Transcript Relationship in business

The quality of your life is the quality of your relationships.
— ANTHONY ROBBINS
Learning Objectives:
After studying this chapter, you should be able to:
 Explain the various dimensions of relationship and its
theories.
 Elaborate the journey of marketing over the years.
 Understand the relationship in psychological and
business
perspectives.
 Provide information about the evolution of
relationship as a marketing tool.
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Introduction
 Relationships are as old as mankind. We all are part of one
relationship or the other.
 Relationship has been studied by sociologists, social
psychologists, anthropologists, philosophers and many
other people.
 Business community in India since long has been relying
upon relationships for business growth. Even today, it is
widely prevalent among the Indian business fraternity.
Some communities in India have been very successful in
business because they are smart enough to sustain
relationship while some others not.
 So, relationship in general and with customers in particular
have always been a key for growth of business.
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Theoretical Perspective of
Relationship
 Relationship has been subject matter of individual's
personal feeling. Theories have made several attempts
to explain this factor of relationship. As we know, there
are several types and forms of relationships and
theories to explain the concepts of relationship. Few
important theories offered by social psychologists on
relationships are as follows:
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I.
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Social Penetration Theory:
To Conclude:
This theory was formulated by professors Irwin
Altman and Dalmas Taylor.
They described the dynamics of closeness of
relationship. It was opined that closeness in a
relationship occurs through a gradual process
of self-disclosure, and closeness develops if the
participants proceed in a gradual and orderly
fashion from superficial to intimate levels of
exchange.
Social Penetration Theory states that
humans, even with out thinking about it, weigh
each relationship and interaction with another
human on a reward cost scale. If the interaction
was satisfactory, then that person or
relationship is looked upon favorably. But if an
interaction was unsatisfactory, then the
relationship will be evaluated for its costs
compared to its rewards or benefits.
Developing Relationship through Social
Penetration goes through following stages:
This
theory
describes
relationship in terms of
breadth and depth. Breadth
refers to the number of topics
one talks about. Depth
denotes the degree of
personalness with which the
people pursue the topics.
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• Small talk and simple, harmless clichés
• At this stage discussions follow
standards of social desirability and
Orientation norms of appropriateness.
stage
• Starting to reveal ourselves
• Expressing personal attitudes about
An insurance agentmoderate
does not
topics such as government
start
the sales and
calleducation.
with
Exploratory
immediately
the
affective starting
benefits
of the policy or need of
stage
insurance. Instead,• Discussion
he first tries
is graduated to private and
to develop some informality
by
personal matters
talking something very general
• Criticism and arguments may arise.
and Affective
gradually moves towards
becoming
stagepersonal in the
number of issue he
discusses.
It
• The
relationship
now reaches a plateau
is only after this that
he
starts
in which personal things are shared and
introducing his offer
each and
canthepredict the emotional
Stable
rationale
of it.
reactions of the other person.
stage
• Withdrawal of disclosure which leads
to termination of the relationship
.
Depenetr • Bitching, Ditching leads to mental
itching and running away becomes the
ation
resultant behaviour.
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To Conclude:
This theory holds that one
enters into those relationships
that yield greatest profits. They
seek relationship in which
reward exceeds cost and are
more
likely
to
dissolve
relationship when cost exceeds
reward. Lot many salespeople
visit a customer, but the
customer subscribes only where
he thinks he is at the maximum
benefit. Similar is the trend
observed in many of the
services industries as insurance,
telecom and tour and travel.
II. Social Exchange Theory:
 This theory explains social change and stability as
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a process of negotiated exchanges between
parties. Social exchange theory states that all
human relationships are formed on the basis of a
subjective cost-benefit analysis and the
comparison of alternatives.
Social exchange theory has Cost, Benefit,
Outcome, Comparison Level, Satisfaction and
Dependence etc as important components.
Benefits include as material or financial gains,
social status, and emotional comforts.
Costs generally consist of sacrifices of time,
money, or opportunity lost.
Outcome is defined to be the difference between
the benefits and the costs:
Outcome = Benefits – Costs
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When deciding whether to leave
the relationship, an individual
considers
the
alternatives.
There are other considerations,
such as the barriers to leaving
the relationship. There are also
considerations
of
the
investments that an individual
has made in the relationship.
For instance, two brothers have
spent many years together have
invested a lot of time into a
relationship, and this must be
weighted against the benefits
gained from an alternative
relationships.
 Satisfaction is defined as the difference between
the outcome and the comparison level:
Satisfaction = Outcome - Comparison Level
 Satisfaction is not enough to determine whether a
person stays in a relationship or leaves for an
alternative. That is to say, there are people who
stay in unhappy relationships as well as those who
leave happy relationships. What determines
whether an individual stays in a relationship or
leaves is the set of alternate relationships
available.
 If there are several options available to an
individual, than the individual is less dependent
on the relationship. Dependence is formalized as
the difference between the outcome and the
"comparison level of alternatives":
Dependence = Outcome - Comparison Level of
Options
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To Conclude:
This theory claims that we
develop
and
maintain
relationship in which rewards
are distributed in proportions
to the costs. When our share of
reward is less than what is
demanded by equity, we are
likely
to
experience
dissatisfaction and exit the
relationship. The cost-reward
ratio plays a very important role
in the maturing of a sale.
III. Equity Theory:
 Equity theory was developed in 1963 by
John Stacey Adams, who emphasised that
employees seek to maintain equity between
the inputs they bring to a job and the
outcome that they receive from it against the
perceived inputs and outcomes of others
(Adams, 1965).
 Inputs are defined as each participant’s
contributions to the relational exchange and
are viewed as entitling him/her to rewards or
costs.
 Outputs are defined as the positive and
negative consequences that an individual
perceives a participant has incurred as a
consequence of his/her relationship with
another.
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Equity theory consists of four propositions:
 Individuals seek to maximize their outcomes
(where outcomes are defined as rewards minus
costs).
 Groups
maximize
Customer can
dissonance
often collective rewards by
occurs with the companies
that
developing
accepted
systems for equitably
give
differential
treatment
apportioning
rewards
costs among
among the customers.
In many and
of the industries
where there
is
members.
Systems
of equity
will evolve within
enough of customer interaction,
groups,
and often
members
will attempt to induce
this differential
repels the
existingmembers
customers instead
of and adhere to these
other
to accept
keeping them for life.
systems.
 When individuals find themselves participating
in inequitable relationships, they become
distressed. According to equity theory, both the
person who gets “too much” and the person who
gets “too little” feel distressed.
 Individuals who perceive that they are in an
inequitable relationship attempt to eliminate
their distress by restoring equity.
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People do try to enter into
relationship with people who
generate enough attraction for
him/her. Persons working in the
same building but in different
offices or working in the same
office
but
in
different
department may enter into a
good relationship because of
this factor. Sales management
principle says, "Before selling
the product, one needs to sell
oneself". This principle comes
very handy and enables the
salesperson to create attraction
for oneself.
IV. Attraction Theory:
 This
theory postulates that one is
attracted to others on the basis of four
major factors:
(i) Attractiveness (physical appearance and
personality),
(ii) Proximity,
(iii) Reinforcement and
(iv) Similarity.
 The factors discussed above play an
important role in creating attraction.
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Types of Relationship
 Relationships form different types at different times
and different circumstances. Individuals perform
different role at different times.
 There are various types of relationship one gets
engaged into during one's lifetime. The category of
these relationships varies from the lap of mother to the
finger of father, company of friends, support of wife to
the mentoring of the boss. They, in most cases, expand
with passage of time. The nature of relationship varies
from one situation to another.
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It is for the marketer to
understand the variables one is
operating with and decide upon
what relationship one needs to
embark upon. It is also worth
mentioning that the same
strategy may not hold true for
all the stages of customer life
cycle.
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Mitchell (1997) has identified the following
types of relationship and their relevance for
different business situations:
Parent-child (loan marketer)
Teacher-student (mass marketer of Internet
software)
Leader-follower (fashion brand)
Comrade-at-arms (pressure group)
Fellow enthusiast (sports car)
Confidant (financial service advisor)
Idol to be worshipped (luxury brand)
Casual friend (beer)
Soul-mate (special whisky)
Old flame (the brands your mum used)
A friend whom you seek out to escape from
everyday reality (holiday)
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Stages of Relationship
Contact
Increased frequency
of contact
involvement
Depth of
relationship
intimacy
Walking away
from
relationship
Deterioration
Repair
Dissolution
The six-stage model of relationship
Evolution of Relationship as a
Marketing Tool
 The emergence of a relationship focus provides a "refreshed and
expanded self concept" to marketing. This is the result of the following
four observations:
1.
Relationship marketing has caught the fancy of scholars in many
parts of the world, including North America, Europe, Australia and
Asia, as is evident from the participation in some of the recent
conferences held on this subject (Sheth and Parvatiyar 1994).
2. The scope of relationship marketing is wide enough to cover the
entire spectrum of the subdisciplines of marketing including
channels, business-to-business marketing, services marketing,
marketing research, customer behaviour, marketing communication,
marketing strategy, international marketing and direct marketing.
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3.
4.
As in the case of other sciences, so marketing too is an evolving
discipline, and has developed a system of extension, revision and
updating of its fundamental knowledge (Bass 1993).
Scholars, who at one time were leading proponents of the exchange
paradigm, such as Bagozzi (1974), Kotler (1972), and Hunt (1983), are
now intrigued by the relational aspects of marketing (Bagozzi 1994;
Kotler 1994; Morgan and Hunt 1994).
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Purpose of Relationship Marketing
 The way marketing is being practised is
changing. This is primarily because of
dramatic changes in marketing contexts
such as physical distance, time, economy,
deregulation,
globalisation,
customer
expectations
and
new
information
technology (Brookes et al. 2002; Doyle
2000; Hunt 2000).
 Researches have shown that organisations
are increasingly focusing on attracting,
developing and retaining businesses
(Jackson 1985; Morgan and Hunt 1994;
Reicheld 1996). This is called relationship
marketing which is in contrast to the 4 Ps
of marketing (which is also called as
transactional marketing—TM): product,
price, place and promotion that primarily
concentrated on attracting businesses but
less to retaining businesses (Buttle 1996;
Gummesson 1999).
 Relationship marketing attempts to involve
and integrate customers, suppliers and
other infrastructural partners into a firm's
developmental and marketing activities
(McKenna 1991; Shani and Chalasani 1991).
Such involvement results in close
interactive relationships with suppliers,
customers or other value chain partners of
the firm. Interactive relationships between
marketing partners are inherent compared
to the arm's length relationships implied
under the transactional orientation
(Parvatiyar, Sheth and Whittington 1992).
The
relationship
among
various
components, hence, augments each other
instead of fighting for the resources. The
development of relationship marketing
points to a significant shift in marketing
from competition and conflict to mutual
cooperation, and choice independence to
mutual interdependence.
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Transactional Marketing
Relationship Marketing
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Distinction between Transaction Marketing and Relationship Marketing
Transaction marketing
One off exchanges
Relationship marketing
Focus
Brand management
Ongoing exchanges
Customer management
Short-term focus
Time dimension
Long-term focus
Mass communication
Primary communication
Personal communication
Isolated market research
Customer feedback
mechanism
Ongoing dialogue
Mass markets or market
segments
Market size
Markets of one
Market share
Criterion for success
Mind share
Profitability of transaction
Critical metrics
Lifetime value of customer
Brand equity
Customer equity
Approach towards Marketing: a
Paradigm Shift
 The discipline of marketing grew out of economics, and the growth was motivated
by lack of interest among the economists in the details of market behaviour,
especially those related to the functions of the middlemen (Bartels 1976; Houston,
Gassenheimer and Maskulka 1992; Hunt and Goolsby 1988).
 Most of the opinions of the early marketing thinkers were centred on the efficiency
of marketing channels and the services performed by them in transporting and
transforming the goods from the producers to the consumers (Shaw 1912).
 However, the relationship orientation of marketing is not entirely a new
phenomenon. The practice of marketing before the 1900s was that relationship
orientation was quite prevalent. Although the history of marketing thought dates
back to only the early 1900s (Bartels 1962), marketing practices existed in history,
even to pre-history (Nevett and Nevett 1987; Pryor 1977; Walle 1987). During the
agricultural era, the concepts of domesticated markets and relationship orientation
were equally prevalent.
 In short, the current popularity of relationship marketing is a reincarnation of the
marketing practices of the pre-industrial era in which producers and consumers
interacted directly with each other and developed emotional and structural bonds
in their economic market behaviours.
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Marketing Phase One: Practices in
the agricultural Economy
 Pre-industrial society was largely based on agricultural economy and the trade of art
and artefacts. During the agricultural days, most farmers sold their produce directly
in the bazaars. Similarly, artisans sold their arts and artefacts at these markets.
 Consumers and producers gathered together face-to-face for trading products. The
role of the producer was not separated from that of the trader and the producer
functioned as both 'manufacturer' and 'retailer' of own products. Also, producers
and consumers developed strong relationships that led to the production of
customised products made by the artisans for each customer.
 Similarly, relational bonding between traders was also quite prevalent, partly
because of the need to do business with others whom one could trust. Thus,
ongoing trade relationships were a critical element of business practices in the preindustrial days where ownership was linked with the management of business.
 Even on the Silk Trade Route, relationships between customers and suppliers of silk
were vital because the Indian weavers and silk craftsmen heavily depended on the
supply of Chinese silk to produce the garments and artefacts required by local kings
and nobles.
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Relationship
Orientation
The relationship orientation in
marketing and trade continued
into the early years of the
Industrial Revolution and the
emergence of capitalism.
Market development efforts
were complemented by close
cooperation between business
and government, which helped
develop markets among the
nobility, the high clergy and the
growing
urban bourgeoisie
(Fullerton 1988).
 Such relationships once again reflect the inter
dependencies of these marketing actors. In order
to facilitate future trade, some traders cooperated
with weavers and designers in India, providing
them with contemporary designs from China. The
influence of Chinese designs in the earlier arts of
India bears clear evidence of the cultural exchange
in the interest of promoting future trade of the
Chinese silk. Retaining customers, influencing
repeat purchases, fostering trust and facilitating
future marketing also were concerns of marketers
in the pre-industrial days.
 Those who participated in the market knew and
trusted each other (Mackenney 1987) once again
providing continuity and security for the repeat
purchaser. The producers established permanent
retail shops at the marketplace where they could
make and sell those goods on a daily basis
(Cundiff 1988). As a consequence, consumers and
producers had direct relationship with each other.
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Marketing Phase Two: Practices in
the Industrial Economy
 During the height of the industrial period, marketing practices were
aimed at promoting mass consumption.
 Developed out of the need to support the mass production machinery,
the emphasis was directed at increasing the sale of products. Both
personal and impersonal manifestations of the selling 'force' were
found increasingly in business, supported by other activities such as
advertising and promotion.
 Marketing was considered successful only when it resulted in sale.
Marketing performance measures were linked, as is still the practice
today in many companies, to sales and market share. Some marketers
resorted to extreme practices of persuasive selling, including deceptive
advertising and false claims.
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Development in Marketing in Industrial Era
1. The first was the marketer's realisation that repeat purchase by customers
was critical. This research was further advanced in the buyer behaviour
theory of Howard and Sheth (1969), in which they closely examined repeat
purchase behaviour and brand loyalty.
 It was in order to achieve a brand image, brand differentiation and effective
advertising that certain marketing techniques emerged. The development
of market segmentation and targeting became important tools for
marketing planning. In the face of competition, marketers realised the
benefits of focusing on specific groups of customers for whom they could
tailor their marketing programmes and successfully differentiate
themselves from their competitors (Peterson 1962). Brand marketing
which grew during this period, supported the philosophy that the retailer
was not the salesman for the manufacturer but rather the buyer for the
consumer. Some marketers read this change and shifted focus from
discrete, one-time sales to ongoing, repeat-purchase possibilities.
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Development in Marketing. . . Contd.
2. The second was the development of administered vertical marketing
systems (McCammon 1965), whereby marketers not only gained
control over channels of distribution, but also developed effective
means of blocking competitors from entering into these channels.
Vertical marketing systems such as franchising and exclusive
distribution rights permitted marketers to extend their representation
beyond their own corporate limits to reach final customers (Little
1970).
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Marketing Phase Three: Practices
in the Post-industrial Economy
 Post-industrial
phase has seen substantial development toward
relationship marketing, both in practice and in managerial thinking.
 The marketers started realising the need to show more concern for
customers. It began with the advent of complex products, which gave rise
to the systems selling approach. This approach emphasised on the
integration of parts, supplies, and the sale of services with the individual
capital equipment. The approach forced intimacy and permanence in the
buyer-seller relationships.
 Instead of purchasing a product or service, customers were more interested
in buying a relationship with a vendor. Such programmes led to the
foundation of strategic partnering relationships that emerged under
relationship marketing (Anderson and Narus 1991; Shapiro 1988).
 The growth of relationship orientation of marketing in post-industrial era
saw the rebirth of direct marketing between producers and consumers.
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Marketing Phase Three. . . Contd.
 Several environmental and organisational development factors were
1.
2.
3.
4.
5.
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responsible for this rebirth of direct relationships between producers
and consumers. At least five macro-environmental forces can be
identified:
Rapid technological advancements, especially in information
technology
Adoption of total quality management programmes by companies
Growth of service economy
Organisational development processes leading to empowerment of
individuals and teams
Increase in competitive intensity leading to concern for customer
retention.
These forces have reduced the reliance of producers and consumers on
middlemen for effecting the consummation and facilitation processes 28
(Sheth and Parvatiyar).
Conclusion
 In this the chapter we have discussed various changes that have taken
place in the history of marketing.
 We have also dealt with various forms of relationship and the
emergence of relationship as a potent marketing tool in light of various
theories of relationships.
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PROJECT
ASSIGNMENT
Prepare a study of the
Indian Banking Industry
and analyse the changes
that took place in the
relationship practices of
this industry.
 REVIEW QUESTIONS
1.
2.
3.
4.
Comment on the rationale of emergence
of relationship as a business tool.
Discuss the paradigm shift in marketing as
a discipline over the years.
"Relationship has since long been the key
of success of marketing of Indian
businesses. It has only now been
recognised and glamourised". Critically
analyse the statement.
Differentiate
between
transaction
marketing and relationship marketing.
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