Market competition before the Second World War Essay

“The existence of trust and commitment among parties is seen by some to be central to the success of relationship marketing strategies” Morgan and Hunt, 1994 p.22

Introduction

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Sharply increased market competition in the decades that followed the Second World war, as numerous companies engaged in increasing their customer base, either by attracting new users or by wooing away users from products and services provided by other business firms, led to the emergence of many new marketing ideas and concepts. Relationship Marketing, (RM), first described by Theodore Levitt in 1983, emerged as an important marketing strategy as managers realised the importance of existing customers and the need to keep them from switching over to using other products (Dupont, 1998).

Originating from the direct marketing campaigns of the 1970s and the 1980s and facilitated by the explosion in print, media, telephone and IT based communication options, RM has over the years evolved significantly as a marketing tool (Jacobs & Others, 1998). Aiming to retain customers through the creation of trust and building of commitment between customers and products, services or companies, RM theory and practice has been enriched by the contributions of academics and researchers as well as by real life case studies of companies that have engaged in such market actions (Jacob & Others, 1998). The spread of the internet and the growth of websites and online communication have enabled companies to increasingly engage with their customers and track preferences, activities, tastes, likes, dislikes, and complaints, build customer profiles, and design products and services to meet customer needs and enhance customer satisfaction (Cooper & Others, 2005).

The growth of RM has also led to many theories on the most effective way of building customer relationships, encouraging repeat purchases, retaining existing customers and enlarging their engagement with their buyers. The widely discussed and debated theory put forward by Robert Morgan and Shelby Hunt (in a 1994 publication in the Journal of Marketing) that relationship commitment and trust are essential for successful relationship marketing forms the subject of this essay.

2. Commentary

Any attempt at analysing RM needs to commence with differentiating it from the orthodox and routine transaction that has “a distinct beginning, short duration, and sharp ending by performance” (Morgan & Hunt, 1994). RM on the other hand is seen as a long drawn out, comprehensive and holistic process, which, apart from concerning dealings with firms and customers, also includes relationships and alliances like, (to illustrate), those between manufacturers and suppliers, service providers, firms and competitors, firms and employees and intra-firm departments (Jacobs & Others, 1998). It furthermore refers to a broad range of marketing actions that work towards the foundation, progression, preservation and continuance of successful relationship exchanges (Jacobs & Others, 1998).

Norman and Hunt (1994) theorised that whilst a number of factors can mediate and influence in such relationships, trust and commitment are integral, rather central, to their successful building and continuance. This is because the presence of trust and commitment will encourage and motivate marketers to constantly work towards preserving and improving relationships with their partners, resist short term benefits and opt for long term benefits available from such relationships, and take risks knowing that their partners will not renege on the relationship and take up other available opportunities in difficult periods. The authors also conducted detailed research in the area involving different relationships and concluded positively on the essentiality of trust and relational commitment for the success of relationship management.

Norman and Hunt’s theory has been debated, discussed and researched by numerous other researchers, who have in turn come up with both supportive and contradictory findings. Whilst Norman and Hunt relate their theory to various relationship situations, most marketing experts and the overwhelming majority of marketing research have focussed on marketing situations concerning relationships between customers and sellers, both in the actual physical and online scenarios. With online selling and marketing being the fastest growing marketing activity a significant amount of research in areas of loyalty and commitment has occurred in areas of web design and web interactivity. Areas of customer satisfaction, customer continuance, and customer perception and their relationship towards cementing of trust and enhancement of loyalty have also been subjects of extensive research.

Customer Satisfaction and Customer Service

Customer satisfaction is widely accepted to be the most significant criterion for shaping the quality of products or services that are deliverable to customers, both through the actual product or service, and the corresponding service.(Crosby & Others, 2003) With the intensely competitive nature of the modern customer-centric business environment ensuring the elimination of businesses that dissatisfy their clients with their products/services, customer satisfaction is vital not just for corporate growth, and profitability, but for the very survival of today’s corporations.(Beckford, 2002)

Customer satisfaction, which is greatly dependent upon the quality of the customer service provided, is recognised to be critical to business success, primarily because of its role in driving future sales from both new and existing customers. Numerous studies have corroborated the theory that it costs five times the amount of time, money, and resources to attract new customers as it does to retain existing clients.(Gurtman, 2008) Losing existing clients very clearly is among the worst things that can happen to business firms. Satisfaction strengthens affirmative feelings toward the product or service and leads to a superior probability of repurchase; dissatisfaction on the other hand leads to downbeat perceptions and reduces the probability of repeat purchases. (Oh, 2001)

“Or as others put it: …if consumers are satisfied with a product or brand, they will be more likely to continue to purchase and use it and to tell others of their favourable experience with it … if they are dissatisfied, they will be more likely to switch brands and complain to manufacturers, retailers, and other consumers about the product.” (Oh, 2001)

Achieving high levels of customer satisfaction poses challenges because of the ambiguity embedded in the concept as well as because of its abstract nature. With the actual manifestation of the level of satisfaction varying both between individuals, and between products and services, satisfaction levels depend upon a range psychological and physical variables that evidence positive correlation with behaviours indicative of satisfaction, like  repeat purchase and recommendation rate. (Oh, 2001) Such levels of satisfaction can also depend on other options available to customers and on the qualities of other products or services against which the organisation’s products or services can be compared. (Fen & Lian, 2005) Despite the very broad range of parameters involved in its assessment and determination, customer satisfaction is overly dependent upon, related to, and driven by customer service.

“Substantial empirical and theoretical evidence in the literature suggests that there is a direct link between service quality and behavioural intentions (Bitner, 1990; Bolton and Drew, 1991a). Among the various behavioural intentions, considerable emphasis has been placed on the impact of service quality in determining repeat purchase and customer loyalty (Jones and Farquhar, 2003). As pointed out by Bolton (1998), service quality influences a customer’s subsequent behaviour, intentions and preferences. When a customer chooses a provider that provides service quality that meets or exceeds his or her expectations, he or she is more likely to choose the same provider again. Besides, Cronin and Taylor (1994)” also found that service quality has a significant effect on repurchase intentions. (Fen & Lian, 2005)

In service areas like hospitality and tourism, where it takes five times the amount of money to get a new customer than to retain one customer satisfaction is closely related both to the generation of trust and loyalty. Customers trust the Ritz to give provide exceptional customer satisfaction and keep on coming back, disregarding cheaper alternatives, through good as well as bad times. A number of studies like those of Heskett et al (1994), Hallowell (1996) and Hennig-Thurau (1998) have demonstrated the connection between customer satisfaction and customer loyalty (Xu and Others, 2006).

Customer Continuation and Retention

Apart from increasing the quality of customer service for enhancing customer satisfaction, companies try to bond with customers in various other ways. Researchers have identified three specific ways in which clients bond with customers, financial, structural and social (Liang & Wang, 2008).

Financial bonding strategies involve actions taken by sellers to stimulate consumer consumption through financial incentives like price discounts, free gifts, and higher interest rates (in case of banks). Most retailers give attractive discounts to regular visitors through customer benefit cards in their efforts to build long term relationships, retain customers, and motivate them to increase their consumption (Liang & Wang, 2008). Whilst such efforts do help in improving chances of repeat visits, they do not lead to any long term loyalty or commitment because of their widespread loyalty. Customers of retail chains, for example, carry loyalty cards of a number of chains at the same time and use whichever is more convenient in terms of location, availability of items, and best prices on offer.

Social bonding works through the development of personal ties between representatives of sellers, e.g. relationship managers in banks and agents in case of insurance companies, with clients, and whilst such bonding cannot supersede price differentials, they do help in retaining customers because of the nature of personal services offered, the increase in the self esteem of the customer, and the associated convenience. Synergistic combinations of the strengths of large selling organisations with delivery of personalised service at customer doorsteps do help in leading to the growth and maturing of long term relationships, and to the build up of loyalty and commitment between the two parties, especially in the case of services, like those of banks, insurance companies, hospitality enterprises, large software and website developers.

Structural bonding strategies work through the institutionalisation of relationships through agreements, rules, codes of conduct and similar other constructs that bind two parties together for periods of time and ensure continuity of relationships (Liang & Wang, 2008). Whilst such relationships do not per se generate trust or affective commitment, they do help in increased familiarity between two parties, the compulsion to stay and work together, and in fostering bonding, which over time can lead to the development of trust and commitment.

It needs to be pointed out at this stage that whilst companies usually make multi-pronged efforts to develop long term and beneficial relationships, the mere continuance of relationships does not by itself indicate the existence of trust and commitment and could be due to the TINA (There is no alternative)  factor. Organisations, partners, buyers and sellers could be forced to stay with each other and tolerate difficulties and inconveniences merely because of the lack of an alternative or the existence of an informal monopoly, be it because of location, convenience or dearth of other organisations with which similar transactions could take place.

Trust and Commitment

The role of trust has been taken up for analysis and research by a number of experts, the overwhelming consensus of study indicating it to be one of the main elements of building and developing relationships, especially during their initial stages and associated with more intense levels of buyer-seller communication. Gwinner et al (1998) demonstrated the existence of a positive relationship between trust and privileged treatment, stating that consumers related to special benefits that arose from their relationships with sellers. Many channel studies, for example those of Ganesan (1994), Geyskens (1998), and Scheer and Stern (1992) have also claimed “that favourable financial outcomes reflect the partner’s concern for the welfare of the channel member, and therefore increase the channel member’s trust in the partner”, which in turn leads to the assumption of a positive relationship between material rewards and trust (Fullerton, 2005).

Several researchers, starting with Norman and Hunt (1994) have researched the importance of commitment in building successful long term relationships. In this case it is important to bring forth, at this stage, the relationship between trust and commitment. Many researchers have commented on the positive impact of trust in building relationship commitment because leads to reduction of perception of risk, increase in the confidence of the buyer of the probability of short term inconveniences and inequities being resolved over a longer period, and reduction in the transactions costs of exchange relationships; factors that in normal circumstances should lad to continuation of relationships.

Commitment is also consensually agreed by various researchers to be (a) along with trust, the main variable that makes relationship marketing successful, (b) instrumental in increasing the propensity of consumers who are committed to a relationship to act because of their need to remain consistent with their commitment, (c) associated with stable relationships and (d) dependent upon the buyers’ perceptions of the level of efforts put in by the seller (Fullerton, 2005).

3. Conclusion

An enormous amount of research has taken place on the concepts of trust and commitment and their role in building successful relationships since the pioneering theories propounded by Norman and Hunt in 1994. Many of these research efforts have entailed detailed statistical work and the use of correlations and regression analyses to draw relationships between acts of commerce and affective emotions and none of them can be said to be more than exploratory and somewhat inconclusive efforts. Whilst there appears to be reasonable unison on the need for trust and commitment in building long term relationships, it would be impossible to comment on the fate of such constructs if they are not cemented through contracts, agreements and other forms of institutionalisation.

It is also difficult to make sweeping generalisations about issues that concern the complexities of human minds, the only statement that could be made with any certainty being the probable continuation of seller buyer relationships as long they were mutually more beneficial than other such relationships. With even such a statement having in it a very big “if”, it would be safe to conclude that whilst loyalty and trust could possibly lead to strong relationships in the domain of marketing, much further work still needs to be done on the topic before any conclusion can be drawn with reasonable accuracy. As of now it remains a Utopian concept.

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