Theoretical Basis of Relationship Marketing

Where does ‘Relationship Marketing’ come from?

The term “Relationship Marketing” entered the marketing vocabulary in the early 1980’s when Professor Leonard L. Berry (1983) used it in a paper for the American Marketing Association. The original thrust of Berry’s paper was to highlight the “restrictive and potentially wasteful” practice of relying on customer recruitment, when allocating a greater proportion of resources to customer retention can be so much more efficient. Berry makes a very simple, yet profound statement when he says:

“Thinking of marketing in terms of having customers not merely acquiring customers, is critical to service firms”

Berry has focussed the minds of many subsequent writers on the topic of enhancing customer relationships in order to gain long term marketing success. It is the recognition that attracting new customers is only an intermediate step in the marketing process which is, perhaps, most significant.

Many would argue that simply thinking about keeping customers happy and staying close to their requirements can’t be new. Parvatiyar & Sheth (1998) support this view by providing a good commentary of the very early history of relationship marketing. They observe that relationship marketing, as with marketing in general, is not new; and that it has its basis in the pre-industrial revolution era. During this period of our industrial history there was significant direct interaction between producers of agricultural products and their consumers. Some of these producers developed customised products for each consumer, and such interaction led to a relational bonding between producer and consumer. After the industrial revolution and the development of mass production, middle men restricted this direct interaction resulting in the development of transaction orientated marketing.

Many writers have spoken about the development of marketing and Kotler (1984) in particular goes to some lengths to describe the way businesses have first focussed on a production orientation, then moving to a sales orientation, and finally a marketing orientation. Many academics and marketing practitioners have been brought up on the notion of marketing as simply the management of the ‘4P’s’ – product, price, promotion, and place. Grönroos (1994) explains that the 4P’s notion of marketing quickly became the unchallenged model, relegating other previous marketing models to little more that a footnote in many textbooks. It has almost become taken for granted as the only way to view marketing, and as a result almost impossible to question. Grönroos goes on to give some details on the origin of the marketing mix, he points to Borden (1964) who introduced the notion of the marketer as “a mixer of ingredients so that the profit function is maximised rather than satisfied”.

If we are to understand why the ideas of relationship marketing have emerged, we really need to appreciate the inherent weaknesses in this accepted view of marketing. Grönroos provides a good critique of the 4P’s model. He points out that creating a list of ingredients is not the best way of defining or describing a model because;

  1. A list never includes all relevant elements,
  2. It can never fit every situation or circumstance,
  3. and it will soon become obsolete as new concepts become established.

Indeed many marketing writers have extended the ‘list’ by including additional things like; physical evidence, people, and processes (now re-titled 7P’s). Grönroos also points out that the 4P’s model does not explicitly include one of the most important elements of all marketing activity – integration. What is most interesting is that Grönroos claims that the 4P’s model is in fact a significant oversimplification of Borden’s original concept, which was in fact simply a list of 12 elements not intended to be a definition at all. He goes on to argue that Borden’s list of variables were typical of the sorts of issues 1950/60’s marketers would have had to consider. The 12 variables he identified merely appeared to fit many typical situations in that era. What is also significant is that when Borden described his 12 variables he was focussing on packaged goods in North America, with huge mass markets, highly competitive distribution systems, and very commercial mass media. Grönroos appears to be saying that the 4P’s model has evolved almost by accident, its basis was never intended to be taken as some all prevailing model, and even if it was, it was a model for a particular era and very specific business environment.

When we start to think deeply about the 4P’s model it really does start to lose some of its appeal. One of the most damming observations made by Grönroos is that you can argue quite strongly that the 4P’s model actually reflects a production-orientated definition of marketing. He quotes the work of Dixon and Blois (1983) who said that:

“..far from being concerned with a customers interests the views implicit in the 4P’s approach is that the customer is somebody to whom something is done”.

When we include this revelation and Grönroos other criticisms, it is not difficult to understand why an alternative approach to marketing has started to develop. The very basis of the 4P’s model reflects a pre-occupation with mass marketing and its close association with customer acquisition, rather than customer retention. Many writers have taken a long look at the limitations of this sort of ‘transactional’ marketing. Lindgreen et al (2000) has focussed on these limitations, citing them as the key driver towards a new marketing paradigm. Lindgreen and his colleagues point to the fact that transactional marketing (as in the 4P’s) rests on three assumptions; first that the market has a large number of potential customers; that customers and their needs are fairly homogenous; and finally it is easy to replace defected customers with new customers. It is interesting to note that all of these assumptions would have been appropriate around the time Borden (1964) developed his marketing mix idea’s, especially in the mass consumer markets of North America.

It is clear that many other writers have identified the inherent weaknesses of a transactional approach to marketing, and it is these weaknesses that have contributed towards a new marketing thinking – relationship based marketing.

Bibliography

Berry L (1983), Emerging perspectives on service marketing, Proceedings of American Marketing Association conference 1983

Parvatiyar & Seth (1998), The Domain and Conceptual Foundations of relationship marketing, Handbook of relationship marketing, Sage Publications, Thousand Oaks CA, USA

Kotler P (1994), Marketing Management: Analysis, Planning and control (5th Edition), Prentice – Hall, London

Grönroos C (1994), From Marketing Mix to Relationship Marketing – Towards a new paradigm shift in marketing, Management Decision, Vol 32 No 2,

Borden (1964) cited by Grönroos C (1994), From Marketing Mix to Relationship Marketing – Towards a new paradigm shift in marketing, Management Decision, Vol 32 No 2

Dixon & Blois (1983) cited by Grönroos C (1994), From Marketing Mix to Relationship Marketing – Towards a new paradigm shift in marketing, Management Decision, Vol 32 No 2

Lindgreen, Davis, Brodie & Buchanan-Oliver (2000), Pluralism in contemporary marketing practices, International Journal of Bank Marketing, Vol 18 No 6, pp 294- 308

Shaun Williams

I am Head of Data & Insight for a major UK Charity having worked in the non-profit sector for nearly twenty years. I have a real interest in marketing strategy, innovation, data analysis, customer insight, and behavioural science.

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