the
learning organization has developed capabilities.

prof. pherwani 223

Using access barriers to decrease relationship costs
• Limited access to different types of episodes is one way to
influence customer behavior-used primarily in relationships of a
continuous nature-used to differentiate between groups.
• Relates to price discrimination as another way to decrease costs
In banking customers pay different prices for same service or
provided different service package for same prices-students
programs & senior citizens products-product form discrimination-
different versions of the same products are priced differently but
not proportionately-credit cards-access channels discrimination
-prices differs for ATM or teller transaction and time discrimination.
• Access barriers are built as volume or behavioral barriers-achieving
a certain volume he gains access to certain privileges or discounts-
relate to both number & type of episodes-or force customers to use
self-service option at lower price & not use personnel intensive
services-persons who pass the barriers usually get discounted
prices.

prof. pherwani 224

• Increasing relation longevity
• Relation longevity is important to provider from efficiency point of view
originates in relationship-intrinsic & relationship-extrinsic factors
[market structure competitive situation and concentration, in which
relationship exists and geographical limitations when customer moves to a
different location where provider doesn’t have presence]
• The number of service providers has to choose from influences a customer’s
interest and his evaluation of options
• Longevity originates in relationship strength-a function of
relationship-intrinsic factors-history-volume-relative importance of
relationship for both-customer’s commitment & satisfaction-bonds
developed-provider's ability to handle critical episodes-relationship
inertia-mutually positive history-he remains for a long time without
seriously contemplating the existing alternatives.

prof. pherwani 225

• Relative worth of the relationship to both parties in
the dyad
• Low volume customers have little power in the R because
the provider's survival doesn’t depend upon his business-
high volume customers have a better deal-exercises
during price negotiations
• Customer places a major part of his business with provider
makes the R strong-his relationships with other providers
is inversely proportional to his patronage concentration-
and is in a position to compare offers & performance-one
who has all with new has no knowledge of options & is
more loyal-a patronage concentration can be regarded
as switching barrier. Every episode doesn't carry same
importance or weight-
• Routine -largest proportion low level of mental
involvement & routinized behavior customer has
clear script. prof. pherwani 226
• critical episode is of great importance to or has
great economic significance-volume of exchange-cost of
episode-risks involved- or casual.
• Continuation of relationships is dependent upon
both –ve & +ve ways on critical episodes-a
successful critical episode can strengthen
relationship so that it withstands many
unsatisfactory routine episodes-an unsuccessful
one abruptly end even though preceded by years
of satisfactory routine work. The most important
part of longevity is the art of service recovery-that
is the provider’ skill to in escalating activities in
cases where critical episodes have occurred.

prof. pherwani 227

Tactics used by companies to stiffle service
• Companies know how good a customer you are-and unless
you are a high roller, they would rather lose you than take
time to fix your problem.
• Flying-cancelled flight?-no problem. with top status you are
whisked past a queue, handed a ticket for the next flight ,
and driven to the 1st class lounge
• Billing-big spenders can expect special discounts,
promotional offers and other goodies when they open their
bills. The rest might get higher fees, stripped down service,
and machine to answer their questions.
• Banking-there's nothing like a big bank account to get those
complaints answered and service charges waived very time.
Get pegged as a money loser and your negotiating clout
vanishes.
• Lodging-another day, another upgrade for frequent guests.
Sip champagne before chef prepares your meals. 1st time
guest? So sorry. Your room is up three flights to the left.
• Retailing-welcome to an after –hours preview for key
customers where great sales abound and staff await your228
prof. pherwani

every need. Out in the aisles, its back to self-service.

Companies have become sophisticated about figuring out if you’re
worth pampering-or whether to just let the phone keep ringing. Here
are some of the techniques:
o Coding-some companies grade customers based upon how
profitable their business is. They give each account a code with
instructions to staff on how to handle each category.
o Routing-based on customer's code, call centers route to different
queues. Big spenders are whisked to high-level problem solvers.
Others may not speak to a live person at all.
o Targeting-choice customers have fees waived and get other hidden
discounts based on value of their business. Less valuable customers
may never even know promotions exist.
o Sharing-firms sell data about your transactions history to outsiders.
You may be slotted before you even walk in the door, since your
buying potential has already been measured.

prof. pherwani 229

Making the grade-how to get better service
• Consolidate your activities-few things elevate status and trim
costs like spending big in one place. Be on the lookout for packages
or programs that reward loyal behavior.
• Protect your privacy-avoid surveys & be frugal with releasing
credit card or other social information. The less companies know
the less they can slot you.
• Jump the phone queue-if you wish to reach a live human, don’t
admit to having a touch-tone phone at the prompt or listen options
that are less likely to be handled automatically.
• Fight back-if you feel badly treated complain. Make sure
management knows just how much business you represent and
that you’re willing to take it elsewhere.

prof. pherwani 230

Future trends
• Longitudinal studies-migration pattern customers between
segments in customer bases-studies on a yearly basis can be
dangerous if they management to actions that are perceived in
negative way by customers. Who are unprofitable for the
previous year but have great potential in future. New constructs
will be necessary-calculation often present values for customer
relationships and retensiongrams for longevity studies.
• Valuation of relationships- beside the profit
generation, he has referral value, w-o-m effects,
competence value of customer which is brought to the
relationship-its future potential.
• Analysis of relationship profitability-usage of
customer profitability information-insight gained-what
constitutes relationship strength? Connection between
loyalty-satisfaction-profitability.

prof. pherwani 231

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prof. pherwani 235
HOSTED MULTI-CHANNEL RELATIONSHIP MARKETING

prof. pherwani 236

prof. pherwani 237
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prof. pherwani 240
                               

BRIDGESTONE TO HEAVILY INCREASE IT'S

PERMISSION MARKETING DATABASE WITH
RESPONSEWAVE. 
LEADING TYRE MANUFACTURER, BRIDGESTONE
TYRES, RECOGNISED THE NEED FOR MORE
TARGETED MESSAGING IN ORDER TO EDUCATE
THE CONSUMER MARKET TO 'THINK BEFORE THEY
DRIVE'. THE COMPANY MANUFACTURE TYRES FOR
EVERYTHING WITH WHEELS, SUPPLYING MORE
THAN 150 COUNTRIES AROUND THE GLOBE. THE
MAJORITY OF ITS MARKETING ACTIVITY TO DATE
HAS CONSISTED OF HIGH-LEVEL BRANDING
AROUND ITS FORMULA ONE PRODUCT, BUT
BRIDGESTONE TYRES WANTED TO APPEAL
DIRECTLY TO LOCAL MARKETS
prof. pherwani 241
RESPONSEWAVE IS AN INNOVATIVE PROVIDER OF