Relationship Marketing And Traditional Transactional Marketing Marketing Essay

Relationship Marketing And Traditional Transactional Marketing Marketing Essay The approach of a business towards the marketing discipline can generally be categorised as either being traditional or relationship based. Whilst the traditional approach has held sway for the last fifty years there are signs that relationship marketing may assume the dominant position in marketing thinking and application in the near future. This does not mean that traditional marketing will no longer have a role to play. The evidence from a study of the supermarket chain Asda is that its position as the UK number two supermarket brand has been largely achieved by following a traditional marketing approach. Equally, however, market leader Tesco has embraced relationship marketing using its Clubcard to help it build mutually beneficial relationships with its customers. This approach to its marketing has seen Tescos market share and profits continue to grow whilst Asdas have started to decline. On the face of it this would appear to demonstrate that, when it comes to supermarket marketing, the relationship approach is best. However, it is not that simple. The classic four Ps of the marketing mix, Product, Price Place and Promotion, are the cornerstone of traditional marketing with Price and Promotion having been Asdas primary focus. Also, there is an argument that says in the difficult economic times that consumers are currently experiencing then the price and value for money proposition advocated by Asda has more resonance with consumers than ever before. So, which is the most appropriate marketing path for Tesco and Asda to follow or should elements form both disciplines be adopted for optimum effect? This paper analyses the various points of view of both academics and marketing practioners and draws heavily on case study material to draw some conclusions for a possible way forward. Introduction and Background Relationship marketing, which involves the development, growth, and maintenance of long-term, cost-effective, and mutually beneficial relationships between a business and its customers, may be perceived as being a relatively new phenomenon (Grà ¶nroos, 1995). However, this is not the case as its origins actually pre-date the industrial revolution, a time when products were manufactured on a small scale and consumers had direct contact with the manufacturers and merchants from whom they purchased their goods. As industrialisation gathered pace the mass production of goods meant that direct contact between manufacturers and their end customers was no longer practical and middlemen evolved to bridge the gap. This, in turn, resulted in manufacturers becoming distant from their customers and adopting a transactional rather than customer relationship focus to their marketing and selling activities (Sheth and Parvatiyar, 1995). This transactional approach became increasingly sophisticated as marketing developed into a specialist and separate discipline within organisations, alongside the customer services and product quality control functions. The four Ps of marketing mix i.e. Product, Price, Place and Promotion, first muted by Borden (1964), have been a familiar and successful planning and execution framework for traditional marketing practioners since the 1960s. However, this traditional marketing philosophy has been facing an increasingly serious challenge to its dominant position from advocates of relationship-based marketing (Grà ¶nroos, 1995). The introduction of new technologies, such as the internet, has changed the way in which businesses are able to interact with their customers. This, together with the large scale removal of global trading barriers and the increasing homogenisation of consumer attitudes and purchasing behaviour, have all served to fuel what has become known as the globalisation of world markets (Doole, and Lowe, 2008). This new global marketplace for products has necessitated the adoption of new and more effective marketing techniques and concepts by rival businesses striving to compete for the same customers. So rather than rely on traditional marketing techniques, which are based on identifying new prospects, converting them to customers, and completing sales transactions, businesses have increasingly focussed on developing meaningful relationships with their customers in order to both retain their custom and encourage them to spend more. The management of relationship marketing has been greatly facilitated by a change in attitude to the structure of the marketing, customer service and product quality control functions. Rather than these functions being distinct and disintegrated, as is the case in businesses with a traditional marketing focus, relationship marketing integrates these functions to enable the business to get closer to its customers and thus helping it to benefit from increased customer retention, and the nirvana that all businesses strive for, customer loyalty (Fill and Hughes, 2003). Customer loyalty can be defined as a form of repeat purchasing behaviour reflecting a conscious decision to continue buying the same brand. (Solomon et al. 2001, p. 259). Additionally, the financial efficacy of customer retention versus new customer acquisition is well established. Indeed most academic studies on the subject propound the view that the costs of acquiring new customers can be up to five times higher than tho se costs associated with retaining existing customers (Heskett et al., 1994; Webster, 1994; Cespedes, 1995). In the current global marketplace, Jones (1992) believes that businesses have no choice but to build and retain the loyalty of existing customers if they are to survive and grow. Supermarket chains, such as Tesco and Asda, act as a reference point for attitudes to loyalty, with 72% of consumers feeling loyal to at least one organisation operating in the highly competitive supermarket sector, according to a study by the Logic Group, a specialist in loyalty programmes management, and researcher Ipsos MORI (Fernandez, 2009). Tesco Clubcard a key relationship tool Tesco has been the dominant force in supermarket retailing for the last ten years (Seth and Randall, 2001). It remains the market leading supermarket chain in the UK with a 30.4% market share and has, in the early part of 2010, further widened the gap between itself and its arch rival ASDA, a position which has largely been attributed to the success of its recent Clubcard double points promotion (MacDonald, 2010). To succeed, relationship marketing requires the development and maintenance of strong personal relationships with customers. These relationships should include a high degree of mutual interaction and social exchange (Zineldin and Philipson, 2007). Tescos Clubcard is the cornerstone of its customer relationship marketing strategy. Launched in February 1995, Tescos Clubcard gained five million users within its first month of operation and, significantly and somewhat ironically for a loyalty card, 200,000 new customers also joined the scheme (Seth and Randall, 2001). Clubcard works by enabling its users to collect points when shopping at Tesco stores and online at Tesco.com and also at Tescos catalogue store, Tesco Direct. In addition, points can be collected at Tesco petrol stations and by paying for any goods or services using a Tesco credit card. Tesco Clubcard holders can also collect points when making non Tesco purchases, such as paying for gas or electricity through utilities supplier e.on (Tesco website, 2010). These points are then converted into money-off vouch ers for customers to use in store. However, Clubcard is much more than simply a vehicle to reward customer loyalty. By collecting customer data at registration, Clubcard is also a powerful marketing planning tool for Tesco. It enables the retailer to track customer shopping habits, including the products bought and their purchase frequency, thus enabling Tesco to target specific product and service promotions to specific customers, either at the point of sale or at the customers home via direct marketing. Tesco has attracted some criticism for using its loyalty scheme in this way but it argues that it works in the interests of its customers by aiding the business and product development process. Indeed, Tesco Chief Executive, Sir Terry Leahy, states that: We could not have created the dot-com business without the data from the loyalty card (Humby et al, 2007, page 4). As well developing relationships by creating highly targeted and personalised communications for its customers, Tesco has fulfilled another one of the key objectives of relationship marketing with its Clubcard, namely getting its existing customers to purchase more products. For example, using its Clubcard customer data, Tesco can identify possible target customers for its non-food products. It then mails these customers about such products via the medium of its quarterly Clubcard newsletter. This strategy has resulted in half of all Tescos traditional grocery customers also purchasing non food items from the chain (Humby et al, 2007). Data collected from Clubcard users has also been credited with helping to fuel Tescos recent dramatic international expansion with one third of its entire staff now working outside the UK (Humby et al, 2007). Tesco has extended its Clubcard brand into specific customer market segments in order to enhance its relationships with certain groups with a view to increasing sales to those specific customer segments. Clubcard data revealed that families with babies and toddlers who shopped regularly at Tesco did not believe that they could trust the Tesco brand as the best place to buy baby and toddler related products. These customers tended to place their trust in Boots for such products (Humby et al, 2007). A key identified element of successful relationship marketing is trust: The resources of the seller personnel, technology and systems have to be used in such a manner that the customers trust in the resources involved and, thus, in the firm itself is maintained and strengthened (Grà ¶nroos, 1990, p.5) Tesco decided that it needed to specifically address the issue of trust for these customers and created the Tesco baby and toddler club. Membership of the club enables families with babies and toddlers to get double Clubcard points on certain products as well as giving them free parking spaces close to store entrances, a free magazine and access to specialist parenting advice (Tesco baby and toddler club website, 2010). This relationship marketing initiative directly led to an increase of trust in the Tesco brand for baby and toddler products from this market segment and a consequent transfer of market share from Boots. Now Tescos sales volume of baby and toddler products is more than that of Boots and Mothercare combined (Stone et al, 2010). Effective relationship marketing that truly enhances customer relationships and leads to business improvement also requires that the marketing discipline in an organisation transcends all functions and embeds itself in the ethos of the business (Zineldin and Philipson, 2007). Tesco is totally focussed on its customers and information about customer needs and purchasing trends are disseminated to all parts of the organisation not just marketing. Indeed, Tesco claims that everything its does is rooted in customer knowledge (Tesco Careers Website, 2010). So it can be seen that Tescos Clubcard has certainly played a major role in securing and enhancing its market leading position and, as far as contributing to the bottom line is concerned, then there is evidence that it has also generated incremental sales and profits (Humby et al, 2007). Equally it has not caused an increase in overall marketing spend for Tesco as much of the funding for Clubcard has come from the reallocation of resources from other areas of marketing spend, such as TV advertising (Humby et al, 2007). However, it should also be remembered, of course, that Tesco has not completely disowned the traditional marketing concept as its ongoing aggressive price promotions demonstrate. Asda a traditional price-led approach Some academics suggest that here has been a paradigm shift from traditional to relationship marketing (Grà ¶nroos, 1995) and that traditional marketing does not fulfil the requirements demanded by the modern-day marketing concept (Gummesson, 1995, 2000). Kotler (1997), however, argues that the decision whether to use relationship marketing or transactional marketing depends on the industry type and, more importantly, on the needs and wants of the particular consumer. Some consumers will always adopt a short-term attitude in their relationships with suppliers (Zineldin and Philipson, 2007). In these cases traditional marketing based on the transactional approach will always have an important role to play. Asda is the second largest supermarket chain in the UK with around 17% market share (Macdonald, 2010). Its market ambitions are summed up in it mission statement which is to be Britains best value retailer exceeding customer needs always and in its stated purpose which is to make goods and services more affordable for everyone (Times 100, Asda Case Study, 2010, p.34). Asda has recognised the fickle nature of some consumers relationships with their supermarkets and acknowledges that the purchasing motivation of those consumers will always be based on obtaining best value (Zineldin and Philipson, 2007). Asda has, therefore, consistently adopted a transactional approach to its marketing by focussing heavily on two of the four Ps of the marketing mix advocated by traditionalists namely, Price and Promotion. Asda has built its market position around price and value for money, supporting these propositions through heavyweight TV advertising with its TV commercials having now propounded the virtues of Asda price for well over thirty years. Asdas strategic communications director, Nick Agarwal, defends Asdas traditional marketing approach, which focuses on attracting new customers and increasing transactions through its price and value led proposition, by stating that the current economic times dictate this type of offer in the supermarket sector. He says : Our internal data suggests that people are still very nervous about what will happen on the economic front this year. We need to make sure we serve new customers as well as those who are still feeling financially challenged, especially with the increase in VAT and public sector cuts that are to come. We are very conscious that value is still going to be at the heart of what people want in the coming 18 months.'(Costa, 2010). However, whilst Asda has enjoyed considerable success with its traditional marketing strategy, there are now indications that its approach has failed to reverse a slow decline in sales. According to research from Kantar Worldpanel, Asdas sales have fallen by 0.4% in the second quarter of 2010 and its market share has dropped by 1.7% to 16.9% in the same period (Baker, 2010). Asda seems determined to continue to pursue its traditional approach but independent observers are urging the chain to change to reflect new consumer attitudes. Ed Garner, retail analyst at Kantar Worldpanel says. The market has changed considerably and now consumers feel there is more to life than low prices (Baker, 2010). There are even dissenting voices within Asdas own ranks with Asdas new marketing director Jon Owen believing that the supermarket chain must cease its blinkered focus on traditional price-led marketing in order to compete more effectively (Baker, 2010). Asda has, however, made some concessions to relationship marketing through its corporate social responsibility initiatives. These include community involvement projects through its Asda Foundation (Your Asda website, 2010) and the provision of credit to those customers who have been refused credit by other lenders (Hemingway, 2002). However, it would seem that there are still strong forces inside and outside the business questioning whether or not a predominantly traditional marketing approach remains a viable strategy for future success. Summary and Conclusions From the evidence of two contrasting case studies it is apparent that both traditional and relationship marketing have proven to be appropriate for business success within the supermarket retail sector. However, there are indications that consumers are now beginning to expect more than just low prices and value for money from their shopping experience, they have also demonstrated a desire to engage in a meaningful relationship with their supermarket of choice. This relationship, if managed effectively by the supermarket chain, can increase customer loyalty and can encourage customers to their purchasing behaviour for specific product segments, as well as generating incremental sales from new and existing customers. Tesco, has also shown that a customer relationship strategy based on the development of mutually beneficial relationships can, and indeed does, positively impact the bottom line. Asda, for its part appears to be the subject of a struggle between the opposing forces of traditional and relationship marketing. However, this need not be the case. There is no reason why both disciplines should be in opposition. Even if there is a shift towards relationship marketing, many academics believe that traditional marketing, in terms of the four Ps of the marketing mix, remains valid in all types of businesses including supermarket retailing. The argument being that if a business does not have the right price, product promotion or place (distribution) for its products then it will be impossible for it to enter into a mutually beneficial relationship with its customers (Zineldin, and Philipson, 2007). There is, therefore, strong evidence to suggest that a mix of both the traditional and relationship approach is the most appropriate for the Supermarket sector in the UK. Tesco has achieved this balance but Asda has yet to fully embrace the value of relationship marketing acting alongside a more traditional approach. The view that it needs to do this and quickly in order to grow its business appears to be gathering momentum.