Relationship Marketing: Does Trust Always Lead to Loyalty? Report (Assessment)

Introduction

In Relationship Marketing, Trust is one of the Antecedents that Will Lead to Customer Loyalty.

In the 21^st century it became clear to many titans of business, their managers as well as their consultants that the old way of doing things are already obsolete. In a highly networked society that knows how to use the Internet and various types of mobile telecommunication devices, people are interconnected in a scope never before seen in history. This has tremendous implications on businesses particularly when it comes to competitors. Thus, a new model of marketing emerged – relationship marketing – that puts a premium on loyalty. In this regard it was discovered that one of the most important antecedents in ensuring consumer loyalty is trust.

Rationale

Some of the buzzwords that are being reiterated in business circles as well as business schools are words and phrases like globalization, outsourcing, and reverse engineering. With regards to the first one, globalization requires no further explanation. It is simply the reality that the Internet and highly sophisticated transport systems allowed men and women all over the world to communicate and do business in a scale never before seen or heard in the history of mankind. Outsourcing is also an oft-repeated term in the corporate world. It is the practice of hiring people abroad to do some of the work previously done by local employees. The cheaper cost of living in Third World Countries enables workers there to compete with laborers in richer countries who will demand a more expensive compensation package.

This blurring of the line that used to separate Third World and First Word countries enable manufacturers and other business entities to produce goods and offer services that are less expensive than before. This allows for expansion and the flooding of the market with cheap yet quality goods. Reverse engineering on the other hand adds another aspect to globalization and outsourcing because not only is it possible to establish a more cost-efficient operation it is also now possible for new players to compete in industries used to be controlled by European and American conglomerates.

This is evident when one examines the history of auto manufacturing. This industry was the domain of European car manufacturers. Then it shifted to America in the early part of the 20^th century. But all of a sudden Japan was able to take a huge chunk of the pie and in the past few years China also joined the fray. It would have been impossible to do this before but the rapid exchange of ideas and the ability to access information has now levelled the playing field so to speak. If Japan can make cars as good as those produced in America and Europe then prices will go down. Competition will ensure that manufacturers will try to improve their products so that money spent on these items is money well spent. The competition will also force business firms to create products and services of high value this will in turn make it difficult for customers to choose which one to buy or patronize. In this regard relationship marketing promises to provide a competitive advantage to those who will take the time to study and assimilate such practices into their daily operations.

Traditional Marketing

The old way of doing marketing can be encapsulated in the following statements, “Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange and satisfy individual and organisational goals” (Hougaard & Bjerre, 2004). As one can see this perspective places emphasis on what the company wants. In the new paradigm management is eager to know what the customers needs and complaints.

Traditional marketing is also seen as a one way street where customers are unable to provide feedback and thus impact future plans of the company. In the past, business firms are confident to take the lead because, “The marketing mix in terms of product, price, place and promotion is what is going to conquer the consumer and create market dominance. The consumer’s only possible response … to buy or not to buy” (Hougaard & Bjerre, 2004). But in a highly interconnected world this will be detrimental to the future of the company because just as easily as selling the product the customer can also switch to other providers or suppliers.

It is not easy to blame the companies who practice the above-mentioned marketing strategies. For one, they need to streamline their operations. To diverge from the established path means risk and it is also very much possible to make costly mistakes. It is better to stick to a simple plan which is to produce a product at a cost much lower than the competition while at the same time make a hefty profit. Aside from the need for cost-efficiency, there is also the problem of managing operations. The above-mentioned 4 P’s: product; price; place; and promotion is very easy to track, record and at the end of the year easy to find out if the company made money or not.

Aside from the two reasons mentioned, another incentive not to change old practices is the fact that everyone is doing it. John Kegan expressed his insight through the following statements:

Despite obvious problems, little was changing in marketing education. Marketing theory remained mired in futile search for laws, regularities and predictability. The marketing mix was (is) still the dominant marketing model, although it was seen as offering a too seductive sense of simplicity … The toolbox approach of science-oriented marketing was criticised as a neglect of process in favour of structure… (Hougaard & Bjerre, 2004).

Relationship Marketing

A new model has emerged and it is simply called relationship marketing (RM). But before going any further it is important to first define what it means to create and nurture a relationship between supplier and customer. A more technical definition was provided by a marketing guru and it states, “A relationship is composed of a series of episodes between dyadic parties over time” (Buttle, 2004). The key concepts are expressed in the terms episode and time this means that relationship marketing is not a one time event but it is time-bound meaning there is a beginning and an end (Buttle, 2004). Each episode is composed of a series of interactions such as: a) making a purchase; b) enquiring about a product; c) putting together a quotation; d) making a sales call; e) dealing with a complaint; and even g) playing a round of golf with a client (Buttle, 2004). These things are not new, even without the existence of the so-called “relationship marketing” businesses had been performing the aforementioned activities.

The only difference now is that end goal of these activities are not simply to sell but to establish a relationship that will hopefully last for a very long time. In order to have a much clearer understanding about the intricacies of RM the following examples are provided:

• The Walt Disney Company sold electronic products that will allow customers to interact with them. An example of which is a whole new product line that allow kids to create their own figures and scripts (Hougaard & Bjerre, 2004).
• In Stockholm, Sweden there is a popular Inn called Ulla Winbladh and the owner is known to be always present and even has an apartment above the restaurant. The owner keeps a close watch on guests and employees and “….senses the atmosphere, making sure that everything runs smoothly. He knows many of the guests and makes them personally welcome” (Gummesson, 2002).
• The Lego Company launched the Lego Mindstorm. This is an online game where kids from all over the world can play together in Cyberspace (Hougaard & Bjerre, 2004).

Relationship marketing can be as simple as calling a customer and can be as complex as creating a system where clients can communicate with the company in order to express their satisfaction with the product or to set up a feedback mechanism that will inform management of their preferences.

Trust Leading to Loyalty

According to Gummesson (2002), the concept of RM spread like wildfire as early as the 1990s. This means that the secret is out of the bag and that many firms are looking into the viability of using such model. This is apparent from the examples of how firms applied principle of RM such as Amazon, Ericsson etc. Thus, firms who are thinking of using the new model are back to square one if their competitors are also utilising RM. One example of a highly competitive field is the airline industry. When American Airlines launched the first ever frequent-flyer program, it only took a few weeks before other carriers began to follow suit (Dowling & Uncles, 1997). Thus, for those who wanted to break-away from the pack, RM must be brought up to the next level.

There proponent of this study would like to propose that trust in the company and a high degree of confidence regarding the sincerity of the supplier or vendor will ensure customer loyalty. But before going further it is important to take a closer look at what it means to trust a company and its link to customer loyalty. The following will also show the necessary steps needed to encourage customers not to switch from one supplier to another.

There are many ways to having a loyal customer base. One can have loyal customers by providing competitive prices. The same can be had if the quality of the product is without equal. Moreover, loyal customers will also come in droves if the after-sales service is excellent. But it can also be argued that one of the most important aspects of relationship marketing that firms should focus on is trust. This means that if the customer trusts the product and the organisation behind the product then there is no reason why switch to another.

According to Buttle (2004) trust is generally understood as having the sense of confidence and security with regards to a product or service but he also adds that trust is focused and not simply a feeling. The following is a breakdown of areas where business firms must focus on:

• benevolence – a belief that one party will act in the interest of the other;
• honesty – a belief that the other party will be credible;
• competence – a belief that the other party has necessary expertise (Buttle, 2004).

These areas can be easily studied and management can easily include it in their annual meetings but creating trust is easier said than done. It is a lengthy process that requires complete understanding and commitment, in fact the development of trust, “…is an investment in relationship building which has a long-term payoff … Trust emerges as parties share experiences and interpret and assess each other’s motives” (Buttle, 2004). Still, the company can take decisive steps to earn the trust and loyalty of their customers. The following are some suggestions (Gamble et al., 2006):

1. Provide information and make the company accessible by internet, e-mail, DITV and text messaging. Provide details as to how the customer can access more information regarding the product.
2. Provide different methods of paying.
3. Obtain information about customer needs and problems and then act promptly. This means making sure that complaints are channelled to someone who can respond rapidly.
4. The customers need to be reassured about technical quality and service standards.
5. Reward loyalty and this does not always mean giving back money there are many ways for customer to feel that the company is well-aware of their value to the organisation.

As mentioned above earning the trust of customers is a long process requiring commitment and investment on the part of the company. This is partially attributed to the fact that relationships are never static and always dynamic. Experts pointed out that a relationship will evolve based on the following phases:

• Awareness
• Exploration
• Expansion
• Commitment
• Dissolution

An overview of the general phases of the evolution of business relationships one can easily see that the goal is to move from awareness to commitment and then delay the final stage for as long as possible. Awareness is the first and crucial step because without the initial transaction it would be impossible to move to the next stage and reach the highest level which is commitment.

Then the relationship moves to the exploration stage which is another critical phase because the customer is now making decisions to whether increase the level of commitment or reduce it. In this phase there are five subprocesses: attraction, communication, bargaining and development of expectations (Buttle, 2004). It is after this point when the customer jumps to the expansion stage and his or her involvement with the company increases.

When the relationship has already deepened and that the customer is already at ease with the company the customer moves to the commitment. A crucial factor in this stage is trust. A breach of trust will lead to the dissolution of the relationship and the company is left holding an empty bag. It is therefore imperative to prevent the loss of trust. Once this occurs there may never be another chance to revisit the various stages of development because by this time the customer may already have a negative assessment of the company and may feel that it is no longer worth it to make another try.

Based on the preceding discussion it there is no longer any doubt when it comes to the importance of using RM as a new model for marketers. But aside from that it was also made clear that one of RM’s main goals is to increase the number of loyal customers. In this regard it was pointed out that the best way to achieve this is by earning the trust of the customers. There are numerous studies that can be cited to support this conclusion.

A Necessary Antecedent

In various studies made all over the world, researchers from Brazil to Hong Kong are in agreement that the customer’s trust or confidence with regards to a particular business enterprise, provider, vendor or supplier will increase customer loyalty. In a study made in Brazil the researchers found out that trust reduces uncertainty and anxiety and therefore has a positive link to customer loyalty (Filho, Gustavo & Elias). In this study the researchers were very cautious in saying that trust is the antecedent to customer loyalty. They would rather say that trust has an indirect impact on customer loyalty.

In contrast, in a study made on the small Hong Kong corporate sector, the researchers were able determine with certainty that confidence or trust is linked to commitment. In this study communication and customer-centred strategies are the main reasons why customers trust their banks. This then led to the conclusion that, “Customer commitment is the direct outcome of trust” (Adamson, Chan, & Handford, 2003). Trust can only be earned if the customer is satisfied that banks are in for the long haul.

In another study, researchers did not only believe that trust is the antecedent to customer loyalty, they even went further by saying that without trust there will be no initial transaction. Aside from that without trust the customer will disengage and not participate in providing feedback and will not support the company if it decides to expand or open a new product line (Jain & Dhar, 2002). This shows the great importance of trust as it is not only linked to loyalty but to the overall perception of the customer and his or her willingness to engage in a long-term relationship with the supplier.

Trust is indeed the antecedent for customer loyalty. But even if it has been shown that earning the trust of customers will lead to loyalty there is still so much uncertainty in a highly competitive world. It does not require a marketing expert to realise that even a satisfied customer does not guarantee a repeat order. In today’s world the customers are bombarded with choices. They can easily switch from one brand to another. Pricing can easily influence the behaviour of the buyer as well as convenience.

Therefore, a company should try its best to follow the suggestions made earlier in order to earn the trust of their customers. This is because trust is a major antecedent to customer loyalty. Still, marketing consultants must be aware that even if the customer trusts the company there is little assurance that he or she will not buy the competitors’ brand if prompted with a cheaper price.

Conclusion

Relationship marketing schemes come in various shapes and sizes. Every year business firms and conglomerates are always pushing the envelope when it comes to creating strategies that entice their customers to keep patronizing their respective products and services. Relationship marketing is a radical departure from traditional marketing techniques used in the past century. In the old days the focus is on the product and how it can be positioned in the market so that customers would want to buy it. Today, the fundamentals of marketing are not entirely discarded but due to increasing competition businesses are finding more creative ways to keep their clientele happy.

The motivation of business leaders to practice relationship marketing is easy to understand. A loyal customer means repeat orders or the continuous and loyal patronage of a particular service. A steady stream of customers means a steady stream of profits. Thus, it is imperative to keep the customer happy with what he or she is paying for. In a highly competitive economy, the customers are having a hard time separating one product from another. This can either mean that copycats are a dime a dozen or it could also mean that technology and knowledge is already available globally that it is hard for companies to hide trade secrets for long. Reverse engineering is one of the methods used by competitors to copy a feature of a highly successful product, mass produce it and sell at a lower price.

On the other hand technology and trade secrets does not matter in markets where competitors are enjoying a fair share of the market. For instance there used to be a time when IBM dominated the computer industry. It meant cornering a huge chunk of the market. But today the same thing is no longer applicable to the computer industry. The availability of cost-efficient laptops and desktop computers are very much evident even if one is not a computer whiz. This in turn will allow computer buyers to use IBM this year and maybe Dell computers next year. Therefore, in order for a company to break away from the pack it has to ensure that customers remain loyal and continue patronize their products. This is the time a new method of selling came into vogue – relationship marketing.

Relationship marketing spread like wildfire in a world hungry for new tricks. It was widely accepted in countries that are in desperate need for the new business fad to come along in order to increase sales. In their eagerness to try out something new, there was a time when RM was misunderstood as another way to enhance the impact of traditional marketing schemes. But a closer examination of RM principle will reveal that it is customer centred and very much unlike traditional marketing strategies where the company takes centre stage. In the new paradigm the customer is the most important factor in the overall marketing strategy.

In the decade of the 90s RM became very popular indeed and when it was adopted by business firms the competition began to heat up and customers who are not used to being courted left and right by marketers are suddenly overwhelmed by the sudden increase in the attention given them by suppliers and vendors. Due to the intense competition and one company copying the strategies of another there is now a need to ensure customer loyalty.

In the mad scramble to increase the number of loyal customers it was determined that trust is one of the major antecedents before customer loyalty can become reality. Trust is the feeling that the company truly cares for the welfare of the customer and that they are not only there to finalise the sale and afterwards disappear without providing information about the product and without ensuring that after-sales services are available for the customer.

The importance of trust in creating a loyal customer base has been reported in different studies made in different parts of the world. This is the testament to the universality of the fact that if customer trust a particular brand, service provider, supplier or vendor then they will not be forced to switch to the competition. But earning their trust is easier said than done. What complicates the problem is the fact that even if the customer is satisfied with the service or the product there is still no guarantee that the customer will continue using the same product for a very long time. Therefore, trust is just one of the antecedents of customer loyalty. It could not be considered as the main factor or the only factor that will influence the customer to remain loyal. On the other hand it could be argued that there is no loyal customer who did not feel confident that the company is trustworthy.

Even if there is no assurance that customer loyalty can be achieved after earning the trust of the customers it is still imperative for any organisation to work extremely hard to increase the customer’s confidence in their product and services. As mentioned earlier trust is not only the antecedent for customer loyalty, trust encourages the customer to explore and expand its knowledge regarding the company and this will in turn encourage the customer to consider making a long-term commitment to the company.

References

Adamson, I., K. Chan, & D. Handford. (2003). Relationship marketing: customer commitment and trust as strategy for the smaller Hong Kong corporate banking sector. International Journal of Bank Marketing. 21(6), 347-358.

Buttle, F. (2004). Customer Relationship Management. Oxford: Butterworth-Heinemann.

Byrom, J. (2001). The role of loyalty card data within local marketing initiatives. International Journal of Retail and Distribution Management. 29(7), 333-341.

Dowling, G. & M. Uncles. (1997). Do Customer Loyalty Programs Work? Sloan Management Review. 71-80.

Filho, Cid, S. Gustavo & C. Elias. Antecedents of Customer Loyalty in Retail Trade: Empirical Study in Brazil.

Gamble, P. et al. (2006). Up Close and Personal. UK: Kogan Page.

Gummesson, E. (2002). Total Relationship Marketing. 2^nd ed. Oxford: Butterworth-Heinemann.

Hougaard, S. & M. Bjerre. (2004). Strategic Relationship Marketing. New York: Springer-Verlag.

Jain, R., & U. Dhar. (2002). Measuring customer relationship management. Journal of Services Research. 2(2), 99-107.

McIlroy, A. & S. Barnett. (2000). Building customer relationships: do discount card work? Managing Service Quality. 10(6), 347-355.