Customer Value And Customer Satisfaction

Creating customer value and building customer relationships are regarded as some of the main issues in Relationship Marketing in achieving customer satisfaction. However, there is still also the view that in some situations it is better for relational marketing (RM) strategies to coexist with transactional marketing (TM) rather than replacing them (Gummesson 1994).

This report is to investigate when TM and RM strategies are to be be used in creating customer value and customer satisfaction. I have chosen Greggs Plc to illustrate my case .

Contents

Introduction

Literature review Transactional marketing (TM ) &

Relational marketing (RM)

Creating customer value and customer satisfaction. Case analysis Greggs Plc.

Conclusions and recommendations

Introduction

This report will investigate when transactional marketing and relational marketing strategies could and should be used in creating customer value and customer satisfaction for an organisation The report will look at the differences between the two types of marketing strategies and come to a conclusion as to the best strategy for creating customer value and customer satisfaction for Greggs plc .

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Literature review .

Transactional marketing

“Marketing is the process of planning and executing the conception , pricing , promotion , and distribution of ideas, goods, and services to create exchanges that satisfy individual and organisational objectives.” Gronroos ( 1997). “The basis elements of the marketing mix: Product , place (distribution), price and promotion; the four P’s are also the controllable variables of marketing as they can be controlled and manipulated by the marketer. ” Hollensen (2010). Companies characterised by transactional marketing are usually consumer packaged goods. The managerial intent of transactional marketing is customer attraction and to satisfy the customer at a profit. “To use a marketing metaphor , the marketing mix and its Four P’s constitute a production -oriented definition of marketing , and not a market-oriented or customer- oriented one.” Gronroos (1989). A disadvantage for the customer is he/she has a short term relationship with the company. “Maintaining an arm’s length relationship is vital for marketing efficiency within transactional marketing. The model of transaction marketing (the four P’s) rests on three assumptions : The customers and their needs are fairly homogeneous ; it is rather easy to replace lost customers with new customers and there are a large number of potential customers. “Hollensen (2010). One of the flaws of the transactional marketing approach would be “the lack of any formal and precise specification of the properties or characteristics according to which marketing mix elements should be classified.” Waterschoot & Bulte (1992). The 4P’s model does not include an integrative dimension. Transactional marketing is a one off transaction executed by the customer and therefore it is short term , creating no long term relationship with the customer. A transaction marketing approach includes no customer contacts outside the product and other marketing mix variables. “With a transaction marketing strategy, there are no ways of continuously measuring market success other than monitoring the market share. ” Gronroos (1997). Measuring continuous market success would therefore be very expensive for transactional marketing. “The 4P’s could never apply to all markets and to all types of marketing situations. ” Gronroos (1997). The 4P’s model has become a strait-jacket for marketers , marketing is seen as a social process with more perspectives than that. “A strategy that has been relegated to being undesirable is transactional strategy. ” Sharma (2003) .The use of the 4P’s has made it difficult to earn credibility, thereby causing firms to downscale or get rid of their marketing departments.

Relationship marketing

Gronroos, (1990, 1994) suggests a relational definition of marketing : “Marketing is to establish , maintain , and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties are met. This is achieved by a mutual exchange and fulfilment of promises. ” Gronroos, (1990, 1994) . Establishing a relationship with a customer firstly we have to attract the customer and build a relationship with that customer and to build the relationship so that the economic goals of that relationship are achieved. Part of the relationship marketing approach is the “promise” which has been emphasized by Calonius (1988) . According to Calonius a firm that gives “promises” may attract new customers and initially build relationships with its customers. “Fulfilling promises that have been given is equally important as a means of achieving customer satisfaction , retention of the customer base, and long -term profitability. ” Calonius (1988).

Another element of the relationship is trust . Moorman et al. defined trust as ” …a willingness to rely on an exchange partner in whom one has confidence. ” Moorman (1993). Trust is a behavioural intention and reflects reliance on the other party . Trust therefore involves uncertainty on the part of the trustor. It is sometimes not certain who is the trustor and who is the trustee in many relationship marketing scenerios. “Philip Kotler concludes in a recent article that companies must move from a short- term transaction-oriented goal to a long -term relationship-building goal. In an interview in the Marketing Science Institute Review in 1991, Philip Kotler states that : A paradigm shift , as used by Thomas Kuhn … occurs when a field’s practitioners are not satisfied with the field’s explanatory variables or breadth…. What I think we are witnessing today is a movement away from a focus on exchange – in the narrow sense of transaction – and toward a focus on building value-laden relationships and marketing networks….. We start thinking mostly about how to hold on to our existing customers…. Our thinking , therefore, is moving from a marketing mix focus to a relationship focus. ” Kotler (1992). Frederick Webster is another American opinion leader in marketing, came to a similar opinion : ” There has been a shift from a transaction to a relationship focus. From an academic or theoretical perspective , the relatively narrow conceptualization of marketing as a profit-maximization problem, focused on market transactions or series of transactions , seems out of touch with an emphasis on long-term customer relationships and the formation and management of strategic alliances. ” Webster (1992) . Gummesson (1994, 1999) identified 30 types of relationships, “From 4Ps to 30R’s . The relationships are divided into four levels: Classic market relationships – The supplier-customer-competitor, and the physical distribution network. Special market relationships- Interaction in the service encounter, the customer as a member of a loyalty programme. Mega relationships – Concern the economy and society in general, public opinion and political power. Nano- relationships – Are relationships inside an organisation. Relations between internal customers,internal markets, divisions and business areas within organisations. ” Gummesson (1994, 1999).

“Profit chains, “the indisputable logic” according to Gummesson , 1999: “

Good internal quality

Satisfied employers (employee retention)

Good external quality

Customer satisfaction

Customer retention

High profitability

The profitability of relationships is one of the key goals of marketing. Gronroos , (1994). To compare relational marketing with the traditional transactional marketing , relational marketing is not focused on transactions as such but on an ongoing sequence of episodes between the customer and the firm. “Marketing , service quality , and customer satisfaction all have to be analysed both on an episode level and on a relationship level. Relationship marketing is more focused on keeping customers and enhancing the relationship with them. ” Storbacka (1994). It is useful to think of strategies along a marketing strategy continuum with relationship marketing at one end and transactional marketing at the other. Brodie (1997). Relationship marketing, therefore, has a lot of benefits for the customer and the firm as there is customer satisfaction leading to customer retention , quality of product and high profitability for the company and also longevity of relationship between the customer and the company.

Creating customer value and customer satisfaction – Case analysis Greggs Plc.

The basic assumption is that customer satisfaction drives profitability (Gronroos, 1990). A satisfied customer will create a strong relationship with a provider thus leading to relationship longevity , customer retention and customer loyalty. Service quality leads to customer satisfaction , which leads to relationship strength, in turn leading to relationship longevity, and customer relationship profitability. Satisfaction is thus related to perceived value. One way to achieve strong relationships and , thus, long relationships are to ensure that customers are satisfied. “Gronhaug and Gilly (1991) argued that dissatisfied customers may remain loyal because of high switching costs.” Storbacka (1994). “Liljander and Strandvik (1993b) define loyalty as only repeat purchase behaviour within a relationship. Commitment is defined as the party’s intentions to act and their attitude towards interacting with each other.” Storbacka (1994). Customer loyalty is not always based on a positive attitude, and long – term relationships do not necessarily require positive commitment from the customers.

The link between Customer Satisfaction

And Relationship Strength. Figure 1.

Relationship strength

Weak Strong

Expected

Outcome

Contextual or

Perceptual bonds

Outweigh the lack

Of satisfaction

Low customer commitment. The Relationship is not perceived as Important by the customer.

Expected outcome .

Low

Customer

Satisfaction

High

In the above diagram “Customer satisfaction is only one way of increasing relationship strength – see Figure 1.” Storbacka (1994). Satisfaction can be defined in a number of ways. ” Satisfaction is related to a subjective evaluation of emotions.The emotion occurs as a function of disconfirmation and relative output to input. The result is a positive or negative feeling of fulfilment.” Egan (2004) Customer satisfaction can be monitored by looking at market share and also customer satisfaction surveys and customer opinion polls. If a customer base is stable , market share is a good measurement of satisfaction, but how do we know if a firm has customer stability ? With a transaction marketing strategy , there is no way of measuring market success , besides monitoring market share. A firm that applies a relationship- type strategy can monitor “customer satisfaction” by directly managing its customer base. This data base system forms a valuable source of information for long term decision making. In transaction marketing, it is hard and expensive to build up a database, this being a disadvantage.

With transactional marketing, the internal interface between functions has no strategic importance to the company. However, in contrast, for a firm looking at a relationship marketing strategy the internal interface between marketing operations , human relations and other functions of the business is a strategic importance to the success of the business.

Horizontal relationships with competitors and complementors can “add value” to customers. The value chain becomes a value network , this creates value for the customer through a series of complex relationships , the result is the value net. “Relationships and interactions are between : Customers , suppliers, competitors, internal relationships and complementors. See figure 2. ” Hollensen ( 2010).

The vertical network

The horizontal network

Vertically suppliers and customers are equal partners in creating overall value. The value net helps us understand our competitors and complementors and to get to know the business better.

“A firm that offers a lower price or better terms is a dangerous competitor , because , in transaction marketing the price sensitivity of customers is often high . A firm pursuing a relationship marketing strategy , on the other hand , has created more value for its customers. Such a firm develops over time more and lighter ties with its customers. Such ties may , for example , be technological , know-ledge related or information-related, or social in nature. Relationship marketing makes customers less price sensitive and provides customers with “added value.” Gronroos (1997)

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Greggs Plc , the home of fresh baking , is the leading bakery retailer in the UK. Expert bakers for the last 70 years , selling delicious , freshly baked, quality food at great value prices to million customers each day, in over 1,500 shops around the UK. Greggs Plc are a baker and a retailer, with ten regional bakeries supplying the 1,500 shops; a central savory production unit , making all the savouries; with their own fleet of 375 delivery vehicles , to ensure that their food is fresh each day for their customers. The most appropriate competitive strategy for Greggs Plc would be a relationship marketing approach , thereby creating a cost advantage and “great value” prices for their customers and “customer satisfaction.” Greggs Plc have also adopted “economies of scale” and now have a central location for their whole business based in Jesmond, Newcastle -upon – tyne ,making the business more central and more efficient. Greggs Plc have recently opened a new bakery for savouries in Longbenton, Newcastle-upon-tyne to serve their expanding business management operations, as part of their increasing growth plans. Greggs Plc have adapted a relationship marketing approach to marketing their products with their customer base , although the transactional marketing strategy still coexists. The 4 P’s : Product , price, place and promotion still exist on their web site with a strong emphasize on tempting deals. Customer focus includes value meal deals, muffin double deal, croissant and orange juice breakfast meal deal, soup and sausage roll deal and today’s special: “Superstar Doughtnut !” Greggs Plc have promotions throughout the year e.g. Halloween , Easter , Valantine’s day , Queen’s Jubilee, Christmas where they will have different products and promotions on ,therefore attracting and retaining a lot of their loyal customers. Gregg’s products are competitively priced and offer “good value” in these recessionary times. Looking at Gummesson , 1999 , profit chains model : There is good internal quality in the bakeries.There is satisfied employers (employee retention) long time some twenty six years within the business ! Greggs look after their staff and train them well. There is good external quality, customer satisfaction is there, customer retention and high profitability (good for shareholders). The company plans to open 28 new shops in Moto service stations (franchise) and 60 new shops are set to launch in the latter half of 2012. Another “Greggs Moment” coffee shop is to open in the Metro Centre, bringing the total to five. Greggs Plc have economies of scope with “Iceland frozen” foods and their “bake at home range” which has been a great success recently. In a recent press release (The Northern Echo- Business News) Mr. Ken McMeikan CEO stated: ” They were very happy with their relationship with Iceland.”

Conclusions and Recommendations.

With transactional marketing, the internal interface between functions has no strategic importance to the company. However, for Greggs Plc looking at a relationship marketing strategy the internal interface between marketing operations , human relations and other functions is of strategic importance to the success of the business. Media sources such as Facebook and twitter have added a further marketing dimension to Greggs Plc. A book on the history of Greggs Plc and a documentary is to be released in March 2013, further promoting and marketing the success of the business.

Using a S.W.O.T and P.E.S.T.E analysis of the Greggs Plc the following can be summarised: Greggs Plc have to be constantly aware of what their competitors are doing whilst marketing their own products in the market place. Gregg’s main competitor’s are Pret A Manger, Starbucks, and Costa Cafe which are a threat to their business . Gregg’s Plc strengths are that they are a baker as well as a retailer including cakes and pasteries, sandwiches , savouries and fresh coffee, they have a strong brand name which reflects “quality” and “value”. Greggs Plc does a lot of charity work for “Children in Need” and “breakfast clubs” with local schools and underprivileged children. Greggs have recently increased their product range lines adding to their “food on the go” range of sandwiches , bread sticks and cakes. Gregg’s Plc future opportunities in the market are to develop internationally , they already have a contract with the NAAFI supplying savouries to the German troops ! P.E.S.T.E stands for political, economic ,social and technological factors in the external environment of an organisation which can effect its activities and performance. Gregg’s products are “good value” and ” fresh quality” in todays market as the customer’s budget has been squeezed with the recession , this creates a competitive advantage. Gregg’s long term marketing strategy for the future is to expand into Scotland and the SW of the UK and also international, thus increasing its brand name. Greggs Plc plans to add 500 new shops in the next few years, creating 6,000 new jobs. Advances in technology within the bakery has helped make the business more efficient. Economically the “Pasty tax” VAT row that went through parliament could have caused great economic loss for Greggs Plc , and a threat to the business, however the decision went the other way.