Failures of Transactional Marketing: An Analysis

Failures of Transactional Marketing: An Analysis A. R. Lacey (1996), in Dictionary of Philosophy explains paradigm as a shared assumption or an accepted theory which governs the outlook of an epoch and its approach to scientific problems [giving] standard forms of solutions to problems. Within the physical and social sciences, it is common for one paradigm, a dominant paradigm to be prevalent. Currently, the dominant marketing paradigm, the accepted model of how marketing works and should be integrated with the rest of the world, is what has come to be called Transactional Marketing (TM) (Gronroos, 1996; Aijo, 1996; Gummesson, 1987; Berry, 1983; Jackson, 1985; Payne, 1995). This research is principally concerned with what has been called Relationship Marketing (RM), a term alluded to by Thomas (1976), but first explicitly used by Berry (1983: see Kotler, 1992; Gronroos, 1990, 1991; Hunt and Morgan, 1994; Berry, 1995; Sheth and Parvatiyar, 1995; Turnbull and Wilson, 1989). The foundations of Relationship Marketing are inextricably mixed with the development and practice of Transactional Marketing. The underpinning theories and conceptualisations of RM often only exist in relation, or opposition to the theory and practice of Transactional Marketing. It is therefore necessary to understand Transactional Marketing before RM can be fully comprehended. The American Marketing Association has defined (transactional) marketing as the process of planning and executing conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives. (AMA Board, 1985). The marketing concept is a very simple but powerful idea. The best way for a company to meet its objectives, profit making or otherwise, is by satisfying customers-the achievement of corporate goals through meeting and exceeding customer needs better than the competition (Jobber, 2001). This is best done by all members of the firm seeking to serve the needs of the customer, even at the expense of producer inconvenience. If this concept is adopted by the organisation, it leads to what is called a marketing orientation. The analysis and subsequent review of transactional marketing will be in two parts, an appraisal of its theoretical origins, development and weaknesses and an examination of the standard wa ys in which firms implement it. The next section will critique the Transactional Marketing Paradigm on two main fronts. These being firstly, criticisms based on theoretical weaknesses or omissions, and secondly, criticisms about the way in which theory and models have been misunderstood or ignored by firms. Both of these categories however, emerge out of the unique economic and social environment within which the transactional marketing paradigm developed (Webster, 1992; Aijo, 1996). 1.1. THE BIRTH OF MARKETING THEORY The origins of Transactional Marketing are in microeconomics, North America and the 1950s. Prior to WWII, economists developed price theory to embrace what they called oligopolistic competition (Chamberlain, 1933; Sheth, Gardner and Garrett, 1988; Waterschoot and Van Den Bulte, 1992). This theoretical development led early marketing theoreticians (McGarry, 1950; McKitterick, 1957; Alderson, 1957: see Gronroos, 1994, 1996) to create lists of marketing variables deduced from econometric, profit optimising equations- the so called functionalist school of marketing (McGarry, 1950). In turn, this inspired Borden (1954) to introduce the concept of the marketing mix, a list of 12 variables (product, price, branding, distribution, personal selling, advertising, promotions, packaging, display, servicing, physical handling, fact finding and analysis which the marketer would have to consider in any given situation. [And] would blend the various ingredients or variables of the mix into an integr ated marketing program. (Gronroos, 1994b:350). In a seminal work, McCarthy (1960) presented the marketing mix management approach, reconstructing Bordens original 12 variables into the now familiar 4P model (Price, Product, Promotion and Placement). The theoretical foundations of this model have been severely questioned (Waterschoot and Van Den Bulte, 1992; Gummesson, 1987; Sheth et al, 1988; Webster, 1992; Duncan and Moriarty, 1998). Principally, these questions stem from the fact that the original microeconomic variables, derived through empirical induction had solid theoretical foundations, whilst Bordens list had only second-order links to these foundations and, crucially, was not intended as an exhaustive definition or method of implementation but merely as a set of guidelines within a fully integrated marketing program. Real world developments and its inherent simplicity ensured the rise and rise of the 4P model and its attendant Marketing Mix Management theory. 1950s North America -a huge domestic market of apparently homo genous and insatiable customers -led to rapid increases in the demand for standardised consumer goods and the crowning of the United States as the dominant marketing culture. In time it became the basis of modem transactional marketing (Takala and Uusitalo, 1996; Kotler, 1992; Aijo, 1996).The simplicity and communicability of the marketing mix paradigm, in combination with its apparent success, combined to turn marketing into a highly effective impact machine (Gr6nroos, 1996c: 16). Transactional Marketing rapidly became the overwhelmingly dominant marketing paradigm (Dixon and Blois, 1983, Kent, 1986). 1.2. MARKETING IN CONTEMPORARY ORGANISATIONS Given the great number of organisations which pay at least lip-service to the importance of marketing, a diversity of methods of implementing transactional marketing is inevitable (Brodie et al, 1997). The most typical structure, and one commonly found within the context of end-user orientated firms (Christy et al, 1996) is to have within the organisation a sub-unit, separate from the rest of the firm, with responsibility for marketing market analysis, advertising, sales promotion, pricing and distribution (Buttle, 1996; Deshpande and Webster, 1989; Gurnmesson, 1994). The principal focus of this research is on the relationship between such firms, and their customers. In everyday marketing vocabulary.marketing department, an organisational unit, is used as a synonym for marketing function (Gronroos, 1994). The implication is clear, Transactional Marketing theory suggests that marketing can be treated as a separate, discrete function, rather than as an integrated one (Berry and Parasuraman,1995; Waterschoot and Van Den Bulte, 1992; Palmer, 1994; Payne, 1995; Thomas, 1996). The existence of these marketing departments echoes much about the functionalist, scientific [econometric] origins of transactional marketing. The philosophy of implementation prevalent within western business is that specialists should themselves take care of a task for specialists (Gronroos, 1996). In many businesses, the marketing department is seen as having total responsibility for various marketing tasks, such as market analysis, market planning, advertising, sales promotion, pricing, distribution and product packaging (Gronroos, 1994). This begs the question that if the ma rketing department takes care of these entire fundamental issues, what exactly is the rest of the business for? One of the primary and most traditional Justifications of adopting a marketing orientation rather than a sales or production orientation is that marketing integrates the other functions of the business (Bennett, 1996; Jackson, 1985) into a more coherent whole, built around the needs and wants of the customer. The outcome of creating a marketing department is to bring about a situation where, within an organisation, marketing department is used as a synonym for marketing function, which is the process of taking care of the fulfilment of customer needs and desires. As a consequence, the rest of the organisation is alienated from marketing, and the marketers are isolated from design, production, deliveries, technical service, complaints handling, and other activities of the firm (Gronroos, 1994). Marketing is being treated as a specialist management function, rather than a general management issue (Gronroos, 1996). Within such organisations, there is a clear-cut distinction [inferred from marketing mix management theory] between those who are involved with marketing, and those who arent. This process has been called the Ghettoisation of marketing (Gummesson, 1987). It has been strongly argued (Gummesson, 1987,1990,1994; Duncan and Moriarty, 1998; Aijo, 1996; Christy et al, 1996; Heide and John, 1995) that the distinction between the marketer and non-marketer is an artificial one. Opportunities for marketing activity are not limited to those inside the marketing department. What do the following people have in common: a telephone operator connecting a customer with a salesperson; an installation team from the supplier spending two weeks on the buyers premises installing and testing new equipment: a management consultant presenting a progress report in an assignment? (Gummesson, 1991). The answer is of course, that these are all people outside the marketing department, [therefore by definition not responsible for marketing] where, nevertheless, their attitudes and way of doing their job have an impact on the customers perception of the firm (Gronroos, 1996).These non-marketers, with their influence on the firms ability to market itself efficientl y and effectively have been called part-time marketers (Gummesson, 1987). 1.3. SUMMATION OF THE PROBLEMS INHERENT TO THE MARKETING MIX The origins of marketing mix management theory, and the transactional marketing paradigm it gave rise to be in the USA, the nineteen-fifties and microeconomics. The theoretical foundations of this paradigm are questionable in terms of its translation from econometric modelling and its pedagogical simplification. At best, the 4P model was suitable for the unique marketing environment created by the post WWH American autarchy. The theoretical weaknesses of the transactional marketing paradigm have been highlighted by radical changes in the business environment, such as the globalisation of competition and the increasing sophistication of consumers and products. These weaknesses are especially apparent in contexts that are significantly different from that of its origins -most noticeably services marketing and European markets. The academic response has been to avoid the problem by papering over the theoretical cracks. Within firms, the creation and stagnation of marketing departments h as ghettoised, neutered and isolated marketing from the consumer and even the rest of the firm. As a result of this, transactional marketing treats the consumer as passive and fails to fully recognise the marketing importance of interaction between front-line staff and customers. Transactional Marketing fails its own definition. It is a production orientated definition of marketing, not a customer orientated one. THE ORIGINS OF RELATIONSHIP MARKETING THE OTHER MARKETING THEORIES The origins of Relationship Marketing are in Europe, the nineteen-eighties, and dissatisfaction with the Transactional Marketing paradigm. It was noted earlier that transactional marketing theory was principally developed from its origins in end-user, consumer markets. Relationship Marketing draws on a broader theoretical base (within a marketing context), with concomitant development within the services and business to business (B2B) marketing literatures. The term Relationship Marketing, alluded to by Thomas (1976) was first explicitly used by Berry (Berry and Parasuraman, 1991; Berry, 1995; Gummesson, 1987; Gronroos, 1996; Payne and Richard, 1993; Robicheaux and Coleman, 1994; Payne and Frow, 1997). It has also been called customer-focused management (Gummesson, 1994), or relationship management (Payne, 1996). Berry (1983) used the term within the context of criticising services marketing literature, arguing that researchers and businessmen have concentrated far more on how to att ract consumers to products and services than on how to retain those customers. He advocated a switch from a transactionary approach, where marketing effort was focussed on customer attraction, to a relational approach, where the attraction of new customers should be viewed only as an intermediate step in the marketing process (Berry, 1995), and the primary objective was retaining customers. Berry (1983) defined Relationship Marketing as attracting, maintaining and -in multi-service organisations -enhancing customer relationships. Simultaneously, Hammarkvist, Hakansson and Mattson (1982), working within the arena of business-to-business marketing (Gronroos, 1996), advanced similar definition (Andersson and Soderland, 1988; Anderson, Hakansson and Johanson, 1994) all activities by the firm to build, maintain and develop customer relations. (Hammarkvist et al, 1982: cited Gurnmesson,1987). That relationships should be managed and built has become a cornerstone of both the Nordic and the Industrial Marketing and Purchasing (IMP) School of marketing (Mattsson, 1997; Gronroos, 1996c). This parallel development within separate areas of research is far from coincidental (Takala and Uusitalo, 1996). As with the Transactional Marketing literature, each of these streams of research emanates from within a specific business environment (Aijo, 1996). SERVICES MARKETING It was argued earlier that the Transactional Marketing Paradigm habits origins within a unique and highly specific business environment, that of the North American consumer goods markets of the 1950s. It was further suggested that these origins limited the value of TM as a universal theory of marketing, and that primarily within the context of end-user orientated literature, development consisted of re-jigging a redundant theoretical format. The deviation from this specific business environment was greatest within the domains of service marketing and business to business marketing (Mattsson, 1997), albeit in very different ways. The theory and practice of transactional marketing assumes that consumers are available in great numbers and behave passively. Within industrial and service markets, the interactive Participation of the customer is required to successfully complete the exchange (Gummesson, 1987), within business, customer-firms are often limited in numbers. An ancillary implication of treating the customer as passive, someone to whom things are done (Dixon and Blois, 1983) is to instil within the business the philosophy of competing with customers, rather than interactive co-operation. Transactional Marketing Theory maintains the assumption of its microeconomic origins in that the marketing mix is a tool used to help a company optimise [maximise] its profit function (Waterschoot and Van den Bulte, 1992; Gronroos, 1991). It is because of this that firms consider marketing objectives met at the point of customer attraction -i.e. moment of exchange. When marketing a service, it is argued that the objectives should not only be to only to attract, but to then keep and maintain the customer-to develop a long-term relationship with them (Bitner et al, 1994; Cravens and Piercy, 1994; Gronroos, 1991; Gummesson, 1987b). When selling a physical product, the costs of production are offset by the revenue of the purchase. With a service, the majority of costs are often incurred whilst setting-up the service (Berry and Parasuraman, 1991; Booms and Bitner, 1981), for example; accountancy and banking. The implication of this is that longer-term strategy, in conjunction with placing significant emphasis on customer retention will yield dividends (Berry, 1995; Payne and Richard, 1993; Parasuraman et al, 1991; Gronroos, 1990), and indeed, empirical evidence to support this has been found. Reichheld and Sasser (1990) have demonstrated across a variety of service industries that profits climb steeply when a company successfully lowers its customer defection ratethe researchers found that the firms could improve profits from 25 percent to 85 percent by reducing customer defections by just 5 percent. Not only do loyal customers generate more revenue for more years, the costs to maintain existing customers frequently are lower than the costs to acquire new customers (Berry, 1995). Other studies have provided further evidence of the benefits of a long-term, customer retention strategy within competitive consumer-service markets, Storbacka (1997), Gwin (1988) and Perrienet al (1993) in banking, Crosby and Stephens (1987) in insurance. Moments of Truth and the Crucial R ole of the Part-Time Marketer. Firms producing end-user products often sell through an intermediate, retailing company. As such, opportunities for marketing are indirect via mass-media and market research (Henry, 1994). The interaction required within service and business-to-business marketing enforces a more direct approach (Gronroos, 1994). The image and reputation of the firm cannot solely be constructed through promotion. Interaction between a consumer and the firms part-time marketers (Gummesson, 1987) will result in that consumer have a positive or negative perception of the company (Price et al, 1995; Cravens and Piercy, 1994) a process that Gronroos (1982) calls perceived service quality. Given the intangibility of service products, this perceived service quality is of the utmost importance, the consumer has little else by which to judge the firm outside of his direct interaction with it (Ferguson,1996; Bitner et al, 1994). The marketing effort of the part-time marketers therefore forms the bulk of the firms marketing impact (Gronroos, 1996), often they are the only marketers around (Normann, 1983). Research shows that the customer will judge the quality of the service and form an attitude to the provider both from the experience of the production1delivery process and of the future benefits of the service (Lehtinen, 1985). In a situation where the majority of marketing activity does not come from the full-time marketers within the marketing department, it makes little sense to plan the activities of this department separately. It was argued earlier that if such a department is considered by the rest of the firm to be taking care of the marketing function, it will become increasingly difficult to create an interest in marketing amongst unwitting part-time marketers (Gronroos, 1982; Christy et al, 1996). A marketing orientation is only achieved when all members of an organisation has asked them how do I contribute to excellence in customer relations and to revenue (Gummesson,1991: 60). An auxiliary concept to that of the part-time marketer is that of points-if-marketing (Normann, 1983), more poetically called moments of truth. These are natural opportunities emerging in the production and delivery process; for example, the interaction between a doctor and a patient (Gummesson, 1991). For these occasions to be positively resolved, marketing must be designed-into the process, rather than tacked-on. RELATIONSHIP MARKETING DEFINITIONS FROM SERVICE LITERATURE Since Berry (1983), other authors have presented alternative definitions of Relationship Marketing within the services marketing literature. RM concerns attracting, developing, and retaining customer relations (Berry and Parasuraman, 1991). establishing a relationship involves giving promises, maintaining a relationship is based on fulfilment of promises; and, finally, enhancing a relationship means that a new set of promises is given with the fulfilment of earlier promises as a prerequisite. (Gummesson, 1991). The core of these ideas from services marketing is the interpersonal interaction between buyer and seller interaction. The organisation should be structured and managed so that promises worth making can be kept. Clearly, a relationship between two parties is something that grows in strength through repeated exchanges over a period of time, it is not instantaneously generated. BUSINESS TO BUSINESS AND NETWORK MARKETING Such moments of truth also exist within a business-to-business context. If the interaction between producer and consumer is crucial in services marketing it is doubly so within B2B marketing -principally because of the relatively low number of customers/suppliers (Andersson et al, 1994; Blois, 1997; Dabholkar et al, 1994). These dyads do not exist in isolation. Within the business marketing literature it has become clear that the theoretical foundations of contemporary work are not shared with the Kotlerian (Andersson and Soderland, 1988) marketing mix theory, which has microeconomic ancestry. Instead, network-theory, which attempts to model the process of resource exchange in markets where both buyer and seller are firms or other organisations has its origins in empirical work conducted over the last 20 years, principally in Northern Europe (Mattsson, 1997). The results of these studies, when assessed as a body of work, highlight several commonalities in the exchange behaviour betw een firms that contradict business philosophy derived from the transactional marketing paradigm (Elg and Johansson, 1996). B2B partners are characterised as active and mutually dependent, with the buyer and seller both able to initiate an exchange. Interaction between the organisations was not the sole purview of a marketing department but instead between the equivalent departments in each firm -inter functionally. In practice, it was recognised that the marketing emphasis had switched from optimising the marketing mix to the management of the firms relationships (Andersson and Soderland, 1988). Network theory suggests that markets are heterogeneous, rather than homogenous (Matthyssens and Van Den Bulte, 1994). The marketing objectives of the firm became to establish, develop and decide when to terminate its relationships with the customers and suppliers in its network (Hammarkvist et al, 1982). This divergence from the transactional marketing paradigm was driven by factors in the business environment (Blois, 1997; Andersson and Soderland, 1988). Many of the economic and social characteristics of Scandinavian countries [where much of the empirical work was conducted] helped to highlight the differences between consumer markets and business to business markets (Andersson and Soderland, 1988). These economies have been traditionally noted for high levels of concentration in industry, a considerable amount of interaction between firms, the state and labour unions, and the national dependence on the export of highly complex products (Porter, 1985). In general terms, business-to-business markets are characterised by a limited number of potential customer-firms, encouraging businesses to maintain relations with their partners over-time (Anderson and Narks, 1984, 1990), rather than the start-stop philosophy of transactional marketing. The increased level of interaction between the partners and the individualistic requirements of each customer obviate the need for a standardised marketing program (Dabholkar et al, 1994). Relationships must be tailored, not off the peg (Harland, 1996). The management of relationships is a complex issue, Hakansson and Johanson (1992) acetones relationship management problems as either limitation or handling problems. Limitation problems concern the firms management of its portfolio of relationships -its collection of dyadic interactions. These problems concuern which, if any, of the firms relationships should be emphasised (Andersson and Soderlund, 1988). To misquote Clausewitz, he who emphasises everything, emphasises nothing. Handling problems concern the manner in which relationships are established, and once established, how they are maintained, developed and judged appropriate for termination. Within a network, what are the relational objectives of an organisation? Transactional Marketing advocates a competitive stance, the results of any interaction between a buyer and seller must result in one winning -and one losing (Doyle and Engermann, 1992; Donaldson, 1996). Network theory espouses co-operation to produce a win-win situation (Deshpande and Webster, 1989). Despite this, network theorists consider that firms must work to deepen chosen relationships, to achieve some level of power -also called bonds over their partners whilst striving to remain free of such bonds themselves (Andersson and Soderlund, 1988). Relationships can create bonds of several types, planning, knowledge, legal and social (Berry, 1985).The end of the relationship will incur switching costs, not necessarily purely financial. The original quote being He whose fends everything, defends nothing BUSINESS-TO-BUSINESS RELATIONSHIP MARKETING DEFINITIONS Since Hammarkvist et al (1982) defined relationship marketing within the context of business network marketing, others have proposed alternatives. RM is an emergent disciplinary framework for creating, developing and sustaining exchanges of value between the parties involved, whereby exchange relationships evolve to provide continuous and stable links in the supply chain (Ballantyne, 1994) .. Is not directly aimed at immediate transactions but is based on building, supporting and extending customer relationships (Matthyssens and Van denBulte, 1994). RM is the process of co-operating with customers to improve marketing productivity through efficiency and effectiveness (Parvatlyar, 1996). At the heart of these ideas is the concept of a partnership where both parties require co-operative behaviour from the other in order for the relationship to be mutually beneficial -neither has many other alternatives, to buy from or supply to. The focus is not at the level of one-on-one interaction of services marketing, but is instead much wider -it is necessary for large groups on both sides to contribute. THE RELATIONAL CONSTRUCTS OF COMMITMENT AND TRUST Until quite recently, little attempt had been made to provide network theory with the conceptualisations necessary to understand the processes of relationship maintenance and development. Whilst an initial model was presented by Dwyer, Schurr and Oh (1987), the first serious attempt test a model in a structured manner was in a seminal paper by Morgan and Hunt (1994), (see Kalatatis and Miller, 1996; Hunt, 1997; Gronroos, 1996a; Gummesson, 1997). Relationship Marketing refers to all marketing activities directed towards establishing, developing and maintaining successful relational exchanges. Morgan and Hunt (1994) They further argue that Relationship Marketing requires the successful management of relationships with the firms partners. Such management requires the establishment, maintenance and development of relationships, in which understanding of concepts like commitment and trust are keys. Morgan and Hunt have suggested that commitment and trust are amongst the key mediating variables that distinguish productive, effective relational exchanges from those that are inefficient and ineffective (Morgan and Hunt, 1994). Furthermore, commitment and trust between partners in a network leads directly to co-operative behaviours in three ways. Firstly, they predispose the partners towards actively preserving relational investments. Secondly they help to prevent partners from adopting short-term, opportunistic behaviours. Thirdly, they help to support the view of high-risk actions as being prudent in the longer term (Hunt, 1997). Morgan and Hunt construct what they call a KMV (Key Mediating Variable) model to show the central importance of commitment and trust in marketing relationships. THE BEGINNINGS OF A RELATIONAL PARADIGM? The increasing awareness of the limitations of the Transactional Marketing Paradigm, in conjunction with the development of Services marketing and Network marketing has led to calls for a substantial change in the marketing philosophy, practice and ethos (Daskou, 1997; Clarkson et al, 1997; Palmer, 1994). in the authors view, the present marketing concept, as it appears in research, textbooks and seminars is unrealistic and needs to be replaced (Gummesson, 199 1). The need for a paradigm shift in Marketing, based on a Relationship Theory is being advocated more and more strongly ( Gronroos, 1990). This change is not skin-deep, it will not be quick, and it will not be painless. RM suggests different focus and different underpinning values for marketing that, in my view; justify calling RM a new paradigm and the beginning of a new marketing theory. (Gummesson, 1994). It requires a totally new approach to some of the fundamental thoughts in marketingthe transition from a transaction-orientated marketing mix-based practice of marketing to a relationship-oriented one is not an uncomplicated process. The old paradigm has deep roots in the minds of marketers as well as non-marketers in a company. (Gronroos, 1996). What then, is the association between Transactional and Relational marketing? Any meaningful answer to this critical question requires a definition of Relationship marketing. The first definition of RM offered as a general rather than a business/services/consumer marketing specific definition is to be found in Gronroos (1991). Marketing is to establish, maintain and enhance, and where necessary end relationships with customers and other parties at a profit so that the objectives of the parties involved are met. This is done by a mutual exchange and fulfilment of promises. As Aijo (1996) notes from the work of Sheth et al (1988), Throughout its historymarketing has been generally dominated at any one time by one prevailing perspective. The implication of this is firstly, that the transactional paradigm will be completely replaced by the relational paradigm, and that secondly, the association between the alternative paradigms is competitive, rather than complementary. For some brief time, this view received wide support, no doubt influenced by the weaknesses of the transactional paradigm and incredible growth of relational literature (Berry, 1990; Gronroos, 1989; Dixon and Blois, 1989; Gurnmesson, 1991). Quickly, this simplistic view of the (non) association between transactional and relational was superseded by more sophisticated thoughts (Brodie et al, 1997;Aijo, 1996). Gronroos (1991) considered that the true decision facing firings was not Transactional Marketing or Relationship Marketing, but rather where on a marketing strategy continuum the comp any should place itself In some cases, a firm could be justified in maintaining a purely transactional approach. For some types of products and in some situations or for some types of customers a one-deal-at-a-time approach may be good strategy (Gronroos, 1991). This idea has great appeal, especially when it is considered that some sections of the wider marketing literature have discussed for years the interaction between the customer and aspects (we might say avatars) of the impression/relationship the firm has made in the mind of the customer-obvious examples of this would be store location strategies and especially branding. Indeed, the argument could be made that if the objective of the research project is to examine customer perspectives on their relationships with firms, an assessment of branding would be a key part of the literature review and would feed into the design of the research questions and fieldwork. A subtle but important distinction needs to be made between the re lationship a customer has with a firm and the perspectives that customer has on relationship marketing as applied to them by the company. This research project is centred on the latter, not the former. This Transactional Marketing-Relationship Marketing continuum forms the basis of a simple model that developed by Gronroos. In this model he attempts to place various categories of goods/services at the appropriate place