Role of Relationship Marketing in Competitive Marketing Strategy

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Journal of Management and Marketing Research
Role of Relationship Marketing in Competitive Marketing Strategy

Nagasimha Kanagal
Indian Institute of Management, Bangalore


Competitive Marketing Strategy (CMS) has relationship marketing (RM) as one of the
key functionality in enhancing business performance. RM is defined as the identification,
establishment, maintenance, enhancement, modification and termination of relationships with
customers to create value for customers and profit for organization by a series of relational
exchanges that have both a history and a future. Relational exchanges can be viewed under
transaction cost analysis and social exchange theories depending on the context. The role of RM
in CMS includes: guide moments of truth, improve profitability, build partnering, address
‘Customer Better’, buy in of customer attention, protect emotional well being, understand
consumer psyche, build trust with customer. All these roles are observed empirically in the hotel
industry, with some hotels placing emphasis on their extraordinary operations and services to
engage with the customer.

Key words:
relational exchanges, emotional well being, trust, profitability, partnering

Journal of Management and Marketing Research



The purpose of competitive strategy is to achieve a sustainable competitive advantage
(SCA) and thereby enhance a business performance (Bharadwaj, 1993). One of the major
objectives of marketing strategy is to enhance the long-term financial performance of a firm. As
such competitive marketing strategy serves to improve financial performance of the firm through
the route of sustainable competitive advantages. There are four essential requirements for a
resource/ skill to be a source of SCA (Barney, 1991). It must be valuable; it must be rare among
competitors; it must be imperfectly imitable; there must not be any strategically equivalent
substitutes for this resource skill. Sources of SCA leads to positional competitive advantage
(differentiation and low cost). Sustainability of positional advantages leads to superior long-term
market and financial performance. Formulating competitive marketing strategies also involves,
recognizing relationships between elements of the marketing mix as well as assessing the impact
of competitive and market conditions on marketing mix formulation. A model (Carpenter, 1987)
has been outlined of the relationship between product quality levels, promotion expenditures and
prices and assesses the impact of industry structure on the formulation of marketing mix.
Relationship marketing serves as a moderator for the sustenance of positional advantages and
influences the impact of competitive and market conditions on the formulation of the marketing
Competitive advantage is realized based on three factors (Sudarshan D, 1995): (1) the
firm’s marketing strategy, (2) implementation of this strategy and (3) the industry context
(Porter’s model). An important component of firm’s marketing strategy is relationships.
Relationships with customers, channel members and with competitors. He defines each
relationship by the identity of the partner public and the contract with it.

Importance and Objective of the study:

There are two important streams of conceptual and empirical work in strategic marketing
that have developed more or less independently during the past 10 years (Steinman, Deshpande
and Farley, 2000), although the two are inherently interrelated. One stream is market orientation
which focuses on the extent to which a customer focus binds suppliers and customers together.
The second stream is relationship marketing, which principally focuses on efforts of sellers, but
also of buyers to some extent, to move from single transaction consummation to investment in
longer term streams of mutually profitable partnership behaviors ( Anderson and Weitz, 1989;
Dwyer, Schurr and Oh, 1987; Morgan and Hunt, 1994; Weitz and Jap, 1995). In this context, the
following objectives are laid for studying the role of relationship marketing in competitive
marketing strategy:
Competitive marketing strategies (CMS) is a systematic action setting process as much as
it is a dynamic adjustment process. By studying role of relationship marketing (RM),
proper accordance can be given to RM in the systematic action setting. This helps
improve the effectiveness of CMS formulation.
By studying role of RM, marketing programs can be suitably designed to attract, develop
customer segments. Resource allocations can be made more effective.
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If a particular market needs more relational marketing, then that market can be
appropriately addressed for strategic decision making by studying role of RM.
The study is useful to marketing strategists who need to take relationship-marketing efforts into
account and is also useful to relationship marketers who need to relate to strategic marketing
In the study, first we examine the nature of relationship marketing. Second we lay out the
framework of competitive marketing strategy and delineate the position of relationships. Third
we conceptualize the role of relationship marketing to competitive marketing strategy. Fourth we
empirically test the role of relationship marketing.


At the core of relationship marketing is exchange, that is profitable to parties involved in
the exchange. The concept of exchanges as it applies to relationship marketing can be viewed at
from either a transaction cost analysis approach or a social exchange theory approach.
Transactions are distinguished into discrete transactions and relational transactions.
Relational contract law governs relational transactions. In classical contract law that governs
discrete transactions identity of parties is not relevant; however this is not true in relationship
marketing. In relational contracting the reference point shifts from the agreement (as in classical
contract law), to the relation itself as it has developed over time. There might be or might not be
an original agreement and if there is, there may not be any great deference to it. In a relational
transaction, the contractual gaps between parties are reduced, as the relation becomes stronger
and stronger. The frequency with which transactions recur influence the terms of the transaction
(discounts as in frequent flyer). The degree to which durable transaction specific investments are
incurred determine the rapidity of commitment given and received, the time period of
commitment and the intensity of the relation between two parties. Transaction specific
investments (asset specificity in physical capital and human capital) leads to relational exchanges
where trust is a prime moderator. As such non-specific exchanges leads to transaction marketing
and for exchanges that are not non-specific the concept of Relationship marketing will hold
(Williamson, 1979). The Williamsonian approach to understand relational contracting has been
augmented (Anderson and Weitz, 1992), by postulating that whenever idiosyncratic investments
are made by the exchanging parties in one another then there is a stronger commitment to the
relationship. In a relationship the set of understandings that has grown up over time (the implicit
contract) is more influential. Exclusivity to the other party is also seen as a signal of
commitment. Further the relationship dyad has been examined from perspective of a strong
buyer facing a large number of small suppliers ( Heide and John, 1992) . It has been shown that
relational norms do play a role in serving as a governance mechanism to safeguard against
opportunistic behavior in the presence of transaction specific assets. It has also been shown that
in case of a relationship dyad between a strong supplier and a large number of small buyers
relational norms do not play a significant role (Berthon, Pierre et. Al, 2003).
George Homans (George Homans, 1961) first proposed social exchange theory. He said
that exchanges of goods and services take place between two parties who are rational entities
acting in their own self-interest and who will perform social action based on rewards and costs.
The exchange of goods and services take place not only for money but also for non-monetary
benefits such as love, esteem, affection and approval. Such exchanges are social exchanges.
Social exchanges almost always involve an element of power, allowing one party to do activities
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the way it wants to do. Social exchanges involves interaction; interaction occurs when an activity
emitted by one man is rewarded (or punished) by an activity emitted by another man. Social
exchanges respect sentiment; sentiments are signs of the attitudes and feelings a party takes
towards another party. This social exchange theory (George Homans, 1961) draws on the
disciplines of behavioral psychology and elementary economics in proposing the principles of
social exchange. Behavioral psychology decides on current actions based on past history of
behavior / actions. Elementary economics decides on current action based on future stream of
profits. It is difficult to balance these two directions. Further elementary economics assume
perfect markets. Relationship marketing situations are far from perfect. Also relationships are
built on future promises as much as on past behavior. In studying relationship marketing, both
the transaction cost analysis and social exchange theory concepts can be used to explain and
conceptualize relationship-marketing paradigms.
Relationship marketing refers to a wide range of ‘relationship type strategies’ that have
developed over the past few decades in product as well as service markets and in consumer as
well as business to business sectors. The antecedents of RM go to Industrial marketing and
Services marketing. RM found ready acceptance in a marketing world where it had become
obvious that strategic competitive advantage could no longer be delivered on the basis of product
characteristics alone and where corporate profitability was beginning to become associated with
satisfying existing customers (John Egan, 2001). Relationship marketing as contrasted to
transaction marketing involves relational exchanges that trace to previous agreements. There are
four types of buyer-seller relationships – bilateral relationships, seller-maintained relationships,
buyer-maintained relationships, discrete exchanges (Dwyer, Schurr and Oh 1987). For a firm
relational exchanges could occur with goods suppliers, services suppliers, business units,
employees, functional departments, intermediate customers, ultimate customers, competitors,
nonprofit organizations, government (Hunt and Morgan 1994). Though conceptualizing
relationship marketing accommodates all types of above mentioned relational exchanges, an
adequate definition of relationship marketing for the purpose of this paper will relate to
exchanges with intermediate customers and ultimate customers. For example, it is also stated that
(Berry, 1983) ‘Relationship marketing is attracting, maintaining and – in multi service
organizations – enhancing customer relationships’.
In industrial marketing, relationship marketing is referred to as marketing oriented
towards strong, lasting relationships with individual accounts (Jackson, 1985). From a sales
management perspective, the term relationship marketing is applied to a number of different
marketing activities ranging from consumer frequency marketing programs to selling activities
directed towards building partnerships with key business – to – business customers (Weitz and
Bradford, 1999). In developing long term relationships with channel members, it is stated
(Anderson and Weitz, 1989) that such relationships combine the advantages of vertically
integrated distributed systems (control and coordination), with the advantages of systems
utilizing independent channel members (flexibility, scale economies, efficiency and low
overhead). They also state that channel relationships are dependent on (1) continuity of
relationship (2) trust and (3) communications.
Many global packaged goods manufacturers regard resellers (wholesalers, retailers) as
their customers. The literature cites the case of Proctor and Gamble who regard retailers as their
customers and Intel which has built its business around OEM customers (Webster Jr., 2000).
Consequently developing relationships with resellers is also an important part of RM effort in
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marketing strategy process. The relationship between manufacturer, reseller and consumer as
shown below is a three-way relationship.


Resellers Consumers

Figure 1

In such a context, the manufacturer and reseller are in a partnership relationship that
includes competition and conflict (Webster Jr., 2000). Both manufacturer and reseller deliver
value to consumer. In this three-way relation, the quality of relationship for any single player
depends on the quality and strength of relationship between the other two.
Other authors have noted multiple uses of the term RM (Brodie et. Al, 1997). They
suggested RM be applied at four levels. At the first level, RM is a technology-based tool of
database marketing. At a second level, RM focuses on relationships between businesses and its
customers with an emphasis of customer retention. At a third level, RM is a form of ‘customer
partnering’ with buyers cooperatively involved in the design of the product or service offering.
At a fourth and broadest level, RM was seen as incorporating everything from databases to
personalized services, loyalty programs, brand loyalty, internal marketing, personal/social
relationships and strategic alliances.
A number of terms have been used as substitutes for relationship marketing or to describe
similar concepts (Buttle, 1996). These include direct marketing, database marketing, customer
relationship management, data driven marketing, micromarketing, one-to-one marketing, loyalty
based marketing, segment of one marketing, customer partnering, dialogue marketing and
interactive marketing. All this suggests that RM is also an umbrella philosophy for relational
approaches in marketing. To succeed in RM, a company must have both a flow of new customers
and there must be a restriction on customers exiting (Leaky Bucket Theory). Though RM has a
dual focus on both acquisition and retention strategies, it is retention strategies that are given
more prominence. It has been proposed that dual benefits of customer retention (Buttle, 1996)
are: (a) existing customers are less expensive to retain than to recruit, (b) securing a customer’s
loyalty over time produces superior profits. Acquisition costs include (1) personal selling (2)
commission payments (3) direct costs and indirect costs of detailed information gathering (4)
supply of equipment (5) advertising and other communications expenditure.
Different models are suggested in literature for different relational stages in RM. One
model (Dwyer, 1987) suggests that the stages are – Awareness, Exploration, Expansion,
Commitment. A second model (Payne, 1995) suggests that the stages are – Prospects,
Customers, Clients, Advocates, Members, Partners. A third model (Kotler, 1997) suggests that
the stages are – Suspects, Prospects, First time customers, Repeat customers, Clients, Advocates,
Members, Partners.
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There must be two characteristics present for an exchange situation to be described as a
relationship (Barnes and Howlett, 1998). These are: (1) the relationship is mutually perceived to
exist and is acknowledged as such by both parties, (2) the relationship goes beyond occasional
contact and is recognized as having some special status. Inclusion of ‘status recognition in a
relationship’ puts a doubt whether a relationship could be developed with for example a local
supermarket. The existence of special status is less obvious in consumer markets.
Three characteristics are important for customers to desire continuity with the same
provider. These are variability, complexity, involvement (Berry, 1995). The author says that
relationship marketing occurs at three levels. Level one relationship marketing relies primarily
on pricing incentives to secure customers’ loyalty. However the sustainability of competitive
advantage is minimal on this level one, as pricing moves can be matched quickly. Level two
relationship marketing relies primarily on social bonds, though pricing is still a vital element.
This involves personalization and customization of the relationship. Level three relationship
marketing relies on structural solutions to customer problems, such as Federal Express providing
computer terminals in offices of high volume customers.
From the above discussion, for the purpose of this paper, RM is defined as the
identification, establishment, maintenance, enhancement, modification and termination of
relationships with customers / consumers to create value for customers and profit for
organization by a series of ongoing exchanges that have both a history and a future. Such
exchanges are called relational exchanges.


We first outline a format of marketing strategy and then delineate the position of
relationships in the framework of competitive marketing strategy.

Format of Competitive Marketing Strategy

Any marketing strategy has to have a marketing objective. Based on the marketing
objective, flows two types of analysis – strategic market analysis and internal analysis. Strategic
market analysis involves customer management and analysis, market management and analysis,
environmental scanning and future building or scenario planning. Management of relationships
with customers and important external bodies in the market such as dealers, suppliers and the
government is an important part of marketing strategy formulation and management. Internal
analysis includes strengths, weaknesses, core competencies, resource constraint analysis.
Based on the marketing objective, strategic market analysis, internal analysis (and past
performance records and present strategy), the marketing strategy for a particular decision
problem / situation is developed. This includes the decisions on the 4Ps (Product, Price,
Promotion, Place). During the process of marketing strategy development, an analysis of
competition and other analytical inputs of the market are used. The marketing strategy developed
is so implemented and any deviations from the plan are feedback to the marketing objectives and
the development of marketing strategies. Pictorially this format of marketing strategy is as

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Marketing Objective

Strategic Market Analysis

Internal Analysis

Past Performance, Present Strategy

Marketing Strategy Development


Marketing Strategy Implementation


Figure 2

Framework for Marketing Strategy

3.2.1 Marketing Objective

For firms to have a formulation of marketing strategy, they should have a marketing
objective. Objectives include maximization of profit, maximization of market share,
maximization of sales, enhance brand image, improve customer satisfaction, provide customer
value, and maintain price stability.

3.2.2 Focus

It is recommended for a marketing strategy to have customer orientation and competitor
focus. It is also sometimes called market orientation
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3.2.3 Domain

The domain of decision making for marketing strategy includes the following:
market selection, (2) positioning / differentiation, (3) market entry / exit / timing, (4) product,
price, place, promotion, (5) functional offering of the product. Market selection involves
deciding which customer segments the firm will serve, which functions of those customer
segments will be supported, the technologies that will be used to provide or support the
functions. Positioning is the central theme of a brand / product around which the marketing mix
elements of product, price, place, promotion are selected. Market entry / exit decisions can be
based on market attractiveness, competitive position or advantages and extent of risk involved in
the market.

3.2.4 Prerequisites

Three prerequisites are recommended to the formulation of marketing strategy. The first
is there should be an organizational opportunity for the product or service under consideration.
This entails existence of market size, reasonable strength of buyer need, manageable risk of
market and the ability of the firm to meet the key success factors of the market. The second is
that the marketing strategy should be dovetailed with the vision and values of the organization. A
high quality firm may find it difficult to introduce low quality, low cost products. The third
prerequisite is that contingency should be built for the marketing strategy formulated.

3.2.5 Functionality

The different functions that marketing strategy has to perform include (a) strategic
decision making (b) dynamic adjustments to competition and market (c) resource allocation in
marketing (d) action setting (e) relationships with key publics. It is this last function that stresses
the importance of the role of relationship marketing in competitive marketing strategy. It has
been postulated that marketing strategy is a product of marketing relationships, marketing
offerings, marketing timing, resources allocation (Sudarshan D, 1995). He states that
relationships for a key component of marketing strategy. Each relationship is defined by the
identity of partner public (customers, channels) and the contract with it (nature of the

3.2.6. Transaction facilitators

Exchange is key to marketing. Transaction is important to the implementation of
marketing strategy. Information, servicing and financing can be considered to be the important
transaction facilitators.

The above summarizes a framework for marketing strategy.



RM to guide ‘Moments of Truth’
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In service industries, there is always some form of direct (social) contact between the
customer and the service firm. This direct (social) contact or ‘service encounter’ is so important a
part of service delivery that it is frequently called ‘the moment of truth’ (Johns, 1999).

Strategic Marketing in service industries is influenced significantly by ‘Moments of
Truth’. By adapting to a RM approach, the organization can virtually turn the ‘Moments of
Truth’ in its favor, as the customers are continually attended to in a Relationship.

RM to improve profitability

The return on relationship model (Gummesson, 1999) suggests that good relationships
leads to good quality and good customer satisfaction. Good quality arises as internal
relationships / employee relationships are fostered. Good customer satisfaction arises as specific
customer needs and wants are understood better and served better. Good quality and customer
satisfaction leads to customer retention and consequent improved profitability.

Good Internal

Good External

Retention Quality






Figure 3:
Return on Relationship Model (Gummesson, 1999)

One of the major objectives of competitive marketing strategy is to improve the long-
term financial performance. Relationship marketing by working towards improving profitability
based on exploiting its relationships serves this financial performance objective of marketing
strategy. In fact, RM pays off handsomely when products or services have high switching costs
e.g. office automation system. RM is profitable when customers are willing to stay with suppliers
for a long period of time. Transaction marketing on other hand pays when there are low
switching costs.

RM builds partnering

RM fosters external partnerships that cater to the mega-marketing needs of a business.
RM fosters external partnerships through networks (individual relations); collaborations
(organizational relations) including alliances. These sets of external relations bring together
market elements synergistically. The management of the set of external decisions to the firm-
customer relationship is called as mega-marketing or market externalities. The deep personal,
social contacts fostered under the umbrella of relation building help solves the external decisions
to a firm-customer relationship.
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Personal selling plays a key role in the partnering especially in buyer-seller relationships
(Weitz and Bradford, 1999). The focus of personal selling shifts from influencing buyer behavior
to a management of conflict inherent in the buyer-seller relationships. Conflict management
approaches include that of avoidance, accommodation, confrontation, compromise and
collaboration. The approaches indicate commitment (high or low) through signaling and have
low to high levels of exchanging information. The approaches vary in their levels of
assertiveness and cooperation.
The role of a salesperson is more of a value creator than a persuader or problem solver.
Attempts are made through specific investments to build competitive advantages for the buyer-
seller dyad over competing dyads. There is the development of a sales team headed by
relationship managers to interface with the buy center. The sales team is more customer-centered
than product centered. Relationship Managers are to have knowledge, skills and abilities to
perform their jobs. Much of their knowledge comes from on-job learning. Some of the skills
used by relationship managers include creative problem solving, innovativeness, cross-functional
interaction, conflict management, build trust, planning and project management and leading
teams. Relationship managers are in a way akin to brand managers.
Relationship managers in assessing performance give importance to relationship quality.
Some of the constructs used for relationship quality include trust, commitment, satisfaction,
ethical conduct, customer orientation, minimal opportunism, willingness to invest, expectations
of continuity, share of customer and growth in customer value (Weitz and Bradford, 1999).

Relationship technology helps address ‘Customer Better’.

Relationship technology leads to deep customer insights so useful in the formulation of
effective marketing strategy. Information technology helps store and manipulate extensive
information about the customer. This information about the customer is used in marketing called
CRM – customer relationship management. Through the technology of ‘CRM’, RM helps
uncover consumer insights. Also the technology of ‘CRM’ helps understand and manage
customers better. ‘CRM’ helps give attention from the mindspace of the marketer to the
mindspace of the customer. The key analytical CRM applications include (Kelly, 2000): (a)
Sales analysis (b) customer profile analysis (c) campaign analysis (d) loyalty analysis (e)
customer contact analysis, (f) profitability analysis.
Database Marketing uses databases to hold and analyze customer information thereby
helping creating strategies for marketing. DbM usually uses personalized communications. Data
mining refers to uncovering relationships about customers from customer data. Advanced
software and hardware have made it possible to extract consumer insights that might not have
been possible otherwise.
Apart from Database marketing (DbM) and CRM, Relationship technology also includes
direct marketing (DM). This individual attention to individual customer needs has been
described as ‘One-to-One’ marketing. This type of marketing implies the development of long
term relationships with each customer in order to better understand that customer’s needs and
better deliver the ‘service’ that meets the individual requirements. (Chaffey et. Al , 2000). One –
to – One marketing leads to better interactivity of the customer and the firm. The interactivity
leads to high degree of dialog that leads to better understanding on the part of the firm. This
leads to superior relationships and consequently a better dialog and understanding. One-to-One
Marketing (Peppers et. Al, 1999), is grounded on idea of establishing a learning relationship with
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