rm - summary

8/11/2019 RM - Summary

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ONBP 222

CHAPTER 1CRITICISMS OF TRADITIONAL MARKETING

MARKETING MIX MANAGEMENTBorden proposed the marketing mix consists of 12 elementsMcCarthy later simplified the mix into one that contained only 4

ingredients: Product, Price, Place and Promotion

CRITICISMS OF THE MARKETING MIX FRAMEWORK:Theoretical limitationsThe 4Ps is neither a theory nor a model, but rather a toolThis tool has tended to emphasise the ingredients and the structure at theexpense of the processesMarketing should be a multifaceted social process requiring a more rationalapproach.

Practical limitationsGronroos argues the marketing mix approach is production orientatedIn the 1950s 60s America focussed on:

Consumer goodsMass marketing

Distribution channelsMedia choices

(did not focus on complaints handling, invoice etc.)

Limitations on the scope of marketing within the organisationIt is doubtful if the marketing manager can always exercise full control overthe 4 Ps. Other variables should also be considered which are very hard tocontrol: sales, market share, profitability, labour and materials cost)

Limitations on long-term focusIt is argued that growth driven by mass marketing encourages businesses tochase short term profits based on transaction volume, missing long-term

prosperity. Stats indicate that it is 5 to 10 times as expensive to gain newcustomers than it is to retain old ones.

Ch 2 - 4

Ch 3 - 10

Ch 4 - 15

Ch 5 - 25

Ch 6 -

Ch 7 - 32

Ch 8 - 40

Ch 9 - 44


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THE IMPORTANCE OF CUSTOMER RETENTIONStudies have shown it is more beneficial to retain existing customers than torecruit new ones. Benefits include: reduced costs and lower marketingexpenditures. There is also a better opportunity for cross-selling if oneretains customers. They are more likely to promote the companys products

by word-of-mouth.

CHANGES IN THE MARKETING ENVIROMENT1) GLOBALISATION

Convergence of demand across the world and attempts by companies tooffer the same, or very similar, products across national boundaries.

2) TECHNOLOGICAL CHANGES

Making it possible to build individual relationships with clients in even thelargest of organisations. A product can be customised for micro segments orindividuals.

3) INCREASING BRAND PROMISCUITY

(Customers are becoming more sophisticated and demanding)-increase in competition-increasing affluence (welvaard)-price comparison-experience change and variety

4) REALISE THAT SATISFACTION DOES NOT LEAD TO LOYALITY

Satisfaction does not equal loyalty. E.g. People visiting a hotel may nevercome back to that area.

5) FRAGMENTATION OF MEDIA

-Wide range of media available: satellite TV, deregulation of radio services,internet radio. Newspapers, magazines, free papers, specialist publicationsnumbers increased greatly.-Thus mass marketings effectiveness decreased.


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6) CONTINUEING THE SEARCH FOR ADDED VALUE ANDCOMPETITIVE ADVANTAGE (SELF-STUDY)

Companies are searching for new ways of gaining competitive advantagedue to increased competition, similar core products and lack of customerloyalty.

Levels of product:a) Core product: the basic benefit for which the product is purchased. E.g. acar is used for personal transport.

b) Actual product: Style, packaging, brand image, quality and price benefits.c) Augmented product: provision of benefits that support the purchase orconsumption experience. E.g. Sales support, guarantees and after sales care.

Customers often commit themselves to a particular supplier in order toreduce, through familiarity, the degree of risk and anxiety in purchasing, andto obtain customised products for their particular needs. They often distrustadvertising of large firms.


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CHAPTER 2CHARACTERISTICS OF RM

Def. RM: To establish , maintain & enhance relationships withcustomers & other partners, at a profit so that the objective of the parties aremet. This is achieved by mutual exchange & fulfilment of promises.

Def. Relationship: To voluntary repeat business between a supplier and acustomer where the behaviour is planned, cooperative, intended to continuefor mutual benefit and is perceived by both parties as a relationship .

RELATIONSHIPS WITH STAKEHOLDERS

Deciding who to have a relationship with: Not all customers are looking for a relational product or service; some onlywant a transactional relationship.

Reasons for inappropriateness of relationship marketing in some cases:Parties involved may not wish to forgo opportunistic behaviourOne or both parties may view relational exchange as a short term

means of means of acquiring those competencies that will allow them to bargain from a position of strength in the future

Buyer-seller relationships could develop up to a point where they become anti-competitive.

Customermarkets

Referral

SuppliermarketsEmployee(recruitment)

Influence

Internalmarkets


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Conditions for the applicability of RM:The customer should show a continuing and periodic desire for the

service.

The service customer must be able to select the service provider.There must be a choice of suppliers available to the customer.Overall characteristics should be relationship building e.g. Banking,insurance and hairstyling.

RM IN CONTRAST WITH TMTransaction marketing Relationship MarketingSingle sale Customer retentionFocus on product features Focus on product benefitsShort timescale Long timescaleLow customer service High customer serviceLimited customer commitment High customer commitmentModerate customer contact High customer contactQuality is primarily concern of

productionQuality is a concern for all

Methods of customer retention:Relationship marketingLoyalty schemesExit barriers

CHARACTERISTICS OF RM (NB)

Long-term orientationRM involves estimating customer lifetime value and engaging inrelationships based on the value of those relationships over a number ofyears.

Commitment and fulfilment of promisesRM implies a long-term relationship and forsaking other suppliers by thecustomer, and mutual exchange of info. Each party believes in the integrityof the other to keep their promise and deliver on their promises.

Customer share, not market share


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RM concentrates on keeping customers and attempting to gain a bigger shareof th eir wallet by cross -selling or more of the same product.

Customer lifetime value (NB)The supplier needs to identify those customers who are willing to enter along-term relationship, forecast their lifetime with the company, and thencalculate those cu stomers lifetime values to identify the ones with whom itwill be profitable to have a relationship.Estimated purchases cost of purchases cost of keeping relationship

Two-way dialogueIdentify needs and find solutions. RM is ultimately about partnering and

partnerships which are built on, maintained through dialogue andcommunication.

Customisation

1. Collaborative customisationHelp customers to articulate their needs by engaging in dialogue. Thecompany then identifies the product offering that would precisely satisfythose needs.

2. Adaptive customisationAn offering that is standard, but so designed that the customer can alter orcustomise it. E.g. interchangeable mobile phone covers.

3. Cosmetic customisationCustomisation of the packaging of a standard offering, e.g. printing acustomers name/logo on a standard product like a T-shirt, personalisednumber plates.

4. Transparent customisationUnique goods or services are offered to customers without informing them

explicitly that the offering has been customised. E.g. build up a database of previous purchases and recommend a profile for online purchases.


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RM TM CONTINUUM

LEVELS OF RM

TACTICALWhere RM is used as a tool for sales promotion e.g. no long contracts

STRATEGICCustomers are tied by a mix of legal, economic, technological, geographicaland time bonds. The customer with either the lack of power or knowledgestays with the supplier.

PHILOSOPHICALTurning away from products and product life cycles, focus on customerrelationship life cycles. using all employees of an organisation to meet

profitably the lifetime needs of target customers better than competitors.

High customeranxiety

High degree ofcontact

Importance ofconfidence, social &special benefits Customers in favour

of relationships

RM TM

Low customer anxiety High contactunnecessary Standard product Customers not

seeking relationships


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BENEFITS OF RM (NB toets!)

SUPPLIERS

added valueincreased loyaltycross-selling

premium pricinglower promotional costs

CUSTOMERS

high quality servicecustomised productsreduced anxietyfeeling valued

DISADVANTAGES OF RM

LOSS OF CONTROLDeveloping a relationship ultimately leads to some loss in control overresources, activities and intentions

INTERMEDIANATENESSA relationship is subject to continuous change, with an uncertain future,determined by its history and current events and the parties futureconsiderations

RESOURCE DEMANDInvestment and maintenance cost, due to the effort to build and maintain arelationship

PRECLUSION OF OTHER ACTIVITIESPrioritise the use of limited resources, it may be impossible to pursue all theindividually attractive opportunities. Some relationships may be irrevocablewith existing ones.


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UNEXPECTED DEMANDS2 parties are involved; a relationship means they are linked. Such a linkagemay bring with it obligations or expectations by others in specific situations.

FURTHER CONSIDRATIONS

IS IT JUST A FAD?IS IT REALISTIC?ARE CUSTOMERS JUST COPING?CUSTOMER SATISFACION LEVELS LOW AS EVERTAKING LOYAL CUSTOMERS FOR GRANTEDINTRUSION & PRIVACY


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CHAPTER 3DRIVERS OF RM

Satisfaction Loyalty

DEF: SATISFACTION A summary psychological state resulting from the emotion surroundingexpectations [which] is coupled with the consumers prior feeling about theconsumption experience.

Balance (expected & real emotions experienced)expectations of consumption experienceemotions during consumption experience

(result of emotions are being influenced by customers expectations)

QUALITY

Quality is one of the factors that create satisfaction.

Mechanistic vs. humanistic quality

Mechanistic: an objective aspect of a thing or eventHumanistic: the subjective response to objectives.

Subjective criteria NB: Brand reputation, corporate imageQuality productsQuality service

Dimensions of qualityReliability perform promised serviceAssurance professionalism & knowledge of employeesTangibles facilities, equipment & appearance of personnelEmpathy caring, individualized attentionResponsiveness willingness to help customers


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CUSTOMER VALUE

SATISFACTION AND VALUEValue: BALANCE quality &cost

THE SUBJECTIVITY OF VALUEValue (& Satisfaction): BALANCE What is received &what is given / sacrificed

CUSTOMER SACRIFICE

FINANCIAL COST:Limited to money

PSYCOLOGICAL COSTSMental effort (adequate benefits?)Time spent (rectifying product errors)Extra costs (peace of mind)

SATISFACTION AND LOYALITY

Satisfaction Trust LoyaltyCommitment

+ +


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TRUST AND COMMITMENT

TRUST

B2B markets &B2C markets

Def: TrustA willingness to rely on an exchange partner in whom one has confidence

Trust: integrity; honesty; credibility; sincerity; consistency; informationsharing; equality of power.

The role of trust encouraging marketers to:Cooperating with exchange partners to preserve relationship

investments.To resist short-term alternatives in favour of the expected long-term

benefits of staying with existing partners.To view potentially high-risk actions as prudent because of the belief

that their partners will not act opportunistically.

COMMITMENT

Def: CommitmentAn exchange partner believing that a ongoing relationship with another is soimportant as to warrant maximum efforts at maintaining it.

Follows trustwill only commit to business if trusting it

Depends on:satisfaction with businessquality of alternative businessesinvestments in the relationship


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HOW CAN TRUST AND COMMITMENT BE ENCOURAGED?

A GENUINE CUSTOMER ORIENTATIONMarketing and customer orientation can be used interchangeably. Customerorientation implies achieving organizational goals through a genuineconcern and motivation to satisfy customers. This requires a clearunderstanding through marketing research.

AN EFFICIENT CUSTOMER CARE AND SERVICE MECHANISM,INSPIRED AND RUN BY WELL-TRAINED STAFFTo create a mutual relationship between supplier and customer, mechanismsmust exist for the efficient contact between the two parties.

CLEAR SAFEGAURD AND REDRESS MECHANISMSCompanies must accept that transactions will occasionally fail. Propermechanisms for recovery, including fairness and promptness, should be in

place.

SHARING OF CONFIDENTIALITY OF INFORMATIONRM implies customization of products, depends on a good understanding ofcustomers. Sharing of knowledge and information should be treated asconfidential. Customers fear e.g. receiving junk e-mail.

Trust &commitment

Keep promises

Customer care& recovery

Additional Shared power

Customerorientation Sharedvalues

Avoidopportunistic

Confidentialinformation


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SHARING OF POWERBy committing resources for the acquisition and retention of customers, thesupplier surrenders some of its freedom or power to discontinue therelationship if the customer becomes difficult to satisfy.

AVOIDANCE OF OPPORTUNISTIC BEHAVIOURThere may be opportunity for either party of short-term gain by harming theother at various stages of the relationship. E.g. A supplier is tempted tochange prices as short-term changes in the market.

KEEPING OF PROMISES (NB)Trust and commitment help reduce anxiety because of the belief that atrusted and committed partner will not jeopardize the relationship by

breaking promises. The supplier should only promise what he can deliver.

SHARED VALUESThe extent to which partners have beliefs in common about what behaviours,goals and policies are important or unimportant, appropriate or in-appropriate and right or wrong. Disappointment and disagreement are

bound to arise sooner or later.

ADDITIONAL CONSIDERATIONSBuilding successful relationships with employees, intermediaries and otherstakeholders should not be forgotten.Internal marketing and the belief in the value of long-term relationship withcustomers and stakeholders must be incorporated into the business culture.Trust and commitment must be genuine and borne out of choice in order to

be at their most effective.

The systems approachCustomer loyalty cannot be won from a single transaction, but rather from aseries of satisfactory transactions over a period of time.


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Chapter 4Planning RM Programs

The Relationship marketing planDefn Strategic plan: A Statement outlining an organizations futuredirection, near-term and long-term performance targets, strategy, andmonitoring and control mechanisms.

Strategic plans: Deal with objectives, initiatives and events for severalyears.Tactical plans: Cover time periods up to a year, and impacts only onspecific parts of the organization.

Marketing strategyDefn Strategy: The means by which objectives are achieved.(A set of constantly evolving operating principles or guidelines thatcoordinate the activities and resources of an organization, so that a

predetermined outcome is achieved)

Defn planning: Deliberate analysis and adoption to unforeseen events. Itiscrafted rather than planned: A business begins with an intended strategy,

but while implementing it will identify its good and bad elements.

Success comes through recognizing which aspects of the plan work andupdating the plan according to a new emergent strategy.

(The practical application of the process is more complex. Planners mustconstantly receive and intemperate information about the performance of the

business and the behavior of its environment, shifting the plan toaccommodate changing circumstances.)

Components of the marketing plan

*Classical marketing planning consists of 4 questions that describe a journey.Strategic evaluation: Assume there is a range of possible strategies bywhich the organization may meet its objectives.


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The situation analysisThe role and context of the situation analysis(Its purpose is to ask: where are we now? Also known as the strategic audit)

It involves the following elements:

1. The macro-environmental auditPolitical, economical, socio-cultural and technological trends are analyzed.2. The micro-environmental auditExamines external factors, directly affecting the organization (portersmodel) e.g. issues relating to intermediaries.3. The customer auditIt is an analysis of current and future customers. Establish the state of theorganiza tions current customer base and identify opportunities for customeracquisition.4. The company audit

How will we make sure we arrive?Moni to r ing & con t ro l

How might we get there?

Strategy & tact ics

Where do we want to be?

Object ives

Where are we now?

Situat ion analysis

S trengthsWeaknessesO pportunitiesT hreats


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Assessment of the organizations strengths and weaknesses. Tangible andintangible resources are reviewed and core competences are assessed inrelation to competitors.

The RM audit

The importance of the RM-specific questions will depend on where theorganization lies on the RM-transaction continuum.

The relationship portfolio

A key component of the situation analysisGiven the emphasis on customer retention , analysis of current customers

plays a central role in the relationship planning process.

The relationship ladderCustomers could be moved from one level of loyalty to the next. The task ofrelationship marketing is to bring customers as high up the ladder as

possible, since there are greater benefits at each level of loyalty. Researchhas shown that relationships conform to cycle, consideration of how andwhen to end a relationship is as important as developing relationships.

Where are we now (in RM)?

Is RMappropriate?

Which customersto invest in?

Are we suitedto service

relationships?

How do wecompare to

competitors?


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The relationship cycle (NB)

1. PROSPECTIVE PHASEIndefinitely if customers dont commit.

Customers represent potential relationships.

Little investment (from both sides).

Little / no trust.

Identify customers that offer greatest potential for Long Term relationships.

Partner

Advocate

Supporter

Client

Customer

Prospect

TM(New)

RM(R

ETAI

N)

Relationship Ladder

Relationship Life Cycle

Prospective

Developing

Established

Declining

Time

Turnover


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2. DEVELOPING PHASE Conscious effort of supplier.

Invest time & resources to understand needs.

Phase = biggest risk unstable relationships.

Contracts / agreements = stronger relations.

3. ESTABLISHED PHASEDemands less of both parties.

Offers much higher rewards.

Lower costs.

Open communication channels.

Mutual problem solving.

Customers = willing to pay premium prices.

Turnover & profit levels peak.

Supplier = MAINTAIN relationship.

4. DECLINING PHASE Gradual deterioration / sudden exit.

Failure on part of supplier.

Competitor activity.

Circumstances beyond control of either party.

Causes: less satisfaction trust commitment

Thus, reduction in business.

Decline of relationship negative.


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Managing the relationship portfolioOverview:The organization will simultaneously engage in a number of relationshipswith various partners, at different stages, these are viewed as a portfolio.By maintaining a number of its mature relationships, the organization should

be able to fund its development activities. A preponderance of maturerelationships will make a healthy profit and loss account, but without newrelationships to replace these when they decline, the long-term future of theorganization is in doubt.

Relationship strength can be defined by:

Belief components (attitudes towards party):Trust, commitment and loyalty.

Action components (tangible measures):Frequency & volume of transactions as well as investment in resources.

Types of relationships:Bilateral relationships:high levels of both components

Hierarchical relationships:high economical contentlow belief component

Recurrent relationships:high belief component (trust + commitment)low action component (economic content)

Discrete / Opportunistic relationships:low levels of both components

Assessing relationship strengthDefn relationship strength The ties between rational partners andreflects their ability to weather both internal and external challenges to therelationship.Relationship strength reflects the extent to which both parties will makean effort to maintain the relationship.[Has confidence in the others reliability and integrity (trust)]


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Measuring relationship strengthRelationship commitment arises indirectly from the relationship duration.The long-term survival of the relationship is a consequence of relationshipstrength.

Factors that is associated with strong relationships:Economic contentMutuality is important. Economic content of a particular relationship should

be assessed relative to that of the other partys overall portfolio ofrelationships.InteractionAnother measure of relationship strength is the amount of contact betweencustomer and supplier. There are qualitative elements: openness of

communication and the nature of institutional interfaces.Loyalty, trust and commitmentLoyalty is synonym to relationship strength. Loyalty, trust and commitmentare key requirements of any long-term relationship. Inferences can be made

by observing buying patterns, complaints information and other feedback. AlignmentCharacteristics relating to the ease with which the parties interact. Theyshould have similar expectations, it is important to consider customers andservice workers interpersona l orientations.Relationship historyPrevious dealings between the two parties should be reviewed to provideinformation necessary to make judgments. Conflict arises often with mutualinterdependence.

Customer v/s business-to-business marketsShare of customer and behavioral loyalty apply to individual and business

buyers. Scope exists for different forms of interaction, at various levels ofthe organization, and with different levels of formality. It is important toidentify the number of service workers with whom a customer interacts.

Strong relationships with the organization are characterized by frequentinteraction with a range of service personnel.


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Assessing customer potential

Commitment:Satisfaction and investment.

Power: (sources)Access to markets, access to information and resource investment

Organizational culture / personality:Past behaviour patterns of behaviour

Nature of bonds:Social vs. business bonds

Goal congruence:B2B relationsBoth businesses objectives should be com patible

Company audit

Organizational processes and the value chain:

Inbound logisticsThis stage is handled by the suppliers, who are responsible for delivering theraw materials and components needed. Just-in-time delivery can forexample add value, by reducing the need to have an expensive stock buffer.

Manufacturing and operationsValue can be added by attention to production quality, research anddevelopment of offering services that reduce costs for the next stage memberof the marketing channel.

Outbound logistics

Usually the responsibility of the wholesaler, its purpose is to get the finished products to the point where the customer can most easily buy them.

Marketing and salesThis function is handled by the retailer, which conducts the resource-intensive business of persuading the customer to buy the products.


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Uses of the value chain1. Form the basis for analyzing a single organization, identify thesystems that support the creation of the product, evaluating their importancefor creating value and looking for ways to improve efficiency or enhancecustomer value.2. It can be used to analyze the operation of the marketing channel,evaluating the contribution of each member to the value delivered to thefinal customer.3. The real power of the model lies in forcing analyst to view theorganization as a set of processes.

Ethics and RM

An organization that creates a negative ethical impact may find the

withdrawal of public approval and of the market and its products.

The social audit

Defn Social audit: A review to ensure that an organization gives dueconsideration to its wider and social responsibilities to those directly andindirectly affected by its decisions, and that a balance is achieved in itscorporate planning between these aspects and the more traditional business-related issues.

The model reports the following aspects of business:Organization, management style, resources use, investment;Employee relations, pay and conditions, job security;Customer relations and product benefits;Community relations;Environmental impact.

To measure the organizations impact: Inventory approach:A simple list of programs the organization has implemented to dealspecifically with social problems.

Process audit approach:


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A systematic assessment of costs, benefits, and achievements of the firmsactivities from stakeholder perspectives.Cost-benefit approach:An attempt to quantify costs and benefits of the companys activities inmoney terms.Social indicator approach:Evaluate the impact of corporate activities by using social criteria. E.g. The

provision of employment and contribution to the economy.

RM planning objectives

The importance of RM objectivesMotivation: provide the organization a goal at which to aim.Monitoring: the process towards a given objective is the criterion by which

the success of the organizations strategy can be judged. Coordination: objectives insure that all parts of the marketing organizationare working together towards the same goal.Communication: objectives are a clear statement of what the organizationseeks to achieve.Control: providing a basis for measurement, objectives enable managers tocontrol the activities of the organization.

Formulating measurable RM objectives

Planning objectives must be specific and measurable. Objectives should notrelate solely to outputs, but to inputs and process elements too. Keyindicators of success are relationship strength as well as satisfaction andcommitment which are difficult to measure.

Outcomes-based objectives suggest the following:Revenues and costs by customer;Customer relation rates;Share of customer for products and services now made;Share of customer for products and services that the organization

could supply;Progression up the relationship ladder.


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Chapter 5Implementing RM programmes: strategy, structures and systems

The McKinsey Seven S framework: (Organisational change dimensions)

1. Strategy (NB)Senior managements plan of action with which staff are coordinated.

2. Structure (NB)The way in which resources and responsibilities are allocated.

3. Systems (NB)Mechanisms, procedures and processes by which tasks are completed.

4. StylesThe organisational culture or personality, with emphasis on management style.

5. SkillsCorporate strengths and core competencies.

6. StaffHuman resources commanded by the organisation.

7. Shared valuesOverarching goals, beliefs and values of the organisation.

STRATEGY

The nature of RM strategyThe way in which the organisation develops its resources, product range and skills willemerge from dialogue with the customer, not from a unilateral plan. (RM strategies mustmanage the portfolio of customers to ensure an even flow of profits in the long term)

1. Initiating relationships

Target marketing techniquesIdentifying, evaluating and targeting new customers comes from arms length research. Smaller companies will use: advertising, sales promotion and personal selling. Moreestablished organisations with a good base of occasional customers will want to initiaterelationships with existing uncommitted customers.


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Avoiding common mi stakes:1. A relationship is more than a repeat customThe presence of trust and commitment bring financial rewards in the form of premium

prices and positive word of mouth.

2. It should not be assumed that the customer would welcome a relationshipThe programme must be able to communicate relative outset from the value.

3. Sales promotions based on financial incentives are a good way of recruiting newcustomersCustomers attracted purely by economic benefits will defect as soon as a better offercomes along. Do not confuse loyalty with self-interest.

4. The marketer should not expect all relationships to be successfulThe majority of relationships fail in the early stages just like 90% of new product launces.

Reducing the r isk:1. Simplifying the product offerLack of clarity about the benefits received, conditions of use or terms of payment willincrease the risk perceived by the customer.

2. Guaranteeing core benefitProduct guarantees must home in on the most valued aspect of the product. Sometimesan organisation must promise compensation above the price of the service in order to

pre- empt these types of risks. E.g. no win no fee guarantee

3. Encouraging trail No-commitment trails are virtually undeliverable, since the time, effort and stress oftrying the product itself is a commitment on the part of the customer .E.g. it is common for health clubs to offer trail membership before asking a customer to

pay the joining fee and commit to a years membership.

2. Developing relationshipsThe business should identify opportunities for increased business and develop systemsthat support the relationship to ensure the customer makes a commitment.


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Ways to encourage commitment:Increase the scale or scope of the business relationship:A relationship grows stronger as economic content increases. More frequent contact

between the customer and the supplier, the more positive the view of the former towardsthe latter. To increase the volume and/or variety of products sold to the customer is an

obvious way to increase the relationship.

Legal/financial agreements:In order to be viewed positively by the customer, the request for a commitment on their

part must be accompanied by a benefit, and preferably one that the customer canappreciate for the length of the relationship. The use of special offers to trap customersin an exploitive relationship will not be successful in the long term.

Resources and information:A customer that has invested resources, whether tangible or intangible, will have agreater stake in the continuation of the relationship. Still greater commitment will exist if

resources or valuable information are shared between the two parties.Time, effort and involvement:Time, physical exertion or mental effort, all represent an investment on the customers

part in the relationship with the supplier. The greater the investment in these, the greaterthe commitment will be.

3. Maintaining relationships1. Importance of maintenance:

Neglecting existing relationships is a common mistake. Maintaining relationships oftenrequires fewer resources than initiating new ones. This stage represents the pay -offfrom effects to build the relationship and these existing relationships are critical to thesuccess of RM.

2. Communicate:Communication is a crucial requirement for building successful long-term relationships.Frequent effective communication to keep customers informed about current and planned

progress with other things like: sales contracts, newsletters, site visits etc. effectivecommunications serve a number of functions: shaping customers expiations about the

product and influencing their perspectives.

3. Reward loyalty:Customers will remain loyal to a supplier as long as the perceived benefits outweigh the

perceived sacrifice. The major cost being the lack of freedom to take advantage of short-term gains arising from competing offers.

4. Develop supporting systems:The task of the marketer should be from a process management perspective. Theorganisation must implement systems for managing communications, product quality andservice recovery.


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4. Ending relationshipsA planned approach to ending relationshipsEnding a relationship should be a conscious decision. The business must focus theirefforts on the most valuable relationships, if unable to do this take a reactive stance and

give attention as demanded by each customer.

Ending complex relationshipsThe process of dissolution must be carefully considered. This situation exists in highvalue, complex customer products e.g. financial or legal services. Too abrupt adissolution may lead the ex-partner to engage in negative word-of-mouth, and be viewedunfavourably by the disengaging organis ations other partners and customers. Too gentlean approach may create additional costs and extend the relationship.

Direct exit strategiesThe disengaging organisation clearly signals dissatisfaction with the relationship. If the

disengaging organisation has already taken the decision to withdraw, but is concernedabout the effects of the action on other customers and partners, it may engage in blameattribution to establish that the decision was caused by shortcomings of the partner.For organisations more concerned about the other party a negotiate separation allows

both parties to rationalise the event.

Indirect exit strategiesThese are subtler and take longer, and leave the partner uncertain as to the state of therelationship. Disguised exits involve a conscious attempt to conceal the intention to endthe relationship e.g. cost escalation, making greater demands and signallingdissatisfaction.

Key factors in determin ing the choice of strategy:1. Power of the partnerIn a market where there are few alternative partners, partner-centred strategies are moreappropriate. Sometimes the disengaging organisation may take a reactive stance anddestroy other relationships because they are no longer sensitive to the partners interests.

2. The mechanics of the relationshipWhen where are strong personal bonds between individuals in the different organisations,

partner-centred strategies are more appropriate.

3. The relationship networkWhere the details of the dissolution are likely to be widely known throughout thedisengaging organisations relationship network, the strategy must be adjusted accordingto rational norms of the network of the partner e.g. a network that values trustworthy,

partner centred behaviour will react badly to partner-centred strategies.


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Limitations of strategyStrategy is more properly planning rather than implementation , intention rather thanaction . Strategy offers little in terms of concrete results, but provides guidance to makedecisions e.g. resource allocation and provide direction and motivation for staff.

STRUCTURE

Functions of organizational structures:

1. Separate jobs with different levels of complexity.2. Ensure that people are accountable for what they do.3. Add value to work.4. Vehicle for performance evaluation & staff appraisal.5. Motivate & direct staff.6. Enhance flow of information.

7. Help individuals understand their organizational roles.Extensions to the list:8. Motivation and direction of staffBy assigning leadership and authority, structure can be a vehicle by which instructionscan be passed down through the organisation, and control mechanisms that ensure thatthese instructions are carried out.

9. Flow of informationStaff on the ground can have a clear point of reference, due to a clear structure thatenhances the flow of information.

10. Understanding organizational rolesHelping individuals in the organisation to understand their roles and responsibilitiesand how they fit in with, and are separate from, others in the organisation; isperhaps the most powerful function in the organisation.

Disadvantages of corporate structures (NB)

1. Promote internal focusThey provide means by which individuals or departments can obtain greater rewards thanothers in the organization, this can encourage staff to view the organization as acompetitive arena and ignore the external environment.

2. Obstruct information flowFlattening the structure is a necessary stage in the development of customer orientatedorganizations. It is difficult for a customer orientation to preside in the entire business

because of the view that it is only the role of staff in direct contact with customers.


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3. Reduce flexibilityThe existence of strictly defined procedures, rules, lines of communication andresponsiveness militates against responsiveness to customer needs.

4. In hibit in ter-f unctional coordin ation: (toetsvraag)

1. Flatter structures:Elimination of the middle layers of management. Also known as downsizing,organizational renewal or reforming can lead to lost knowledge. Customers may defectin reaction to the redundancy of individuals with whom they has strong personal links.

2. Decentralization:The authority over the marketing function must be decentralized, to facilitate close andfast support to customers. By devolving the authority needed to satisfy to those staff withdirect customer contact.

3. Organize business teams & functions around customers:

Re-organization of the business into key processes, multifunctional teams became the primary business unit. This achieves greater coordination between what have hitherto been seen as separate elements of the organization.

4. Customer champions:Organizing teams or individual activities around customers by assigning responsibilityfor a specific customer or group of customers to a specific individual or team.

The network view of the organization:1. The hollow networkFound in highly unstable marketing environments, has limited internal capabilities, butuses other organizations to perform functions in response to individual transactions. Thenetwork is transaction based.

2. The flexible networkMaintains longer-term relationships with other network members, each member is moreadaptable in the face of demands in changing conditions.

3. The value-added networkHere organizations come together because of the way their core competenciescomplement one another in the creation of customer value.

4. The virtual networkSeek to create competitive advantage through closer collaboration and creation of jointsystems.


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Limitations of structural perspective

Is a good indication of the business functions & relationships but does not provide an understanding of how the business will be managed on a day-

to-day basis

or how relationships will be managed.

SYSTEMS

Importance of systemsThe development of a customers trust requires reliable fulfilment of promises over time.Careful attention must be paid to the design and maintenance of systems and processes.

Total Quality Management (TQM) Quality

mechanistic & humanistic specifications which must be delivered with reference to the customer. Reliability (effectiveness and efficiency)

Ensure that production meets the quality specification. Continuous improvement Mechanistic approach to TQM

business is a machine with components working together through: communication & aligning goals & objectives TQM should contain:1. Guiding principles2. Targets and strategies3. Performance measures and check points4. Supporting processes5. Actions, deadlines and responsibilities.

Humanistic approach to TQM quality culture (within organization) staff use own initiative & judgment to deliver quality TQM principles:1. Empowered employees2. Continuous improvement3. Quality improvement teams

Business Process Re-engineering (BPR)

Business should be totally redesigned around quality specification.

Thus, entire business & its functions & activities should be changed / redesignedto focus on delivering quality throughout the business.


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Chapter 7Monitoring and controlling relationships

APPROACHES TO MONITORING AND CONTROL(Exam question: which one would you recommend?)

1. Hard versus soft monitoring and control

Hard monitoring and controlRely on quantitative measures of achievement, and reward and punishment linked tothose measures. They are appropriate where the performance levels are easily defined.

Hard mechanisms are based on the principle that employees must be closely monitored,and constantly offered incentives to optimise their performance.

e.g. Budgetary control, managers should not spend organisational resources to freely.

Soft monitoring and controlThey are less clearly defined. They are based upon the principle that properly selectedand trained employees do not need constant attention and will perform better if they arenot directly monitored and controlled.Soft mechanisms are appropriate when employee achievements are difficult to define.E.g. Customer service. This approach emphasises mechanisms which motivateemployees to achieve and support mechanisms such as training.

2. Performance versus diagnostic monitoring

Performance indicatorsE.g. Profitability and customer satisfaction. They are useful in providing reassurance thatthe company is successful or warning that a change in strategy is needed.

Diagnostic monitoringE.g. Service quality measurement and cost benefit analysis. Such measures look in depthat actions of the company and their effect on the customer to learn from failures andidentify causes of success.

Comprehensive monitoring systemIncludes diagnostic and performance monitoring mechanisms.

3. The Balanced scorecard approach (eksamenvraag)Performance is easily defined and analysed in financial terms, the business will stand orfall by the amount of money it makes. Financial measures indicate the effects of success rather than the causes though.


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Perf ormance in dicators:1. Financial

Measures of sales, profitability or cash flow.2. Customer

Customer loyalty and satisfaction levels.

3. Internal businessOperational effectiveness: Production costs, cycle times, reliability and defects aswell as human resources and competencies.

4. Innovation and learningThe organisations capacity for continuous improvement.

4. RM orientated scorecard measuresUse of the balanced scorecard ensures that a range of strengths and weaknesses can beidentified and also prevents the organisation from becoming fixated on a single aspect ofits business. E.g. production efficiency and new product developm ent. The balancedscorecard should be developed with a clear strategic mission in mind, and informed

by shared values as they way to compete.5. Different levels of monitoringThe balanced scorecard approach portrays a broad picture of the organisation and

portrays little diagnostic information.1. Management-level monitoring

Senior managers establish that the organisation is generally healthy, identifyingareas of strengths and weaknesses. Managers charged with managing specificrelationships will diagnose and rectify specific problems.

2. Relationship-level monitoringProvide detailed information about the contribution of individual relationships tooverall performance.

3. Corporate-level monitoringGive information about the general profitability of the organisation. Measuresthat can be used are: return on capital employed and profit margins. Atrelationship level the manager should review information about each customer.


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Employee satisfactionThe relationship between satisfaction and loyalty works the same way for internalcustomers as external. Staff satisfaction leads to: staff loyalty and retention, loweringtraining cost and increasing experience, skills, motivation and experience.Staff satisfaction is measured with internal service quality. Relationship success

depends on interpersonal bonds between the individual members of staff andcustomers.

Drawbacks of satisfaction monitoringDealers can put emotional pressure on customers to return high satisfaction scoreswhen it is in an inheritably unstable state.Satisfaction surveys are a poor quantitative measure of relationship performance.Customer satisfaction levels may change without any influence from the supplierdue to the role of expectations.It is difficult to conduct reliable satisfaction surveys.

Satisfaction surveys can however provide useful feedback, identifying problems or majorshifts in customer expectations.

Complaints data and satisfaction monitoringUseful indications of customer satisfaction can be gained by monitoring customercomplaints.

Measuring quality: (nie so NB vir eksamen)Satisfaction arises from a positive judgement of service quality received and costsincurred. Quality measurement focuses on the cause of satisfaction rather than theresult .

SERVQUALPrinciples:

1. Customers judgements of service are made by comparing perceptions withexpectations.

2. Made on quality dimensions: reliability, assurance, tangibles, empathy andresponsiveness.

SERVPERVDisputes the two key principle of SERVQUAL. Inclusion of expectations in measuringquality is at best unnecessary, and at worse it detracts from reliable quality ratings. The

five dimensions of quality overlap.

Which to use?Research indicate that expectations are often poorly identified in customers mind s, andare not a reliable benchmark against measure quality. SERVPERF may provide a morereliable performance measure of service quality.


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Measuring loyalty:

Measuring behaviourMeasurement of attributes such as satisfaction or perceived quality has not been found areliable or accurate predictor of customer behaviour. Satisfaction and perceived quality

can useful general information on relationship performance and diagnose problems.

Internal recordsLoyalty can be monitored without additional customer surveys. Loyalty monitoring can

be built into sales data, customers do not need to be troubled with requests to completesatisfaction or quality surveys.

Measures of loyalty:1. Length of relationship

Relationships become more profitable as the relationship lengthens. Loyaltymeasured in time is a good measure of relationship value, but not a indicator of

profitability or customer satisfaction.2. Share of customerAssessing the extent to which the customer uses competitors products alongsidethat of the supplier.

3. CommitmentThe volume of ongoing business a customer places, and willingness to invest inthe relationship.

Financial measures of loyalty

Long-term focusTimescale is important to asses relationship returns. Relationship building requiressignificant investment in the early stages, which is recouped as the relationship matures.

Indirect benefitsIncreases in income arise form cross-selling and referral businesses, whilst costs may bereduced by savings on promotional spending and the ability to plan and develop productsand processes.

Measures of measuring financial performance:1. Profitability (Return On Relationship - ROR)

Profitability is a performance indicator rather than a diagnostic tool. As many as80 percent of customers may be unprofitable. The net profit for each relationshipis worth measuring.

2. IncomeCurrent income must be monitored so that cash flow constraints can be met.

3. Cross-purchasingIncome from cross selling may be overlooked, different parts of the organisationmay monitor income from individual goods or services separately.


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4. ReferralThe tendency of loyal customers to generate new business through word-of-mouth. The supplier should have a system to gauge the amount of businessgenerated by its customers. Data collection should record if a customer heard ofthe supplier through word-of-mouth and which customer is responsible for the

referral.5. Customer lifetime valueThe relationship between the income generated and the costs incurred byservicing a particular customer will vary over the life of the relationship.

6. Servicing costThe cost of servicing a particular customer. Some customers are habitually moreexpensive to satisfy than others.

Selecting relationship level measuresAn organisation should u se as many measures as possible without overloading itsmanagers with information. A range of measures will reduce the risk of shortcomings or

opportunities going unnoticed and will help to set the results of one particular indicator in broad context.

COMPLAINTS ANALYSIS AND HANDLING (NICE EXAM QUESTION)

The importance of complaints (Fig 7.3 p 155)Complaints impact on both the monitoring and the control of relationship quality.

Operati onal level: At operational level complaints handling is concerned with service recovery.Defn RecoveryThe practice of rectifying mistakes, by rectifying the mistake, compensating the customeror apologising for the failure.I mprovement level:Continuous improvement keeps pace with increasingly demanding customer expectationsthrough strategic complaints analysis.

Service recoveryPromoting customer retentionThe supplier should invite complaints, a customer who complains is offering the supplieran opportunity to continue the relationship.As rule customers dislike complaining because it costs them time, effort and emotionalstress.

Ana


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Principles of service recovery:1. Make it easy to complain

Procedures and channels for customer complaints should be as clear and flexibleas possible. Complaints handling staff should have interpersonal skills.

2. Establish the grounds for complaint

Customers will be more willing to complain if they are confident that they will besuccessful.3. Offer immediate redress where possible

Until the complaint is resolved the customer will experience negative emotionsconcerning the source of their grievance. The negative impact decreases thefaster a complaint is resolved.

4. Communicate Negative perceptions of a service failure are intensified if they feel that the failurecould have been prevented.

Strategic complaints analysis:

(Often used as a performance indicator)

Company weaknessesInformation provided by complaints analysis is the identification of weaknesses in

production and service delivery processes.

Changing customer expectationsAn increase in customer complaints may be caused by increased expectations rather thandeclining company performance.

Key product attributesCustomers will only complain about the performance aspects of goods and services thatare important to them.

CONTROLLING SERVICE QUALITY (SELF-STUDY)

The GAPS model for managing service qualityThe use of the SERVQUAL questionnaire to measure quality by investigating

perceptions and expectations in different dimensions. Service quality can be managed byintroducing systems that reduce each gap. Marketing information systems ensure thatmanagers remain aware of customer expectations.

Hard control techniques:Attempt to define service delivery with sufficient clarity to allow for monitoring andcontrol.Service blueprintingThe development of a flowchart that describes the service encounter from the customers

point of view. Blueprints map out the processes that are visible to the customer and thesupporting processes that must take place.


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Critical incidents analysisFocuses only on the events or interactions that are crucial in shaping the customersperceptions of service quality.

Soft control techniques

External service quality is too dynamic and subjective for organisations to gaugecorrectly. Senior managers should concentrate on internal service quality, ensuring thatstaff are competent, motivated and supported by a customer-centred culture. Customerson the ground can then determine and respond to changing customer expectations.

Hard or soft control?The prudent organisation will use a combination of both hard and soft measures andcontrol mechanisms.The key value of RM strategies lie in the human elements of service quality. Personal relationships between individuals are very important.


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Chapter 8Ethical considerations in Relationship Marketing

THE BACKGROUNDCriticisms of marketing

1. Charging high prices (many intermediaries taking a share of the profits, heavyadvertising and mark-ups)

2. Deceptive practices3. Selling and marketing shoddy and unsafe products4. Planned obsolescence

More specific criticisms:1. Insider dealings in shares2. Miss-selling of personal pensions3. Miss-selling of endowment mortgages4. Excess payment to top directors5. The use of child labour.

Intervention by government and consumer organisationsConsumer organisations, pressure groups and government monitor the activities ofmarketers through legislation.

Trade descriptions act face or inaccurate descriptions of products, regardingsize, quantity, use, previous ownership etc.Sale and supply of goods act goods sold should be of satisfactory quality unlessdefects are made clear.Consumer protection act safety standards which customers are entitled toexpect, giving legal rights to those who have been injured by products.

Consumerism, social responsibility and ethics

Defn ConsumerismAn organised movement of citizens and government agencies to improve the rights and

power of buyers in relation to sellers.

Added rights of buyers by the movement:1. The right not to purchase 2. Expect the product to be safe 3. Expect the product to perform as claimed

Additions sought are:1. To be well informed about important aspects 2. To be protected against products which are questionable3. To improve the quality of life through influencing products and marketing

practices.

Defn Social responsibility


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An organisations obligation to maximise its positive impact and minimise its negativeimpact on society.ETHICS

Defn Ethics

Carefully thought out rules and moral values that guide individual and group decisionmaking.

In marketing ethics refer to: moral principles that guide decisions.

Some organisations attempt to adhere to ethical standards of behaviour in order to gaincompetitive advantage over their rivals.e.g. The Body Shop first test its products on animals and put something back intocommunities from which they draw their raw materials.

Approaches to ethical decision-making

Relativism- each situation must be judged according to its own merits. When inRome, do as the Romans do Utilitarianism The moral merits of a decision lie in whether it serves the greatestnumber of people.Universalism/deontology Successful results do not justify a decision that is

basically unethical. do unto others as you would have them do unto you The justice theory The loss of individual liberty nullifies any gains in economicefficiency.The virtue theory going beyond mere duty and self-interest.

Ethics and Relationship marketing NBNBNB

RM cannot develop without adherence to what customers may adhere to as ethicalbehaviour . Behaviour that is perceived as unethical could easily lead to lack of trust .But in mass marketing it may be difficult to prove whether a company would profit froma more ethical stance.To pinpoint needs and wants RM relies on two-way communication between acustomer and supplier.Things that is essential in RM:

Keeping promisesGeneration of trustLong-term commitment

Achievement of mutual objectives

RM and ethical issues in communication

Ethical considerations pose major challenges for successful RM strategies becausecommunication and two-way dialogue is essential.


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Improvements in technology make it possible for companies to collect substantialinformation on customers; technology-based communication is a prerequisite of RM toretailing and consumer service markets.A right balance aught to be struck between the need for up-to-date information andto respect the customers time.

Customers also need to be informed about what type of data is gathered, the purpose forwhich the information is gathered and not share such information to other organisationswithout the customers consent. Customers also have a duty not to divulge informationabout suppliers to competitors to cause disadvantage to them.

Main ethical issues relating to communication relate to:1. Frequency of information gathering2. The nature of the information3. Methods of gathering information4. Purposes for which the information is used 5. Privacy of information

RM and the ethics of keeping promises

The keeping of promises helps create trust between the parties in the relationship andachieve the required long-term commitment.Breaking promises may lead to the break-up of a relationship and a lost opportunity, bad

publicity and damage to create a trustworthy image.Sometimes the actual promise and the perceived promise may not coincide.External stakeholders ought to be selected from amongst organisations which share thesame values and objectives.

Ethics and maintaining long-term commitment

In a long-term relationship customers forego opportunistic behaviour and may even pay premium prices to gain benefit. Initial efforts to get customers to commit should not bereplaced by taking the customer for granted. Exaggerated promises and over-persuasivecommunication are non genuine relationship-building tactics and also may be unethical.

Ethics and achieving mutual objectives

To achieve respective objectives parties engage in a long-term relationship and forsakeopportunistic behaviour. Such behaviour is typically characterised by confidence, socialand special treatment benefits.It is difficult to balance the objectives of, and sought by different marketing stakeholders.Therefore a fair balance should be struck between transparency and honesty.

The legal implications of unethical RM

Data protection particularly relates to RM. Application of RM strategies requirecontinuous utilisation of databases for collection and analysis of customer data, for


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Chapter 9Key Account Management

WHAT IS KAM?

Defn KAMThe process of building and maintaining relationships over an extended period, whichcuts across multiple levels, functions and operating units in both the selling organisationand in carefully selec ted customers (accounts) that contribute to the companys objectivesnow or in the future.

KAM is characterised by:The conscious selection of key accounts:Identify customers who will equate to strategic partners based on the strategic objectivesof the organisation.The development and maintenance of long-term relationships:The organisation must have strategies and structures in place to build and maintain a

business relationship.The establishment of cross-functional processes for servicing accounts:The organisational structure and systems must enable multifunctional processes basedaround individual accounts.

KAM activities (suppliers):1. Special pricing2. Customisation of products and services3. Development of special products or services

4. Joint coordination of workflow5. Information sharing6. Taking over the customers business processes

THE KEY ACCOUNT DEVELOPMENT CYCLE (NB)

Pre and early KAMThe scanning and attraction stages. The supplier is concerned with the identification of

potential key accounts, and gaining information by which the selection decision can bemade.

Mid-KAMTrust and commitment begin to develop between the parties, the focus shifts towards the

process. The range of value added services offered by the supplier is just as important tothe buyer as the product and the price. The number of contact points between the twoorganisations will begin to increase.


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Mature KAM / Partnership and synergisticThe boundaries between the two companies reduce as the structural and social bonds

between them strengthen. The sharing of information and joint problem-solving will becommon practice.

Uncoupling KAMRelationship disintegration may take place at any stage. Relationship breakdown is mostfrequently attributed to a breach of trust. Relationship dissolution should not be viewedas a failure, it may be in the interest of a party to end the relationship.

Implications of the key account development cycle (Nie so NB)Early and mid-KAM stages are particularly demanding for the supplier, requiringinvestment activities such as information gathering, communications and the developingof value added services in an attempt to gain confidence of the buyer. Major benefitsoccur in later stages; balance of the relationship portfolio must be maintained.

IDENTIFYING KEY ACCOUNTS

The need for selection criteriaThe cost/benefit implications of the key account development cycle make the carefulselection of key accounts critical. Companies that explicitly identify key accounts aremore sophisticated understanding their customers.

Selection criteria:

1. Relationship historyPresumes that KAM is being implemented against a background of established accountsand cannot be easily applied to new prospects. Longevity is of strategic importance to asan indicator of an account, constituting evidence of commitment and trust.

2. VolumeWhen promoting the importance of the account internally, key account managers foundthat sales turnover was well recognised throughout the business. Potential sales volumeis as important as current.

3. ProfitabilityHigh sales volume does not always lead to profitability, the total revenue of an accountmust exceed its servicing costs within a given timeframe.

4. StatusOrganisations often derive benefit from association from a reputable partner. Researchhas shown that the prestige of being associated with these organisations facilitatedwinning further customers.Companies with a good reputation are more likely to focus on long-term value creatingactivities rather than short-term cost issues.


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5. Ease of replacementBy calculating the cost of replacing an existing customer, supplier or organisation canobtain a useful quantitative measure of the relationships value.

6. Resource synergiesThe selling organisation is able to service the account more effectively if it is able toleverage any resources or competences that distinguish it from its competitors. It shouldlook for partners that will benefit particularly from its unique strengths.

7. Strategic compatibilityThe alignment of organisational goals, modus operandi, culture and relation norms. Notall organisations seem willing or able to maintain long-term relationships.

8. Criter ia f or selecting a key suppli er :1. Product quality:

The product quality and relevance of value added service will be very importantto the buying organisation.2. Ease of doing business:

Aggravation and problem-solving are significant costs to the buying organisation.3. People quality:

Purchasing officers take into account the personality and skills of key contactswithin the selling company, valuing: honesty, integrity and a spirit of understanding.

SERVICING KEY ACCOUNTS: KAM ACTIVITIES

Adding value for key accountsIdentify the means to which the relationship can be built. This can in part be addressed

by the installation of special resources that service the account, the organisation must firstidentify the activities to which such resources can be applied. special pricing: the use ofdiscounting by listing cost savings can be one of the benefits of account relationships byfocusing on means by which added value can be generated.

Quality improvementA most common buyers prerequisite. Product excellence at any one moment is lessimportant than the capacity to continuously develop product offerings in response tomarket conditions, buyer requirements and competitor activity.

CustomisationTo initiate exclusivity, customisation is a requirement of any relationship. Offer the

buyers something that competitors cannot by means of physical modification or tailoredservices.


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Conflict resolution and problem-solvingA key determinant of a buyers trust in a supplier is in accepting responsibility forresolving buyers problems. Responsiveness is of ten considered as a dimension ofservice quality. This will determine the later satisfaction over time.

Information sharingMature relationships are characterised by the free exchange of commercially sensitiveinformation. Sharing of information can stimulate relationship achievement byenhancing operations planning for the buyer and expression of trust .

Resource sharingThe pinnacle of key account relationships is the ability of the two parties to shareresources for mutual exchange. This can be a result of, and a stimulus or, very close

bonds.

Communication (NB factor)

The nature of the communication:1. Informality:Customers are concerned with efficient interaction and find informal methods lesscumbersome. Informal communication is also linked to trust.2. Bidirectionality:Communication must be two-way. Suppliers both listening and acting on feedback ofcustomers.3. Frequency:Frequent, short episodes of interaction make customers feel that they are in kept intouch .4. Strategic content:Customers respond better to communication which feels of strategic importance.

SERVICING KEY ACCOUNTS: DEVELOPING KAM INFRASTRUCTURE

Identifying the type of KAM system

Types of key account pr ogramme:1. No programme:

No formal system or infrastructure.2. Part-time programme:People with other roles take on responsibility of managing the account.3. Full-time programme:The system is operated by fully dedicated staff, but decentralised at business unit level.4. Corporate-level programme:Run centrally by dedicated staff.5. National account division:


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A Separate operating unit is dedicated to the account.Types of KA M system: (not so important )

1. Top-management KAM:The highest degree of top managers involved, usually located at the organisations

headquarters.2. Middle-management KAM:Highly formalised, less attention from senior management. The intensity of collaborativeactivities and the pro-activity of the supplier are only medium level.3. Operating-level KAM:Relatively formalised, standardised procedures and contributing significant value to keyaccounts.4. Cross-functional, dominant KAM:Access to resources is high, senior management involvement is significant. Processes andstructures are well developed. Pro-activity and insensitivity of collaboration are bothhigh.

5. Unstructured KAM:Characterised by a lack of formality and standardisation and a reactive stance tocollaborative activity.6. Isolated KAM:Activities are instigated by local sales effort but lacks support from central business units.Access to functional resources is limited.7. Country-club KAM:High degree of involvement from top management, but little else. Structures and

processes are poorly developed, and teams are hardly ever formed. Special activities areneither intense nor pro-active.8. No KAM:Awarding sales or general managers the title account coordinator or similar. No specialactivities are undertaken for their key customers.

Isolated KAM approaches perform the worst, while cross-functional, dominant KAMcompanies performed particularly well against organisation-level outcomes. Top-management KAM systems were found to be associated with the most profitablecompanies, this means greater gains from other approaches are offset by higher costs.

The role of the account manager: (Eksamenvraag)

Maintain sales and profitability Customization of the offering Facilitation of inter-level or inter-functional value-adding processes Promoting the KAM concept within the organization Promoting the interests of the account within the organization


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Checkli st on the responsibi l i ty, author i ty and resour ces all ocated to key accountmanagers:

1. Full or part-time system:Should account managers also have other responsibilities?

2. The position of the account managers in the system:Should they be integrated into the sales department or should a new organisational layer

be created? Should they be located at head office or locally?

3. Allocation of responsibility:How many accounts should each manager control?

4. Allocation of authority:What resources should the account manager control?

Skills of the Key Account MangerHigh calibre people able to diagnose/analyse complex commercial and technicalsituations;equipped to cope with highly politicized interaction and

personal tensions.

Competencies required by KAM representatives:1. Integrity2. Product service knowledge3. Understanding of the buying companys business and business environment 4. Selling/negotiating skills5. Communication skills as key competence

THE RELEVANCE OF KAM TO RM (SELF-STUDY)

A specific application of RMTheories of KAM have been developed in high value, low volume, business-to-businessmarkets.

The need for senior management supportEmpirical research provides evidence that KAM strategies will not work without theactive support of senior management.

The need for cross-functional coordinationKAM programmes work better when they are supported by teams arranged aroundcustomers rather than functional areas. Focus on structures providing a more flexible,network structure which can adapt to changing customer requirements.

rm - summary

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