Relationship Marketing: A Paradigm Shift or Shaft?

By January 1, 2000 February 14th, 2019 Relationship Marketing
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Introduction

Relationship marketing, at least at the practice level, is recognized as a major paradigm shift in marketing comparable to what the marketing concept in the sixties with its focus on customer needs and wants, and more recently, the quality concept with its focus on customer satisfaction did in transforming business practices and philosophy. Indeed, at Procter and Gamble, the company that pioneered the modern marketing organization and integration of four Ps of marketing (product, place, promotion and price) has just renamed its marketing department as “Customer Business Development” and has shifted focus toward its immediate customers such as large retailers and supermarkets. Similarly, many business to business companies such as Xerox, IBM, and Citicorp are investing in global account management processes to serve their key accounts more uniformly across national and cultural boundaries. Finally, with databases, many service companies such as airlines, banks, insurance, telephone, and direct marketing companies including the catalog companies have begun to implement one to one marketing and loyalty programs with their end user customers.

Relationship marketing with in focus on customer retention and commitment as well as on share of the customer business instead of market share has also generated enormous research interest. Hundreds of papers have been presented at dozens of conferences. Several papers have been published in top journals and many books have been written on this topic, as indicated by Parvatiyar and Sheth review of the literature in this book.

Journey from Domain to Discipline

Will relationship marketing create a paradigm shift? Will it become a discipline out of a domain? Nobody knows for sure. However, to me this is “de ja vu” all over again. Therefore, we can learn some key lessons from the past where a new concept or domain either succeeded or failed to become a distinct discipline of marketing.

In order for a domain to become a discipline, it needs to go beyond description and into explanation of the phenomenon by providing hypotheses and theory; and at the same time, it needs to go beyond observation  and  become  a  science  by  utilizing  methodological rigor.

There are at least three successes and three failures in marketing in the last three decades. By analyzing and understanding, why they failed or succeeded in becoming disciplines of marketing, we may learn some insights and even engage in intervention to make sure that relationship marketing becomes a distinct discipline in marketing.

Consumer Behavior vs. International Marketing

In the sixties, consumer behavior made a successful transition from a domain to a discipline but international marketing did not. Consumer behavior quickly focused on only the buying behavior of consumer and attempted to provide explanation for the systematic preferences of consumers to choose a particular brand within a product class. At the same time, it began to utilize the operations research techniques of stochastic processes (Markov chains) and underlying theory of learning over time to measure quantitatively the degree of brand loyalty exhibited by household customers.

Unfortunately, for whatever reason, international marketing did not or could not generate its own focus or theory. The debate about standardization versus adjustment of marketing mix across cultures and countries did not result in any well accepted theory. Also, it did not use scientifically accepted methodologies especially statistical analysis and inferences to rise above observation.

A number of other factors also contributed toward consumer behavior becoming a discipline. First, it attracted scholars trained in economic, behavioral and quantitative sciences to devote their time and talents on this domain. This enhanced the respectability of the domain. Second, most marketing curricula in schools of business developed a separate course on consumer behavior as part of marketing core knowledge. Third, a separate journal, namely the Journal of Consumer Research (JCR) was established with the blessings of several disciplines and organizations. JCR now ranks among the top three journals in marketing. Third, it had the good fortune of having access to longitudinal household panel data from the Chicago Tribune and M.R.C.A. which enabled access to significant amount of empirical research without the enormous cost and time constraints. In some sense, this is also what happened in finance and accounting with the availability of Compustat databases on publicly held companies. Finally, several theories of consumer behavior, some very simple such as Bauer’s risk reduction and Festinger’s cognitive dissonance to some very comprehensive such as the Howard-Sheth theory of buyer behavior added legitimacy to the transition of consumer behavior from a domain into a discipline.

Unfortunately, none of these was available to international marketing. On the contrary, there were traditional scholars who believed at that time that international marketing is strictly a contextual phenomenon requiring no unique constructs or theory; and therefore, should not be a distinct discipline. Marketing departments had tough times to create separate courses in international marketing although it is now more prevelant.

Marketing Strategy vs. Social Marketing

The decade of the seventies saw a similar race between two other domains in their aspiration to become disciplines; namely, marketing strategy and social marketing. Marketing strategy became a discipline but social marketing did not. A number of enabling events were very helpful to marketing strategy. First of all, business strategy was mandated by the AACSB accreditation process as part of core business education. This resulted in the evolution of academic journals in business strategy similar to the evolution of management science and operation research journals in the sixties. Second, and perhaps more importantly, the Strategic Planning Institute (SPI) allowed the academic institutions to license and use the industry benchmarking data called the PIMS, which proved to be a gold mine of exploration and discovery. Also, the PIMS advocates discovered several lawlike generalizations anchored to the impact of market share and customer satisfaction, on financial performance.

The transition of marketing strategy from a domain to a discipline was further propelled by the impact of Porter’s book on competitive strategy and its links to market strategies of differentiation and focus. Also, a number of alternative theories such as population ecology and transactions cost became popular in marketing strategy as explanations for market behaviors. Finally, most marketing curricula developed a capstone course anchored to marketing strategy. This was further enhanced by several computer simulation games such as The MarkStrat and the Beer Game which encouraged a more analytical approach to education and learning.

In contrast, social marketing suffered, right at its inception, from definition debate. Is it marketing of non-profit and social services (education, healthcare, population control) or is it the malpractices of marketing such as misrepresentation, deception, and ecological and cultural harm marketing practices create? And even today, it is not resolved. At the same time, there was a strong movement toward consumerism and consumer Bill of Rights including truth in lending and truth in advertising. Even, public policy research also could not provide a focus to this domain. Unfortunately, there was also an advocacy or evangelistic fervor among well known marketing scholars who braved to research in this area. This made objective scientific inquiry untenable. Finally, similar to international marketing, most scholars believed that social marketing was extension of marketing theory and practice and, therefore, needed no unique constructs or its own theory. It is unfortunate that despite good scholars publishing in top journals, social marketing could not make the transition from a domain to a discipline.

Services Marketing vs. Business Marketing

The decade of the eighties saw a similar parallel between services marketing and business to business marketing. The former has begun to become a discipline, and the latter still continues to be a domain. What is the difference? First of all, by the eighties, the economy had predominantly become a services economy, and the emergence of the TQM philosophy with a focus on customer service had become very popular. Both the government and the industry were willing to commit money to improve product and service quality especially in consumer mass markets. This led to the emergence of government quality awards (Malcolm Baldrige Award) and private quality awards (J.D. Power), and performance metrics such as airline on time arrival and baggage delivery, to rate superiority of one company versus others. Soon thereafter, Marketing Science Institute (MSI), supported a major research funding which led to the development of SERVQL, a methodology to measure service quality. At about the same time, several books were published to articulate how and why services were unique and different from products. This led to several unique properties of services such as intangibility, interactivity, perishability, and proximity. A number of universities and schools of business started separate Centers of Research and Education in services marketing in addition to offering separate courses.

Services marketing has started the journey of becoming a discipline by establishing its own scholarly journal, by focusing its research on services as unique and distinct from products; and by having access to large scale databases related to customer support services.

Business to business marketing in the U.S. has not enjoyed the same benefits. While there are some Centers of Research and focus, it is not a significant phenomenon. On the other hand, in Europe, it led to a multi-country, multi-industry consortia research and has now become the IMP school of thought with an emphasis on networks of alliances and relationships both vertically and horizontally. Unlike the rest of the world, U.S. marketing is more focused on consumer marketing than on industrial marketing. It has, therefore, not attracted as many scholars. Also, business to business marketing is closely related to organization behavior and management. Therefore, its concepts and research techniques are comparable. In other words, business to business marketing has not been able to create its own distinct domain and still remains synonymous with marketing activities in business to business companies. Those marketing activities are predominantly sales support activities, and not the degree of centrality that brand management enjoys in a packaged goods company.

Lessons for Relationship Marketing

What lessons can relationship marketing learn from this? How can it evolve into a discipline of marketing? I believe it needs to focus on the following eight things:

1.  Delimit the Domain The concept of relationship and relational behavior is universal. It is in physical, animal, plant and human sciences. Therefore, every discipline has applications and implications of relational behavior. Indeed, it is so universal that the most widely used statistically technique is correlation or relationship between two or more phenomena, whether it bivariate or multivariate in nature. Therefore, it is not only easy, but also tempting to extend the concept of relationship beyond marketing and beyond business. But then it would lose its identity and uniqueness. This is analogous to consumer behavior which is only one subset domain of all human behaviors, namely the behavior and the role people manifest as consumers in contrast with the role of producers or middlemen or citizens or kinship. In short, relationship marketing must be limited to the discipline of marketing; which is to understand and manage customers and their buying, paying and consuming behavior.

Furthermore, not all marketing can be relationship marketing. It has to be a subset of marketing. In other words, not all marketing relationships are relationship marketing. Just as we have services marketing, international marketing and social marketing, there is or should be a unique domain called relationship marketing whose objectives, processes, performance and governance are unique with respect to organization’s marketing and non-marketing resource allocations. The objective of relationship marketing is to increase customer’s commitment to the organization through the process of offering better value on a continuous basis at a reduced cost. This can be achieved partly within the organization and partly by partnering with suppliers and even competitors. The measure of success is the growth of the share of a customer’s business and its profitability.

2.  Agree  on  a  Definition Relationship marketing has proliferated with any definitions and many programs.  It includes affinity marketing, loyalty marketing, co-branding, co-marketing, as well as customer-supplier partnering.  In professional services, it includes personalized one to one relationship  with  individual clients  and dedication of organization’s resources to the individual relationship. In business to business marketing, it includes key account management and solution selling.

Analogous to social marketing, there is already a definitional debate about relationship marketing. Some have argued that it is an old concept already incorporated in existing schools of marketing thought, and therefore, needs no separate identity; others have suggested that it overlaps with so many domains of marketing (services, channels, global, and direct marketing) that is needs no separate identity. Still others believe that relationship marketing is synonymous with direct marketing, and, therefore, it is more appropriate in business to business marketing and in services marketing.

What we need is a definition that will articulate the uniqueness of the concept with its own distinct properties similar to what services marketing has done. There are at lest three aspects which are unique to relationship marketing. First, it is a one to one relationship between the marketer and the customer. In other words, relationship cannot be at aggregate level; it has to be at an individual entity level. Second, it is an interactive process and not an exchange. To me, this is a fundamental distinction since marketing is founded on the principle of exchange and transactions. Relationship marketing, however, is all about interaction and activities; it is co-production and co-consumption in which the time, location and identity boundaries between the supplier and the customers are blurring into one extended supply and demand chain management; and at the same time, each member in the value chain is a distinct and independent organization with its own capital and management and, therefore, it is a virtually integrated network of organizations and not traditional vertically integrated organization.

Third, and equally important uniqueness of relationship marketing is that it is a value added activity through mutual interdependence and collaboration between suppliers and customers. Just as hardware and software create a symbiotic value addition, and one without the other is less useful to users and consumers, relationship marketing must add value through collaborative and partnering mindsets and behaviors of suppliers and customers. This is very obvious in services industries where the user must cooperate and collaborate with the provider whether it is a doctor, accountant, lawyer, or a teacher. It is becoming more the case with automated services such as bank teller machines, telephone calls and gasoline pumps. Finally, with electronic ordering and internet commerce, it is also becoming prevalent for traditional product offerings, especially in business to business marketing.

3. Build Respectable Databases

Perhaps the single biggest lesson we can learn from marketing strategy is the access to PIMS databases with measures of financial performance. I believe relationship marketing needs to access similar data from corporations and service bureaus. It was the availability of household panel data on more than 200 consumer products that led to quantitative performance measures of brand loyalty in consumer behavior. Today, it is the availability of scanner data through IRI and A.C. Neilsen that is propelling scientific research on brand equity.

In my opinion, this is very possible especially in the U.S. For example, we can utilize the Compustat database on publicly traded companies and collect information on an ongoing basis with respect to relationship marketing practices of these companies. This will then allow us to correlate relationship marketing with financial performance similar to the PIMS or the IRI databases. At the Center for Relationship Marketing at Emory, we have attempted to collect these databases and hope to create a database for anyone to use for research purposes. The IMP’s success in Europe in understanding relationships and networks in industrial purchasing and marketing is further testimony that this can be done.

4.  Develop Performance Metrics It is equally important that we develop some standardized metrics to measure relationship marketing’s performance as well as antecedents that are likely to be its determinants. For example, SERVQL is a standardized instrument to measure service quality and it is now utilized across national boundaries similar to the Briggs-Myers scale in personality or the 360 degree feedback for management performance.

It is not sufficient to develop scales to measure such constructs as trust, commitment and long term orientation. It is equally important to measure performance outcomes which are well accepted financial and accounting measures.

Recent studies by several scholars in merging and purging existing public financial and customer-supplier databases, and utilizing them to examine the impact of relationship marketing on the performance of the firm is very encouraging. However, we need to do more. I do no believe that psychological instruments, not matter how well they are validated, will be sufficient. What we need is not what informants say or believe in, but rather what organizations do. This is equally true for household customers. It is, therefore, encouraging to see that many direct marketing service companies such as telephone, insurance, airlines, and utilities have begun to analyze actual behavioral or usage data of their customers through billing and customer service and develop standardized performance measures by linking them to the cost of serving each customer.

5.  Longitudinal  Research  Methods Relationship marketing, like product life and diffusion of innovation, is a time centric process. It is an evolutionary and dynamic phenomenon over time. Therefore, it is important to utilize research techniques such as longitudinal panels which measure changes over time; we need time series data similar to what psychologists do in measuring learning or what econometricians do to measure business cycles and trends.

While it is easy to use cross-sectional data as surrogates, it is not as legitimate as longitudinal data. I believe this will create more difficulties for young scholars who have to publish quickly to get their tenure and promotion. It was the access to longitudinal household panel data that enabled consumer behavior scholars to analyze brand loyalty relatively quickly. Similarly, it is the time series data obtained from the government agencies or the stock market that enables scholars in economics, finance and accounting to test time-centric concepts in their respective disciplines. The point I am trying to make is that lets not compromise the integrity of research methodology because of urgency of publishing: there is a solution, and it is to access longitudinal data from commercial and government sources.

6.  Top  Journal  Publication Medium  is  the  message.  Therefore, it is very important for an emerging discipline to publish in tier one journals of the main discipline. These journals provide source credibility and legitimacy. Unfortunately, it is also not easy to get published especially if the emerging discipline is a paradigm shift. Resistance to changing or challenging discipline’s lawlike generalizations is pervasive, and it takes a strong editorial leadership or revolt by its readership to encourage innovation. There are two alternatives to publishing in the main stream tier one journals. First is to create a new journal devoted to the emerging discipline, but the success of this strategy depends to a large extent on ensuring that the new journal gains the same level of academic reputation as the traditional journals of the discipline. This is precisely what happened in consumer behavior with the successful creation of the Journal of  Consumer  Research,  and  more  recently  with Marketing Science  for modeling scholars.

A second alternative is to publish a seminal book on the topic. Indeed, there are numerous examples of this in all disciplines. Books and monographs have often made greater impact in a discipline that the journals, probably due to its wider reach and distribution. Most journals have a very limited readership as compared to books. This is what happened with the publication of the Howard-Sheth theory book as was the case with Michael Porter’s Competitive Strategy book. More recently, even the popular professional books on management such as In Search of Excellence and Reengineering the Corporation have created significant impact on business disciplines.

7.  Encourage Respected Scholars. We must learn from consumer behavior discipline in marketing as well as from finance and accounting about this reality.

Finance became even more respectable when well trained and well known economists got interested in finance. Similarly, rural sociology became more respectable when top sociologists began to focus on rural sociology which led to seminal theories such as diffusion of innovation. Similarly, both behavioral concepts and psychometric methodology enhanced accounting to a discipline from a double entry system of practice. And consumer behavior became respectable when psychologists, modelers and economists began to focus their time and talent to the issues of consumer behavior.

Relationship marketing needs similar infusion of respected marketing scholars, especially those who can add conceptual and methodological rigor to the domain. Since relationship marketing is very popular at least in practice, I believe it is more likely to attract respected scholars.

8.  Develop Explanatory Theory. No domain has even become a discipline without some explanatory theory, or at least  development  of  some constructs. Fortunately, relationship marketing has a good start in this direction. A number of constructs including trust, commitment and long term orientation have emerged as building blocks of a theory. Also, even if we cannot develop a theory, it is important to develop, at least, some lawlike generalizations comparable to product life cycle, diffusion of innovation, and PIMS research. However, no matter what we do, it is important to make sure that constructs as well as lawlike generalizations are unique and distinct to relationship marketing. In this regard, trust may not be as unique because even to engage in a one time transaction, you need a minimum level of trust between the seller and the buyer. On the other hand, the concept of commitment is more unique to relationship marketing. Similarly, the concept of collaboration is unique because it is not appropriate in other types of marketing relationships.

Fortunately, it should be possible to develop a theory of relationship marketing because of the richness and universality of relationship as a phenomenon. We already have a number of theories in other disciplines (social contract, agency and transaction cost theories) from respected disciplines. Also, there is a growing and interesting body of knowledge on cooperation, collaboration and co-opetition.

Conclusion

Will relationship marketing become a well respected, stand alone, and distinct discipline in marketing? My belief is that it certainly has the potential; and my wish is that it should happen because marketing will benefit enormously from it.

The lessons learned from previous efforts, both successful and not successful, of various marketing domains that have tried and/or become disciplines provide a good road map of how to evolve relationship marketing into a distinct discipline. As an intervention strategy, I believe it would be highly desirable to organize its own association and its own scholarly journal.

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