RELATIONSHIP MARKETING: THE CASE OF STARBUCKS
1.0 Introduction
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While marketing activities can be linked back to 7000 BC (Carratu, 1987), marketing relationship (RM) is relatively new, surfacing in the late 1980s as marketers transformed from simply acquiring consumers to keeping them (Sheth and Kellstadt, 2002).
While numerous definitions of RM exist, this essay will use Gummesson’s (1996, p. 30) suggestion that “marketing relationship also includes relationships with other stakeholders, both inside and outside the organisation”.
As mentioned bySheth and Kellstadt (2002), three events sparked the interest in marketing relationship. First, the gasoline crunch in the late 1970s resulted in reduced demand for raw materials and surplus inventories and business globalization. These events forced firms to rethink their marketing approach focus from transactional marketing (TM) to retaining consumers or relational marketing (RM) (Sheth, et al, 1988). Next, many studyers began to differentiate between services and product marketing techniques resulting in the emergence of a new term, “marketing relationship” (Berry, et al, 1983). Finally, product quality became a primary focus and firms launched new programs to establish strong supplier relationships to better manage, improve and control quality. This new attitude inspired a view of suppliers as relational partners rather than a necessary evil (Sheth, 2002).
These events inspired a deepened interest and sudden increase of study into RM (Sheth and Parvatiyar, 2000). However, Sheth (2002) believes another transition is on the horizon as the Internet and related technology alter the meaning and future direction of RM.
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This paper will first, review study on how marketing relationship is viewed today, next, evaluate its importance and relevance to businesses, and finally, offer perspectives as to the potential future direction of marketing relationship.
2.0 Marketing relationship Today
Measuring a firm’s value and future success has typically been determined by tangible assets reflected on its financials. However, value creation and management tenets today concentrate on a firm’s relationships and consumer lifetime value. Calculating an organization’s consumer life time value and future success is more complex and has shifted to its stakeholder intangible assets such as; established relationship consumer network , staffs, suppliers and alliance partners. Experts Custom Thesis，Custom Dissertation，请联系QQ：949925041 suggest that firms first understand what comprises value creation, then design and implement strategies capitalizing on those elements (Galbreath, 2002).
Also, sustaining revenue and net income growth previously was based on a firm’s ability to leverage it competencies and market opportunities. Many now believe the ultimate key indicator of future net income is stakeholders as the primary driver of future value (Lev, 2001). Based on the new millennium rules for value creation and long-term consumer retention, firms should recognize and increase focus on their internal and external stakeholders.
#p#分页标题#e#2a. Valuing Consumers
Consumers should be viewed as strategic assets. As mentioned byGalbreath (2002) value creation begins with consumers as they have true economic value. Study shows attracting new consumer’s costs up to seven times more than sustaining them, shrinking consumer loss by 5% could potentially increase profits up to 85%, improving retention by 2% equates to reducing expenses by 10%. Further study illustrates that 15-40% of ‘so called’ satisfied consumers transform providers yearly, 98% of disappointed consumers do not criticize, they just simply transform providers, and completely content consumers are six times more likely to purchase additional goods within the next one to two years (Bhote, 1996).
First, firms should consider the costs to acquire (firms lose money acquiring, Reichheld and Sasser, 1990), sustain and to lose consumers. Recognizing the cost factors to achieve consumer lifetime value, firms should invest considerable effort in locating and acquiring potentially loyal consumers. Also, reducing consumer defections, loyalty and retention are key factors. A possible solution is to implement effective programs to sustain these relationships long term as that will accelerate purchase frequency and firm revenues.
Next, as described above, high consumer satisfaction may not equate to loyal or lucrative consumers as the connection between happiness and loyalty is weak. Interestingly, a Juran Institute study showed that 90% of managers believe increasing satisfaction is the key to maximizing profit and share of the pie (Bhote, 1996).
Study also shows a clear association between loyalty (calculated by retention data) and firm profits (Bhote, 1996). Given this reality, consumer satisfaction should not be the single method, but balanced with a firm’s ability to develop loyalty and retain the ‘correct’ set of profitable consumers. Focusing on creating consumer loyalty will develop long term relationship, resulting in consumer lifetime value and mutual value extransforms (Galbreath, 2002).#p#分页标题#e#
2b. Staffs as value creating assets
Human capital does affect firm cash flows, profits and value creation. No matter the advancements in technology, people remain the most important asset (PricewaterhouseCoopers, 1999). Executives from Asia, North America, Latin America and Europe were interviewed to pinpoint the core driver to future competentness and the number one response was: quality people (PricewaterhouseCoopers, 1999). However, attract and retain qualified staff is the challenge and will become increasingly more difficult (Comeau-Kirschner, 1998).
Recognizing the importance of this most valuable asset, firms should quantitatively project future value and financial outcomes potentially generated from its human resources. Firms Custom Thesis，Custom Dissertation，请联系QQ：949925041 that are asset-centered can develop programs and processes to attract and retain qualified staff, as well as, increase their economic value to the firm’s long term financial performance (Galbreath, 2002).
2c. Suppliers as assets
Supply chains have become a competent tool and one of the firm’s most valuable assets. The Internet has dramatically improved the supply chain equation providing real time information, creation of software driven processes and given smaller firms advantages only larger firms previously enjoyed. #p#分页标题#e#
Having a network of competent, reliable supplier(s) can be a major differentiator in creating a competent advantage. For example, Dell Computers has enjoyed and exploited all the financial benefits and the ability to deliver outstanding consumer performance by using effective supply chain management processes.
Today, firms are not simply competing on their products, but many times on their supply chains (Newton, 2000, p.e6). Supply chains must be supervised, not just for efficiencies or cost reductions, but also to attain market growth and value. Establishing a network of quality suppliers and technology managed supply chain is proving critical to sustainable competent success (Galbreath, 2002).
2d. Partners as valuable assets
Various partner relationships have value and should be viewed the same as other firm relationships. For example, alliances with competitors globally account for 50% of all alliance partnerships with the average firm overseeing 30 plus relationships providing 6 to 15 percent of market worth (Kalmbach and Roussel, 1999).
Strategic alliances are generally shorter term, with easy exit and can terminate when value and mutual benefits become unclear. Alliances can accelerate market entry, fill gaps, and work together to create integrated products/services. Joint ventures are longer term, contractual, complex and difficult to exit, but involve sharing knowledge, assets, brands, skills, R&D, costs and many times creating new technologies.
#p#分页标题#e#Distribution and indirect channel partners are key to effectively reaching the end user. In global markets, getting a product to the end consumer can involve a series of multiple direct 怎么写Thesis提供Thesis怎么写服务and indirect channels. Management of these partnerships for value is not an easy task, but do increase a firm’s capacity to create market worth and better economic results (Galbreath, 2002).
Although partnerships are proven to help create market value and generate attractive financial returns, for most firms effectively establishing them is difficult at best. The guidelines to successful partnerships include careful partner selection, coupled with continuous contact and management and, most importantly, consistently fostering a climate of trust and commitment throughout the relationship (Galbreath, 2002)
3. 0 Importance of Marketing relationship
Markets are turbulent and effective business method formulation requires that management possess a thorough understanding its markets. This understanding should have two dimensions, 1) an internal perspective in terms of resources, capabilities and competencies and 2) an external perspective that identifies for example; developing and sustaining lasting market value (Huber, #p#分页标题#e#et al, 2001).
Although both dimensions have equal importance to a firm’s success, for purposes of this essay, under this model, the focus is on the external perspective, particularity the importance of establishing inner-firm and external stakeholder relationships.
As mentioned, study shows attracting new consumers is far more expensive than keeping existing ones (Rosenberg and Czepiel, 1984; Reichheld and Sasser, 1990; Holmlund and Kock, 1996; Buttle, 1996). Although the concept of consumer lifetime value is a popular belief -- bottom line returns remain questionable and inconclusive. Surprisingly, many times the largest revenue consumers simply do not provide the most profitable returns (Sheth, 2002).
3a. Is RM important to consumer lifetime value?
While the debate rages on concerning the importance of consumer lifetime value and marketing relationship, in my opinion and experience, relationship extransforms between buyers and sellers can help establish differentiation and create barriers to switching. Furthermore, establishing strong internal and external stakeholder relationships based on trust, commitment and value are essential to sustainable competent advantages
3b. Stakeholders: a unique strategic tool? #p#分页标题#e#
Stakeholders could be considered a “unique strategic tool” (Kandampully and Duddy, 1999) in collaboration with and interlinked with RM strategies (Carroll, 1989, Donaldson and Preston 1995, Campbell, 1997, Harrison and Freeman, 1999) and marketing relationship literature has focused on stakeholder importance (e.g. Buttle, 1999; Doyle, 1995; Grönroos, 1994; Gummesson, 1995; Hennig-Thurau and Hansen, 2000; Möller, 1992, 1994; Morgan and Hunt, 1994; Parvatiyar and Sheth, 1997; Sheth and Parvatiyar, 1995).
Stakeholder significance inspired development of the ‘six markets’ model (Christopher,#p#分页标题#e# et al, 1991) a proven and effective tool to analyse internal markets; consumers and organizational processes and external markets; referrals, influencers and suppliers. This framework is considered the most comprehensive method to evaluate stakeholder relationships to develop potential successful strategies (Payne and Holt, 2001).
Starbucks’ RM activities and subsequent strategies seem to reflect the principles outlined in this model. For example, internally, relationships are enhanced by introducing a cooperative and goal oriented organizational structure with effective control systems, retaining competent management, employing effective operational processes and international 怎么写Thesis提供Thesis怎么写服务expansion strategies. Staffs are referred to as ‘partners’ with both part and full time staff treated equally by offering both stock options and full medical coverage (Schultz and Yang, 1997)..
Externally, Starbucks’ core method is centered on building lasting consumer relationships through trust and commitment with its stakeholders. This is viewed by many experts as essential to any successful method (Morgan and Hunt, 1994, p. 22).
Spekman (1988) called trust the “cornerstone of the strategic partnership” and Moorman et al (1992) defines commitment as the “enduring desire to sustain”.
Initially, Starbucks connects by developing a unique status with consumers by treating them as family in an inviting and friendly environment (Plog, 2005). Referral business is based on word of mouth as the firm does little if any traditional marketing (Bedbury et al, 2002). The firm further influences its relationships by enhancing its brand image with global social responsibility programs, and by assisting its coffee bean suppliers obtain credit and improve their lives (Starbucks Firm Profile, May 2006), staff quality and reliability, a warm, inviting environment and color scheme, coffee smell, and consistent overall high quality (Mitchell #p#分页标题#e#et al, 1998, p.160).
The effectiveness of using the stakeholder method is evidenced by the firm’s consistent profitability and rapid growth.
4.0 Is Marketing relationship Relevant to All Businesses?
Today, firms have come to realize their success is largely linked to their network and ongoing maintenance of internal and external stakeholder relationships (Kandampully and Duddy, 1999).
However, studies show that while RM may be practical and profitable for some firms, it may not be appropriate for all (Mitchell, 1997, p 37). The primary consideration is ‘if’ the situation is right and the success factors of RM are present, then success will follow. But simply adopting RM strategies because management believes it will produce long term profits is Custom Thesis Writing destined for failure. The suggested approach is to ask how implemented?, with whom the relationships will be established? and what form it should take? (Barnes, 1994, p. 562).
4a. When is an RM method appropriate?#p#分页标题#e#
To determine if and when an RM method is appropriate, a firm can elect to use the TM/RM continuum model (Gronnroos 1995, p. 252). This model proposes that firms develop a hybrid marketing method portfolio employing a combination of TM and RM strategies. Choice and implementation of a method would be determined by how important the product and or service is to that particular segment. When consumers in a segment are deemed unprofitable, management could; shrink costsDissertation is provide by Custom Thesis associated with them; increase their price structure or; consider ending the relationship or outsourcing them to the competition (Knowledge @ Wharton).
Under this portfolio approach RM would just be one of many marketing strategies to segment consumer bases into TM and RM categories to better analyse the financial investment and potential short and long-term returns (Sheth and Parvatiyar, 1997).
5.0 Future of Marketing relationship
Going forward into the new millennium studyers believe RM could shift course and even be redefined, impacting the way business is conducted both at home and globally. The following attempts to predict the factors that will ultimately impact RM:
5a. Technology#p#分页标题#e#
The primary antecedent to altering RM practices is technology, specifically the Internet and IT (information technology). Over the past decade CRM (consumer relationship management) and ERP (enterprise resource planning) software programs have automated functions and transformd the way firms operate, especially in the
area of back office (finance, accounting, HR, manufacturing etc.) and front office functions (sales, marketing, advertising etc).
In an IT marketing world, acquiring consumers with an attractive website and simple online purchasing is easier than retaining them (Bejou, 1997). As the computerization of marketing functions removes it as a driver, similar to what happened during the TQM craze which distracted consumers away from the importance of establishing marketing relationships. Although CRM has a rocky past, studyers feel it will reemerge and shift to deliberate marketing strategies as loyalty programs, affinity marketing and campaign management will materialize (Sheth and Kellstadt, 2002).
Data mining can also help firms a) identify common characteristics, b) predict dissatisfaction and substitute searching, c) identify which consumers will provide the best returns, d) predict what consumers want to see on websites, e) provide a comparison of consumer differences from month to month (Bejou, 1997). Overall, data mining can prove toDissertation is provide by Custom Thesis be an invaluable tool to better understand consumers and develop RM programs to match expectations (McCarthy, 1997).
#p#分页标题#e# 5b. Liquid organizations
Another factor is the rapidly changing landscape. Today, firms must be flexible and able to quickly adapt to the needs of its stakeholders. New RM strategies to reflect and address the ever changing internal and external environments (see section 2.0 for details). For example, the use of business blogs is quickly becoming a recognized and acceptable method to establish effective consumer relationships (Hill, 2005) (see section 6.0 below for details)
5c. Hybrid RM programs
A third influence is determining the real value of RM and how it impacts profitability. As previously mentioned, no study has conclusively endorsed that the consumer lifetime value, one-to-one marketing and lifetime wallet concepts deliver long term value and profitable returns particularly in B2B marketing. As previously mentioned, study shows that the largest consumers are not the most profitable. This reality is forcing firms to create RM strategies in favor of developing a hybrid portfolio of strategies to address both transactional and relational consumers (Sheth and Kellstadt, 2002). Under this scenario, RM is not ‘the’ marketing method but simply one of many (El-Ansary, 1997) (see Section 4a above for details).#p#分页标题#e#
5d. Outsourcing
Firms have recognized that potentially thirty percent of their consumer base will be unprofitable and servicing them is not financially feasible. This has been evidenced in service sectors such as banking, communications and utilities. As a result, firms are outsourcing consumers to other subsidiaries or even competitors.
6.0 Marketing relationship Gap – BLOGS
An obvious gap in RM study and academic journals are studies concerned with the use and effectiveness of a blog. Given the lack of academic study, the following information originates from business books, business press articles and blog postings.
The term Blog originated from the combination of Weblog. Blogs began as personal online websites to offer personal information to friends and anyone who happened upon the site.Custom Thesis Writing
A typical firm website is considered a platform to promote the firm with usually meaningless firm rhetoric (Levine #p#分页标题#e#et al., 2002). Conversely, blogs have an image of honesty, openness and transparency (Gardner, 2005; Kaye, 2003).
6a. A revolutionary business trend?
Today, business blogging is a relatively new phenomenon, but firms are beginning to recognize their and value to relationship building and marketing (Hill, 2005). For example, Fortune magazine placed blogs at the top of its “10 Tech Trends to Watch for”, stating that they are impacting and altering business practices in advertising, marketing and PR (Kirkpatrick and Roth, 2005). Also, the Harvard Business Review placed blogs as one of the “Breakthrough Ideas for 2005”, commenting that “blogs are the most conversational of all the forms of media, and marketers can't afford to be left out of the talk” (Sawhney, 2005). Then, The Economist (February2005) suggested that blogging might be the end of PR. However, it was May 2005 when blogs officially entered the business world adorning the front cover of Business Week boldly claiming “Blogs will transform your business”. Although blogs have received much press and positive feedback, the following will provide an overview of its potential value to marketing relationship and business:
6b. Better consumer communications?
Blogs are capable of establishing trusting consumer relationships that meet the concept of one-to-one marketing” and are a vehicle to reach niche markets (Kaye, 2003, p. 4). As mentioned byGardner (2005, p. 20), a blog has the capacity to establish a two way dialogue with the participants. Kaye (2003, p. 18) calls it “consumer relationship blogs” because it allows firms to interact and connect with consumers in an immediate, convenient and personal way. Custom Thesis Writing
#p#分页标题#e# 6c. Reputation enhancer?
Blogs are effective at demonstrating special services or expertise in specific business arenas. For example, a law firm created a blog specialising in Brain Injury Law (Gardner, 2005) and well-known leaders such as Jonathan Schwartz, President and COO of Sun Microsystems, and Alan Meckler, CEO of Jupitermedia, created blogs to establish themselves as industry “thought leaders”. In addition, firms that are innovators can quickly gain market attention and a reputation in their particular arena. (Stone, 2004). Others have similar perspectives, believing that blogs help firms establish and manage a public profile and reputation of goodwill that allows even total strangers to establish trust to commit and perform online activities (Crumlish, 2004). However, corporate users must be very careful managing blogs because once credibility vanishes, it can never be recovered (Scoble, 2004).
6d. A more effective PR tool?
The PR industry has been reluctant to accept the value of business blogs as they fear its popularity might signal their demise --- it’s not the first time PR was marked for doom (Stern, 2003). Also, The Cluetrain Manifesto (Levy et al, 2000, p. xxiv) explains that “Public Relations does not relate to the public. Firms are afraid of their markets”. Market watchers believe blogs could replace traditional PR functions as blogging is necessary because consumers do not trust nor relate to insincere firm promotional data, nor representatives (Scoble and Israel, 2005)
In conclusion, although the business community has not totally embraced the concept of blogging, using a blog to establish closer consumer relationships is attractive. The benefits are illustrated in various articles as to its efficiency in communications, immediate credibility, proven marketing tool, establishing consumer connections and #p#分页标题#e#
cooperation and managing knowledge (Dafermos, 2003, p.82). The next logical phase is for academic studyers to begin arduous study and deliver analyses in order to further validate its value creating potential.
6.0 Conclusion
The majority of the marketing relationship, value creation and management literature discussing RM future trends seem to center on importance of developing relationships and lifetime consumer value. They highlight the value of stakeholders in terms of consumers, staff, suppliers, influencers and partners – constituting a firm’s most precious assets. Globalization has created an environment of intense competition, price wars human capital issues, product and services becoming commodities and technology invading every aspect of business. After all is said and done, the core to a firm’s real value and worth are its relationships. Custom Thesis Writing
Relationships are fundamental to every firm’s long term success. Firms that acknowledge and comprehend the value of relationships and how to leverage them to enhance value will surface as the market leaders and sustain a competent market advantage. Therefore, the development of effective RM platforms that demonstrate trust and commitment is crucial to profitable relational consumers, maximizing overall consumer lifetime value and bottom line results.
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