A combined study guide for MNM3712 - Customer Relations Management compiled using the textbook and the study guide information. Highlighted important content along with all required diagrams included.
TOPIC 1: THE NATURE OF RELTIONSHP MARKETING
STUDY UNIT 1: THE TRADITIONAL MARKETING APPROACH
INTRODUCTION
The traditional marketing approach encompasses the application of the marketing mix elements
such as product, price, place or distribution and promotion in satisfying customer needs. It is
important for many businesses to modify the application of traditional marketing and begin focusing
their attention on building relationships with customers and other stakeholders so that they will be
able to maintain and sustain their long-term success. Customer Relationship Management (CRM) is a
business philosophy that encourages customer-centricity and the day-to-day operations of a
business.
MARKETING CONCEPT
Marketing is a business function defined as a process that satisfies consumer needs by adding value
through the provision of appropriate products or services at a reasonable price, through acceptable
distribution channels, using promotional strategies and marketing communication, in an ever-
changing business environment.
Essence of the marketing concept is to understand the customers’ needs and wants. Focus is on the
customer. If business offers goods and services that satisfy customer needs and create value for the
customer (providing customer satisfaction and the right customer-perceived quality) then the
business stands the best chance of maximizing profitability.
Marketing mix named by Professor Neil Borden of Harvard University in 1953 refined to the 4 Ps =
product, price, place and promotion.
Was realized that the 4 Ps was not sufficient and in 1967 Philip Kotler published a book called
Principles of Marketing which included an additional 3 Ps = people, processes and physical
surrounding.
1. Product
2. Price
3. Place
4. Promotion
5. People
6. Processes
7. Physical surrounding
Marketing activities performed by the business are strongly influenced by the marketing orientation
that the business chooses to implement in interacting with customers (production orientation, sales
orientation, marketing orientation also known as the marketing concept, societal marketing
orientation, relationship marketing orientation).
The marketing concept is a management orientation that focuses on researching customer needs
and wants and then advocates the manufacturing of a product or service to satisfy the customers’
needs/wants.
To implement the marketing concept successfully three principles must be practiced:
1. Consumer orientation
2. Profit orientation
3. Organisational integration
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,THE TRADITIONAL MARKETING APPROACH
The traditional marketing approach is discussed under the following headings: the marketing mix,
traditional marketing and market segmentation.
Traditional marketing is the basis for the existence of relationship marketing. Traditional marketing
has been criticised = most marketers see it as a functional approach, lacks innovations and uses
defensive strategies to cope, marketers practice marketing management instead of marketing-
orientated management. The more knowledgeable the marketer is about traditional marketing and
it’s criticisms, the more likely that effective CRM strategies will be implemented by the business.
MARKETING MIX (4PS)
Marketing is a process that directs the flow of products/goods/services from the manufacturer to
the customer with the aim of achieving a reasonable profit. Ingredients of successful marketing
require a mix of the marketing elements: product/service, price, distribution (place), and promotion.
Product/service: anything a customer may acquire to satisfy a need or want (cooldrink/haircut).
Price: amount of money one must pay to acquire a product or make use of a service (paying R10 for
a soft drink).
Distribution (place): place where product sold or from where service is rendered (Pick n Pay outlet
where you can buy a soft drink).
Promotion: marketing communication method used to inform and pursued the customers to buy a
product or use a service. Includes the use of advertising, sales promotion, personal selling, publicity,
public relations or direct marketing to communicate a certain message to a target market
(newspaper advert that gives info about the availability of soft drink at various retailers and
recommended price to be paid).
In terms of this marketing mix a business would make decisions regarding the research to be
conducted, the product concept, the value that would be provided, the advertising message and
services to be delivered to a segment of the market. Customers in each segment would be treated as
though they all wanted the same products and services. Main issue confronting the marketer was to
find the optimal mix that would generate a superior response to the market and create profits.
The marketing mix elements are interrelated and do not work in isolation from one another. A
decision taken in connection with price will influence decisions on product-quality, the promotion
required and distribution channel to be used (e.g. premium proceed product like a Ferrari may be
distributed and promoted using an exclusive promotion magazine or satellite broadcast. Lower
proceed products such as soft drinks will follow an intensive marketing strategy for distribution and
use below-the line advertising.
Research began to show that this marketing mix model of marketing was too restrictive for business-
to-business and services marketing. It was also becoming outdated for the consumer goods
marketing, as the importance of intangible service characteristics and customer service
considerations became prime differentiating factors between products. It was felt that the original
marketing mix represented the seller’s view of marketing and it was suggested that marketing
should view the 4 Ps from a customer-orientated perspective. It has become clear that marketing, as
it has been practised traditionally, does not perceive the actual needs, wants and expectations of the
customer as being of paramount importance. The marketing mix supported by traditional marketers
has also become too restrictive, outdated and unresponsive to constantly-changing consumer needs.
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,TRANSACTIONAL MARKETING (TRADITIONAL MARKETING)
According to the traditional marketing concept (called transactional marketing), the major focus of
marketing programmes has been to make customers buy, regardless of whether they are existing or
new customers. Often only a small part of the marketing budget was allocated directly to retaining
existing customers. One axiom (a statement or proposition which is regarded as being established,
accepted, or self-evidently true) of traditional marketing is that competition and self-interest drive
value creation. Buyers can be offered a choice through competition; this choice of suppliers
motivates marketers to create the best product offering possible and to satisfy their self-interest
(e.g. increase profit margins). It was argued that this approach was no longer broad enough because
of the importance of customer retention, the changes in the competitive environment and the
limitations of traditional marketing mix.
In implementing traditional marketing, the main aim of the organisation is to generate a transaction
or a sale. As a result, transactional marketing involves an exchange between businesses and
customers without regard to retaining future sales from existing customers. Here, the focus of
business is to generate revenue quickly and to make possible an exchange process that is not
sustainable. Transactional marketing has become an outdated practice and, as a result, businesses
are now adapting to new ways of conducting their selling operations by implementing relationship
marketing.
In traditional marketing situations, customers, as unidentified members of a segment, are exposed
to a number of competing products and they are supposed to make independent choices from
among the available options. The two parties (business and customer) have conflicting interests. The
starting point is that the customer does not want to buy; he/she has to be persuaded to do so.
However, businesses are confronted with many competitive challenges. Markets have generally
become mature and there is only limited possibility for product differentiation; therefore, customer
retention is becoming more important than simply attracting new customers.
The purpose of relationship marketing is to generate continuous support from existing groups of
customers. This implies the linking of separate transactions, because only this approach enables the
utilisation of things such as the cost saving potential of customer retention. If the company fails in
continuing and extending relationships based on earlier transactions, a customer will have to be
newly acquired prior to each transaction. This means that the business will incur the additional cost
of doing this each time it initiates a transaction.
MARKET SEGMENTATION
The traditional approach to market segmentation entails the division of the total market into similar
sub-markets of customers. This approach to market segmentation assumes that each segment of the
market has similar needs and will respond in a similar way to the market offering and targeting
strategy implemented by the business. Market segmentation, as practised by the traditional
marketer, is no longer operating effectively. It has become very difficult to group customers into
categories or segments – and it has thus become necessary to move away from marketing to
anonymous masses of customers who are divided into segments based on geographic, demographic,
psychographic and behavioural bases. The focus is now moving towards segmentation that is based
on profitable individual customers – a necessity because customer wants, and needs evolve
continuously.
Business cannot use the same marketing strategy for all their products and services as customers
have unique needs: this implies that each customer is potentially a separate market. Most
businesses therefore look for broader classes of consumers who differ in their product and service
needs. The traditional approach to market segmentation focuses on dividing the heterogeneous
market into homogeneous subsets of customers. It is assumed that each segment would then have
similar needs and will respond in a similar way to the market offering and strategy. The business
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, must then decide which of the potential market segments it can best satisfy and develop a product
offering and strategy around the needs of that segment.
Consumer segmentation can be divided into three types:
1. Behavioural segmentation (e.g. grouping buyers based on their buying behaviour such as
benefits sought, loyalty status and attitude toward the product).
2. Psychographic segmentation (e.g. by means of categories such as social class, lifestyle and
personality).
3. Profile segmentation (e.g. consumer groups classified in a manner that group-specific
communication media can target them, such as geographic, demographic and socio-economic
segmentation).
For decades market segmentation strategies proved venerable, and marketing segmentation, a
central marketing concept, no longer appeared to be operating effectively. While markets were still
being presented demographically, geographically and psychographically, marketers were beginning
to realise that only actual, as opposed to speculative, buyer behaviour was meaningful. It was
therefore becoming increasingly difficult to classify buyers.
Buyers seem to do unusual things like saving their money or deferring spend in some areas and then
buying heavily in others. Some customers within a historically defined segment are much more
sensitive to certain media than others. Some are sensitive to price, others to service. This points to
the fact that if the only categorisation that is meaningful is buying behaviour, rather than the
underlying drivers of that behaviour, then there are no more market segments, just individual
customers. A shift is clearly necessary from marketing to anonymous masses of customers, to
developing and managing relationships with well-known, or at least identifiable customers.
A “paradigm shift” was needed if marketing was going to service as a discipline. It was clear that
transformation from a narrow set of functional skills based on the conventional marketing mix to a
broader business orientation where delivery was “superior” customer value was a key objective. In
this context using relationship marketing as a business’s strategic driver may be a very practical and
appropriate approach for marketers to regain the competitive edge.
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