The Modern Marketing Orientation – Relational versus Transactional Marketing

Peter Drucker (1954) is thought to be one of the earliest proponents of modern marketing. He suggested that the purpose of the company is to create a customer.

Drucker advocated that organisations should have a guiding philosophy that puts the customer as the focal point of the entire company.

Most companies today would accept that without customers to sell products, services, or ideas to, they would not exist.  Yet over fifty years down the track,  too few actually act on that concept

Levitt (1960) was one of the first to coin the phrase ‘the marketing concept’. He described it as a customer focus, co-ordinated marketing effort, and profitability. In the same article he argued that ‘market orientation’ could be the key to company success.

He (Levitt, 1977 ) argued that the marketing concept prescribes that “business success requires being customer oriented rather than-product oriented…”.

Philip Kotler (1977) added to these ideas when he discussed what he believed it took for an organisation to be market oriented. He suggested that market orientation includes: a consumer centric philosophy, an integrated marketing focused organisation, adequate market information, strategic orientation and operational efficiency.

To be market oriented means more than just focusing on customer satisfaction, although obviously customers are the main focal point of the company. It also means more than just having marketing personnel or a marketing department. Being market oriented is the responsibility of the entire organisation and will lead to good business practices such as operational efficiency.

Distinguishing market orientation

It was not until the early 1990s that marketing academics began to empirically examine the assumption that the adoption of the marketing concept by an organisation would lead to improved performance.

These early studies were the first attempts to gather empirical support for the proposition that a firm that had adopted the marketing concept would benefit through improved performance. The term market orientation was used to describe the “operationalization” of the marketing concept by a firm.

These foundation studies instigated a stream of research in market orientation (for example see articles by Cadogan, Deng,, Diamantopoulos, Greenley, Jaworski, Kohli, Mohr-Jackson, and Pelham).

Defining the marketing concept

As mentioned earlier  market orientation is argued to be the implementation of the marketing concept.

There is consensus among academics that any definition of a “market orientation” should stress that the customer is the core focus of the organisation.

The term “market orientation” also stresses the need for all personnel to have a market focus. For an organisation to achieve operational efficiency and effectiveness all departments must adopt a market orientation. A market orientation it is not the exclusive concern of a marketing department, as the term “marketing orientation” may suggest.

The benefits of a market orientation

Why would a company want to pursue a market orientation? What benefit is it to them? Narver and Slater suggested that being market oriented would lead to superior performance for the business.

Some would argue that having a focus on customers and aiming to satisfy their requirements is a costly exercise. However, the benefits of market orientation have been shown to include financial gains for the organisation, improved customer satisfaction, improved workplace conditions, and superior new product performance.

Competitive Advantage

A strong customer orientation forms the foundation of an organisation’s sustainable competitive advantage. Developing a thorough understanding of all customer groups allows an organisation to develop products and services that are tailored to customer needs and requirements. If an organisation can provide superior value to their customers, there is a greater likelihood of purchase, repeat purchase, and word-of-mouth recommendations. This will lead to a potential increase in sales, market share, and profitability.

For a competitive advantage to eventuate, an organisation must provide value to its customer that is superior to that of its competitors.

If an organisation is going to achieve optimal quality and value for the customers it is essential that every employee in the “chain of production” be committed to working toward this goal. A delay in delivery, a production flaw, a rude credit officer, or an unreturned phone enquiry can all contribute to the customer’s perception of your offering.

If every employee provides a product (goods and services) of optimal value to the next person in the chain of production, then the final product should be of optimal quality. However, the end consumer will notice weak links in this chain.

Types of Benefits

Organisations have embraced the marketing concept since its introduction in the 1950s. It has long been generally accepted that if a company is to be successful in the long-term it must focus on its customers. Surprisingly, however, the relationship between business performance and market orientation was not tested until Narver and Slater did so in 1990.

By developing a measure that captured the essence of a market orientation, Narver and Slater (1990) were able to provide statistical evidence that a relationship existed between market orientation and company performance. Since then, this relationship has been examined in a wide number of countries, different economic environments, in small and large organisations, and in companies from a broad range of industries.

Efficiency

Having a marketing orientation is also about being better able to focus limited resources more efficiently to achieve results.  Having a defined target market and understanding that market makes for good economic sense.

One of the benefits of developing a market orientation is the operational efficiency that results. If every employee has a consistent understanding of the marketplace and is working toward creating value for the customer, then there will be fewer “quality” issues and organisational efficiency will improve. Costs will be reduced and the time taken to get products to the customer will improve. These benefits are based on the same principles as total quality management (TQM), which was advocated for many years.

Sales Effectiveness

While “sales” may not always be the main objective of an organisation (NFP’s like charities for example may have other primary objectives) it is the most common “objective”.

A marketing orientation makes all forms of Promotion (a main element of the Marketing Mix) including personal Selling easier and more effective.  Knowing more about a customer is going to make the process more effective and efficient.  First, time and effort are saved in not seeking out a potential buyer.  The types of buyer are detailed in

Financial Performance

There have been positive relationships found between market orientation and a range of financial performance measures including business profitability, operating profits, profit-sales ratio, cash flow, return on investment, return on assets, and long run financial performance. Being able to demonstrate the impact of market orientation on a company’s bottom line is important if funds are going to be devoted to developing a market orientation.

The impact of a market orientation on a company’s financial performance stems from the provision of superior customer value. If an organisation offers a product with superior customer value, then they will have more satisfied customers, more repeat sales, and therefore greater sales revenue. If customers are satisfied they will also be a source of word-of-mouth recommendations, hence increasing sales and profits further.

Much of the improvement in financial performance may come about from the organisation being integrated in its approach to satisfying customer needs. Implementing a market orientation program can act as an initiative to eliminate activities and processes that do not add value to the customer. As information is disseminated, activities that are performed in duplicate are also identified and eliminated. This reduces internal costs and impacts on operational efficiency and the bottom line.

Customer Satisfaction

The underlying reason organisations adopt a market orientation is to ensure that superior value is created for their customers. Pursuing a market orientation has a positive influence on customer service levels (Cole et al., 1993), customer retention (Narver & Slater, 1990; Balakrishnan, 1996), repeat business (Balakrishnan, 1996), and sales growth (Slater & Narver, 1994a; Slater & Narver, 1996).

There is also evidence that a market orientation will lead to trust, cooperation, satisfaction, and commitment between channel members (Baker, Simpson, & Siguaw, 1999).

Employee Satisfaction

An organisational commitment to a market orientation has been found to have benefits for employees as well as customers.

An important component of developing a market orientation involves making employees aware of the common goal they are trying to achieve (customer focus), and understanding what their individual role is in this process. This decreases role ambiguity and demonstrates to employees that they are making a positive contribution to the organisation. Employees derive a sense of pride in their own work and in belonging to an organisation with a positive focus.

Therefore, accomplishing this objective leads to job satisfaction, commitment to the organisation, and trust in senior management. Subsequently, a better work environment for employees and increased productivity leads to overall organisational success.

From the organisation’s viewpoint additional benefits of developing a market orientation include increased productivity, worker satisfaction, employee quality of work life, lower turnover and absenteeism, and improved interfunctional teamwork. When employees identify with the norms and values of an organisation (such as market orientation), they are less inclined to be discouraged with their work and resign. Therefore, the costs associated with hiring new employees are minimised.

Product Innovation

There are two conflicting viewpoints on whether market oriented companies are more proficient at releasing successful new products than non-market oriented companies. A company can be market-focused and develop successful new products. However, some authors believe that focusing on customer needs will restrict their research and development and stifle creativity.

They believe that if firms were to rely on customer opinions then products such as the microwave oven would never have been invented, as customers cannot perceive what doesn’t exist. This view suggests that customers are unable to express their latent needs or think outside of improvements to existing products.

The opposing notion is that if a company focuses on generating market information it is more likely to identify relevant latent customer needs and act on market opportunities they identify. This suggests that an organisation can be both market-oriented  and entrepreneurial simultaneously.

Research by Lukas and Ferrell (2000) has added support to this notion by identifying that a customer oriented company is more likely to develop radical new product innovations.

Market Orientation and Market Share

Although the evidence stacks up in favour of a strong relationship between market orientation and business performance, the issue  is not black and white and some conflicting results have been found. A large number of published studies have examined the relationship between market orientation and performance.

Dawes (2000) summarised the findings of relevant journal articles published from 1990 – 1999 and found that 30 of the 36 studies found a positive relationship between market orientation and performance

Relational Marketing

The basic marketing transaction is that between the seller and a buyer. The basic purpose of all marketing is to use a value exchange process between provider (seller) and buyer to achieve objectives

There are however two basic versions of marketing – the traditional (older) Transactional Marketing and the more recent Relational Marketing Strategy.  Both still operate today, but one has inherently more Likelihood of longer term success – Relational Marketing Strategy.

While Transactional marketing is focused on provider (seller) achieving their objectives, Relational Marketing Strategy, is focused on both buyer and provider (seller) achieving their objectives by working together.

Transactional marketing

Transactional Marketing is also commonly known as Traditional Marketing.

The primary purpose of Transactional Marketing (TM) is to “make a sale” now or soon; to conduct an exchange which primarily aims to meet the needs and objectives of the supplier/seller.  In this TM is an inwards focused (company’s interests) approach.  It is an approach that focuses upon developing short term (basically single) transactions with buyers.  In most instances, it is only a secondary intention to develop a longer term series of sales.  The key approach is centred on a set of single sales (Buy Now!) rather than a XYZ.

The TM approach tends to be characterised by an emphasis on relatively short term tactical methods (for example Promotion and Pricing) but there may be a TM focused strategy used as well.

Transactional Marketing(TM) usually characterised by predominantly one-way communication methods.  The focus is on making a sale of the organisations  Product  – not creating an on-going customer.  There are different degrees of closeness to buyers/consumers

“Transactional marketing focuses on maximising the profit of the company by recruiting more and more customers to purchase the firm’s product.” (M. W. Vilcox, T. O. Mohan, 2007, Pg 53)

There can be many such transactions, but each is seen as a single activity and not part of a planned on-going relationship. The emphasis is on maximising the efficiency and volume of individual sales rather than developing a relationship with the buyer. It tends to be a long term activity

Relational marketing strategies

Essentially, transactional marketing focuses on getting the customer to buy a certain product and walk away, whilst relational marketing sees the sale as the first step in the building of a relationship – creating an on-going customer. The primary purpose of developing Relational Marketing Strategies (RMS) is to establish, enhance, maintain and commercialise longer term, on-going customer relationships so the objectives of both the parties are met.

Relational Marketing Strategy refers to the primary strategic goal (and attendant objectives) of building long-term and mutually beneficial arrangements where both the buyer and seller have an interest in maintaining a more satisfying exchange.

Relational marketing strategies bring customer centricity to the spotlight. Thus, if the organisation can build a relationship with the customer – find out who he is, what these needs will be – , it will be able to gain a lot more than just a single sale.

RMS is the overt attempt to involve all exchange partners in building a long-term association characterised by purposeful cooperation and mutual dependence and the development of social, as well as structural bonds.  Where the customer, rather than a product (goods and services), is the centre of all marketing activities.

As a practice, Relational Marketing Strategy differs from Transactional forms of marketing in that it recognises and focuses (strategically) on the value of building and maintaining customer relationships as the path to long term success.

Differences

Transactional Marketing

Primary focus on achieving organisational objectives

Single purchase

Limited to moderate customer contact

Focus on both product features and benefits

Emphasis on short-term performance

Limited customer service

Short term goal of customer satisfaction

Limited commitment to customer

Quality a manufacturing responsibility

Relational Marketing

Focus on customer retention

Repeated sales

Product benefit orientation

Close/frequent customer contact

Greater use of social media

Goal of delighting the customer

Quality at total organsation responsibility

Primary focus on value to customer

Emphasis on longer-term activities

High level of customer service


Advertisements

8 thoughts on “The Modern Marketing Orientation – Relational versus Transactional Marketing

  1. Pingback: Marketin orientation | Fairenterprisi

  2. Pingback: Mercadeo Tradicional vs. Mercadeo Relacional | Venta Consultiva

  3. The recent demise of Michael Porter’s Monitor Group highlights the wisdom of Peter Drucker all over again. The transactional sales & marketing model endures because the sales funnel is easy to understand and measure from awareness to purchase (linear steps). Relationship marketing has lacked a similar framework to allow CEOs and CFOs to take it seriously and fund it. The Lifetime Opportunity Value Equation (LOVE) model (http://bit.ly/LOVE-model) offers a common sense framework to replace the traditional sales funnel using the stages of human relationships as a guide. It’s all part of a drive toward a more strategic role for Marketing.

  4. I really liked your article and specially the clean structure makes it more easy to follow. Regarding to the point ‘Transactional Marketing is also commonly known as Traditional Marketing’, I would recommend you to have a look on ‘Transactional Marketing over Information Economies’ (http://www.faryana.com/blog/item/10-transactional-marketing-over-information-economies). It is more focused on online marketing and the new generation of the marketing. Look forward to hear your idea. Thanks

    • Thank you for your kind comments.

      I had some problems with that article you referenced. To begin with the “demographics play an important role” I think they rarelyu do. Demographics tend to be broad descriptors to which we try to ascribe more important insights. But since it is just a descriptor we end up just guessing.

      Far better to us the real marketing terms target/segment. To be properly used they need more insightful elements. I am sure you can find an article about that within my series of blogs.

      Brian

  5. By allowing your company to keep better contact with your prospectors,
    response management companies can assist with turning more leads into customers.
    Where allowed, negotiate a commission with the alliance representatives so
    they are excited about the program and work for you.
    They are also able to offer their clients solutions about how their campaign has been received,
    with tables of potential customers that were targeted with the emails,
    their response, good, bad or indifferent.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s