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Relationship Marketing Part 2
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Summary/Intro
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Assessing Customer Potential Part 2 The
balance of power between the two parties has implications for the
length and profitability of the relationship. Gaski (1984) produced
evidence that in distribution channel relationships where one partner
is dependent on another, the dependent party has a greater interest in
maintaining the relationship.
Hocutt (1998) argues
that the same is true in the case of expert services, such as medical
or legal services. Providers of specialist expertise create power over
the consumer, placing them in a dependent role. The greater this
dependence, the greater is their commitment to the relationship.
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Full Details - Relationship Marketing Part 2
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Power
The balance of power between the two parties has implications for the
length and profitability of the relationship. Gaski (1984) produced
evidence that in distribution channel relationships where one partner
is dependent on another, the dependent party has a greater interest in
maintaining the relationship. Hocutt (1998) argues that the same is
true in the case of expert services, such as medical or legal services.
Providers of specialist expertise create power over the consumer,
placing them in a dependent role. The greater this dependence, the
greater is their commitment to the relationship. It should be stressed
that this is not the same as the coercive power, which is characterized
by the creation of barriers to customer exit.
The power here is a natural consequence of the provider's expertise,
not one that has been created artificially in order to trap the
customer.
The power of each customer relative to the supplier is an important
consideration in planning relationships. Power may derive from a number
of sources, which are reviewed below:
Access to markets: whether
because of its brand strength, geographical location, size, or skills,
an organization with the ability to generate customer sales will have
power over those that do not. For example, after Goodyear started
selling tyres in the USA through Sears, its traditional independent
outlets retaliated by adopting additional brands (Munson et al. 1999).
UK supermarkets are able to exert influence on the sale of branded
products by controlling shelf-space allocation, product location within
the store and merchandising support. The New Covent Garden Soup Company
believed that much of its early growth was hampered by the lack of
merchandising support given to the product by the major supermarkets.
Retailers will also attempt to reduce the power of brands by
introducing cheap own-label products. These not only increase
competition in the brand's market, but also tend to devalue the product
category as a whole, further reducing the influence of the manufacturer
brands.
Access to information:
information is power, and marketing information is marketing power. In
manufacturer-supplier relationships, Munsen et al. (1999) note that the
introduction of Electronic Data Interchange (EDI) systems and the
practice of Vendor Managed Inventory (VMI) can shift the channel's
power in favour of the supplier. Both are systems by which the supplier
or manufacturer takes responsibility for maintaining the retailer's
stock levels. Information about the retailer's sales is wired direct to
the supplier, which makes just-in-time deliveries of the necessary
stock.
This obviously brings considerable benefits for the retailer in terms
of the reduction of stock-holding costs, and many systems of this type
have been introduced by reluctant suppliers under pressure from
retailers. However, Munson et al. (1999) point out that such a system
will give the supplier far greater power over inventory systems, as
well as providing them with valuable information about customers'
purchasing patterns. On the other hand, the installation of EDI systems
can lock both partners into the relationship, since the cost of
switching either the supplier or the retailer is the sacrifice of the
system.
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Resource investment:
the greater the proportion of resources that an organization devotes to
a business relationship, the greater the interest that organization
will have in continuing that relationship.
Retailers such as Wal-Mart consolidate their power by requiring
suppliers to develop unique production processes or product ranges for
them. The supplier must sacrifice this investment in order to switch
retailers, and will therefore bear heftier price cuts. A retailer that
relies on the unique offerings of one supplier for a large proportion
of its turnover is similarly bound. An organization should therefore be
wary of committing resources to meeting the requirements of a single
partner that does not reciprocate this level of commitment. The same
principle applies in consumer markets, though commitments on either
side will be on a much smaller scale.
A customer may commit to a bank by placing all his financial affairs
within its control, or spread the risk across a number of credit,
mortgage and investment providers. The investment here is in the time
and effort spent in providing information and the disruption to the
customer's affairs whilst new arrangements are made. Nevertheless, it
represents a significant indicator of reluctance of the customer to go
elsewhere.
Organizational culture/personality
A review of the past behavior of either an organization or an
individual will reveal patterns of behavior. Naturally, the
relationship planner should look for loyalty to suppliers in those
customers that they seek to develop.
Nature of the bonds
Yau et al. (2000) observe that Westerners generally see business and
social relationships as separate. Where the two types of interaction do
coincide, it is the business relationship that gives rise to the
social. The Chinese business philosophy of Guanxi (relationships) holds
that commercial bonds should develop out of personal friendship (Yau et
al, 2000). Whatever the order of development, there is considerable
evidence to support the view that the existence of social bonds
strengthens business relationships (Czpiel 1990). The customer audit
should therefore include an analysis of the social and commercial
interaction between the organization and its respective customers.
Goal congruence
This final factor is more relevant to organizational customers than to
consumers. In order for the relationship to remain stable over time,
the two organizations must have compatible objectives regarding growth,
market entry or other matters of strategic focus. An organization with
ambitious growth objectives will remain committed to its supplier only
as long as they can keep pace with the increasing demands of this
expansion. Where possible, therefore, the planner must gain information
about the customers' objectives, to check for compatibility with their
own plans.
By Michael Thomas
Relationship Marketing Is The Key To More Traffic & Sales
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