Marketing Principle #3 All Competitors React  Managing Relationship-based Sustainable Competitive Advantage Agenda

Relationship Marketing Builds Customer Relational Equity

• Marketing Principle #3 focuses on building and maintaining barriers, or sustainable competitive advantages (SCA), to competitive attacks, based on the premise that competitors react continually to a firm’s success
• Relationship equity refers to the aggregation of relational assets and liabilities, associated with the firm’s boundary-spanning employees and social networks linked to the offering or experience, that add to or subtract from the value provided by the firm’s offering
• Relationships powerfully affect behavior; relational-based decision making is ingrained in people’s psyches
• Strong affect on performance outcomes (meta-analysis of 20 years of data across 38,000 relationships)
• WOM (r = .61, p < .01)
• Loyalty (r = .52, p < .01)
• Objective performance (r = .35, p < .01)

(Palmatier et al. 2006)

Many Trends are Increasing Effectiveness of RM Strategies

• Shift to service economies
• Increase in use of marketing channels
• Aging population and shift of purchasing power
• Increased global competition, “me too” offerings, and faster “product” commoditization
• Firms look for additional sources of SCA and higher marketing ROI (advertising saturation)

(Fang, Palmatier, and Steenkamp 2007; Palmatier 2008)

Benefits from Relationship Equity

• Relationship marketing efforts seek to improve relationship characteristics with an exchange partner and build relationship equity, in the hope of ultimately improved financial performance
• RM activities do not affect financial performance directly
• Instead, they help build relationship equity, which influences customer behaviors, which improves the seller’s financial outcomes
• This chain of effects operates through four mechanisms:
• Cooperative behaviors
• Relational loyalty
• Referrals or word of mouth (WOM)
• Empathetic behaviors