Universiti Sains Malaysia, Penang
This paper was presented at QS National Convention 2003, 18-19 August 2003 at Sheraton Hotels and Towers, Subang Jaya, Selangor, Malaysia.
ABSTRACT
Marketing is an underdeveloped subject in the construction industry research and practice, quantity surveying profession included. This is a complete contrast compared to other service-based businesses such as insurance, banking, airline, hotel, and telecommunication industries. Most companies in these industries have taken the philosophy of marketing on board and implemented it successfully in their organisations. They understood that embracing marketing philosophy would enable them to identify, anticipate, and meeting their customer requirements and needs at a profit. These companies have actually moved a step forward in the application of marketing philosophy by applying the concept of relationship marketing in order to retain their existing customers as well as acquire new ones.
The recent interest in partnering and collaboration in the construction industry should create an awareness in construction professionals to the relationship marketing concept. Besides cultivating and recruiting new clients, quantity surveying firms should have a specific marketing strategy in retaining their satisfied key clients. Previous researches revealed that it is four to six times more expensive for service firms to recruit new clients than to retain the existing clients. The paper will discuss the importance of relationship marketing to quantity surveying firms, the firms’ understanding of marketing, and their existing marketing approach. Finally, the paper will make some recommendations that can be discussed by construction academics and professionals in understanding and improving their relationship marketing approach.
KEYWORDS: CUSTOMER RETENTION, MARKETING, RELATIONSHIP MARKETING.
INTRODUCTION
Low (1991) has observed that marketing has attracted only little attention among construction contractors and professionals alike. Nevertheless, more recently commentary has tended toward a recognition that marketing has made a significant contribution to this industry, and it has received more attention in the construction field (Moore 1984; Winter and Preece, 2001). However, a number of professional marketing practitioners point out that many property and construction firms still pay lip-service to marketing, and fail to address their substantive marketing management capabilities (Humber, 1989). Fischer (1991) added that the industry has traditionally suffered from a lack of the kind of general management skills taught at business schools, resulting in ignorance of the true nature of marketing and a tendency to confuse marketing with the often rather dubious selling techniques.
Since the early 1980s, a new phrase has entered the marketing literature – ‘Relationship Marketing’. Many sources credit Berry (1983) with originating it (Petrof, 1997; Zeithaml and Bitner, 1996). The advancement of the subject is widely acknowledged to two progenitors: the network approach to industrial marketing from the Industrial Marketing and Purchasing Group; and services marketing and its extension into service management and service quality (Gummesson, 1996; Gronroos, 1990; Hart and Hogg, 1998).
Relationship Marketing Defined
In the literature there is no agreement on a definition of relationship marketing, even if most definitions have many common denominators (Gronroos 1996). Gronroos’ (1990) comprehensive definition of relationship marketing is, “Relationship marketing is to identify and establish, maintain, and enhance relationships with customers and other stakeholders, at a profit, so that the objectives of all parties involved are met, and that this is done by a mutual exchange and fulfilment of promises.” Relationship marketing is typically described as being toward a long time horizon in contrast to the short-term orientation that existed in marketing before 1983 (Petrof, 1997). Berry and Parasuraman (1992) hold that relationship marketing consists of attracting, developing, and retaining customers. Hunt and Morgan (1994) refer to it as all marketing activities directed at establishing, developing, and maintaining successful relational exchanges in the supplier, lateral, buyer, and internal partnerships. This is opposed to the old idea of relationship marketing that referred only to partnerships with ultimate customers.
Gummesson (1994; 1999) defines relationship marketing as, “relationships, networks and interaction.” He explains that, a network is a set of relationships (between at least two parties who are in contact with each other) which can grow into enormously complex patterns. In the relationships - the simple dyad as well as the complex networks - the parties enter into active contact with each other. This is called interaction. Zeithaml and Bitner (1996) focus on the idea of customer retention in their relationship marketing definition. Their definition is: “Relationship marketing is a philosophy of doing business, a strategic orientation, that focuses on keeping and improving current customers, rather than on acquiring new customers.” This definition is supported by Lovelock (1996) who says that, “Relationship marketing recognises the value of current customers and the need to provide continuing services to existing customers so that they will remain loyal.”
Stone et al (1996) hold that, “Relationship marketing is the use of a wide range of marketing, sales, communication, service and customer care approaches to identify a company’s named individual customers; create a relationship between the company and its customers that stretches over many transaction; and manage that relationship to the benefit of the customers and the company.
TRANSACTION MARKETING AND RELATIONSHIP MARKETING
One of the most significant development in the practice of marketing is the shift in emphasis to customer relationship management from a transactional orientation (Rich, 2000). One way of doing this is to move away from the traditional and now largely outmoded idea of marketing and selling as a series of activities concerned with transactions, and to think instead of their being concerned with the management of long-term relationships (Wilson and Gilligan, 1997; Gummesson, 1999; Kotler, 1994). More companies today are moving their emphasis from transaction marketing to relationship marketing (Kotler 1994). The differences between relationship marketing (or relationship management - Zeithaml and Bitner 1996) and transaction marketing is illustrated by Christopher et al. (1991) in Table 1.
In contrast with the movement of many industries from transaction to relationship marketing, the construction industry per se, through its behaviour, is still trying to justify the benefits of using transaction marketing. The industry’s traditional marketing emphasis which is centred upon getting clients on a price-based competition is clearly transaction marketing in effect (Low and Tan 2002; Ferguson and Brown 1991). This is not helping the industry to modernise itself and work in harmony, moving away from its ‘them and us’ culture (Mohd Wira 2001). On the other hand, relationship marketing allows construction organisations (consultants included) to cultivate client through loyalty, product and service value, high level of service quality, trust and commitment as characterised by Christopher et al (1991). At a microscopic level in construction, the marketing emphasis should move from a transactional focus to a relationship focus to ensure repeat business transactions (Low and Tan 2002; Christopher et al 1991). The high level of dependence on price determinant to appoint contractors can be lessened by the use of relationship marketing, allowing clients to evaluate their selection of contractors based on a wide range of other determinants such as trust and high levels of service quality (Low and Tan 2002).
Wilson and Gilligan (1997) develop a model (illustrated in Figure 1) that shows the position of relationship marketing in a customer loyalty chain. Although it might be argued that the movements of a buyer through the various stages from ‘prospect’ to ‘partner’ should be straightforward and seamless, the reality in many instances is that organisation unwittingly erect a series of barriers which slow down or stop this movement. The first barrier can be seen to be that of the way in which, in many cases, organisations make it difficult to do business with them. The second barrier occurs at a later stage, when the customer deals with the organisation on a regular basis, but no real effort is made to get close to the customer by building a relationship. Given this, the arrow on the right-hand side of the figure shows how customers can - and almost inevitably will - move back down the loyalty chain if the relationship is not managed proactively.
Steps in Relationship Marketing Process
Current research is clear that under certain circumstances, a long-term relationship between the firm and the customer is the best road to success for the selling firm (Cann, 1998). Although this may be common knowledge, it is not always common practice. One reason for this may be that some organisations do not know how to develop and/or maintain a relationship with their customers. Cann (1998) suggests eight steps in a relationship building process for the business-to-business service provider. This is illustrated in Figure 2.
Kotler (1994) also suggests several main steps in establishing a relationship marketing programme in a company:
· Identify the key customers meriting relationship marketing.
· Assign a skilled relationship management to each key customer.
· Develop a clear job description for relationship managers.
· Appoint an overall manager to supervise the relationship managers.
· Each relationship manager must develop long-range and annual customer relationship plans.
Figure 2: The Expanded Business-to-business Relationship Building Process (Cann 1998)
RELATIONSHIP MARKETING IN THE CONSTRUCTION INDUSTRY
Winter and Preece (2001) had conducted a study investigating the existence and use of relationship marketing in subcontractors and main contractors in the UK and Germany. The research revealed that whilst all the UK main contractors maintained that marketing is taken seriously and at least demonstrated outwardly by the existence of dedicated marketing departments and staff, neither is its function integrated into the firm’s strategic policies and programmes, nor is it well understood by staff from other departments or sections. The impression gained from this study is that, marketing is essentially still understood as a sales function, is not integrated and embedded into the organisational structure and business processes of the companies, and internal communication with other management departments occurs only on informal and ad-hoc basis. In terms of relationships management, the majority of the contractors ranked key clients, non-key clients, professional consultants, and supplier/sub-contractors in order of importance. Not surprisingly, clients are seen as the most valuable contacts. After all, they are the ones who provide the companies’ revenues. Although it was acknowledged that construction industry relies on extensive networking, the main contractors showed a tendency of concentrating their relationship marketing activities only to clients and consultants and expect the sub-contractors to instigate relationship buildings between them.
The German main contractors painted a different picture to their UK counterparts. The result revealed that none of the German companies interviewed has their own specialised marketing entity. Thus, the responsibility of procuring contracts was pushed upwards to the upper management and directorial levels, which is a direct contrast to the UK contractors. However, a distinct marketing entity powered with dedicated staff does not necessarily mean a realisation of comprehensive and integrated marketing strategy. Much to the contrary, it appears that marketing activities exist as an isolated and independent function with the responsibility of maintaining client contacts, and as a result being looked at as no more than a selling function, very much along the line of Fischer (1991) which was quoted at the outset.
Relationship marketing has also attracted some considerable interests among quantity surveying firms. In spite of the misperceptions of marketing in some quantity surveying firms, the firms have generally embraced the general concepts of relationship marketing as part of their business strategy because relationships are considered to be important to a service-oriented business (Low and Tan, 2002). However, Low and Tan believe that this practice could be improved by adopting a more comprehensive approach to relationship marketing, such as the adoption of total relationship marketing (TRM) principles in their organisations as propounded by Gummesson (1999). In their study, Low and Tan examined the perceptions and practices of relationship marketing of quantity surveying firms in the Singapore construction industry. Survey findings from 22 firms suggest that quantity surveying firms can focus on relationship marketing and total relationship marketing, with traditional marketing principles forming the basis of their marketing efforts.
Low and Tan’s study provided an insight into how pertinent relationship marketing is in quantity surveying practices. The results indicate that relationship marketing is applicable and valid in their organisations. However, the research respondents seem to hold some wrong perceptions of relationship marketing being applicable only for top management, larger firms and with the need to expand a large budget for its operations. Since relationship marketing is still a relatively new concept is so far as the quantity surveying profession is concerned, awareness of the relationship marketing principle and what it entails is still needed within the profession. However, in reality, these firms may already be practicing certain aspects of relationship marketing without realising that this was the case.
RELATIONSHIP MARKETING AND CLIENT RETENTION
Gummesson (1996) feels that relationship marketing values will promote a more win-win and less win-lose situations, more equal parties will be created and all parties carry a responsibility and can be active in a relationship. A firm will also benefit with increased customer retention and duration, increased market productivity and thus increasing profitability. Customer retention has been found to be less expensive than customer acquisition, and the longer the customer stay in a relationship, the more profitable it is to the firm (Reichfield and Sasser, 1990; Sheth and Parvatiyar 2000). It has been long recognised that the costs of gaining a new customer, particularly in mature and slowly declining markets, are often high (Zeithaml and Bitner, 1996; Wilson and Gilligan, 1997). Cook (1992) went a bit further by claiming it is five to six times more expensive to recruit a new customer than to retain a customer from the existing customer base. Clancy and Shulman (1994) are of the opinion that retaining a customer costs 25 percent of the cost of attracting a new customer and the probability of a successful retention is 60 percent. This compares favourably with a 30 percent likelihood of attracting a new customer. Given this, it is argued that, a marketing planner needs to ensure that the existing customer base is managed as effectively as possible.
Reichheld and Sasser (1990) suggest two manners in which firms can retain their customers - by outperforming the competition, or by creating a special bond with the customer through relationship marketing. Long term customers are less likely to defect and may be more willing to pay more for products and services in exchange for the psychological comfort of repatronising a familiar company. Following Reichheld and Sasser, there is a direct relationship between relationship marketing and customer retention. A quantity surveying firm with a well-planned relationship marketing strategy has a higher chance of retaining their existing clients than the ones who doesn’t have any specific marketing strategies.
Nevertheless, client retention is only part of the picture, as Sasser and Jones (1995) maintain that in competitive markets the importance of client satisfaction increases, simply satisfying customers who have the freedom to make choices is not enough, “To make them loyal they must be completely satisfied”. Buttle (1996) maintains that relationship marketing is not ‘philanthropic’ and has gained its popularity as a means to an end. Its use in marketing strategy is a result of its ability to increase profitability.
Some quantity surveying firms have been guilty in failing to convert their satisfied clients to become repeat clients. The firms should bear in mind that satisfying clients is just a pre-requisite or part of the process in achieving client retention, not a client retention in itself. By not continuing their efforts in cultivating their satisfied clients to become repeat purchasers, the firms are actually leaving their good work to waste - the job is literally three-quarter done, rather than half done. They just need to apply a bit more efforts and commit some more resources going through that extra yard in their way to the finishing line (i.e. the client retention). The remaining one-quarter of that extra efforts could be fulfilled by relationship marketing.
CONCLUDING REMARKS
In summary, thinking about relationship marketing has been evolving, and still is. However, the fact that the subject is relatively new in comparison to other marketing issues does not mean that construction organisations, quantity surveying firms included, cannot learn and implement this concept. Quantity surveying firms can slowly put relationship marketing into practice by gradually and proactively creating, developing and maintaining committed, interactive and profitable exchanges with their selected clients.
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