© e. gummesson 2009 1 service and relationship marketing (srm) stockholm university school of...

© E. Gummesson 2009

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SERVICE AND RELATIONSHIP MARKETING (SRM) Stockholm University School of Business February 2009

TOTALRELATIONSHIP MARKETINGPART 1: SUMMARY AND EXAMPLES

SupplierCustomer

SupplierCustomer

SupplierCustomer

SupplierCustomer

Professor Evert Gummesson

SupplierCustomer

SupplierCustomer PREVIOUS LECTURE


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This is glimpses from an adventurous and never-ending journey within a Nordic School tradition


3SERVICE AND RELATIONSHIP MARKETING (SRM) Stockholm University School of Business February 2009

TOTALRELATIONSHIP MARKETING

PART 2:* Many-to-many marketing

* S-D logic* Service science

&summing up

TODAY


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How about the economic crisis?


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“Why have relationship marketing, CRM, and one-to-one marketing not become as succesful in practice astheir advocates had hoped?”


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“Because the focus is restricted tothe simple two-party relationship, a dyadbetween a single supplier and a singlecustomer. But we all live and act in networks and communities.”

MY ANSWER


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Traditional American marketing managementand marketing mix

Customer centric Centered on one party

Customer

Relationship marketingCRM One-to-one marketing

SupplierCustomer

Relationship centricCentered on two parties

Many-to-many marketing

Network centricCentered on many parties


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Definition:

“Many-to-many marketingdescribes, analyzes and utilizes

the network properties of marketing.”


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Madelene, daughter in the city

Dagmar, 85, neighbor

Ingrid & Gunnar, neighbors

Laila, Sverker,Linnea & Fredrik,neighbors

Retailer

Transportcompany

Electrolux

WE & OURFREEZER


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air BalticAir Chinaair greenlandAir OneAtlantic AirwaysCimber AirCity AirlineEstonian AirQantasSkywaysWideroe

Adria

3 REGIONAL PARTNERS

11 SPECIALSAS PARTNERS

Blue 1

Croatia Airlines

Star Alliance

TAP Portugal

ThaiUnited

SWISS

US Airways

Spanair

South African Airways

Austrian

Asiana Airlines

Lufthansa

LOT Polish Airlines

bmi british midland

SAS Scandianvian Airlines

Singapore Airlines

Shanghai Airlines

Air New Zealand

Air China

ANA All Nippon Airways

Air Canada

19 FULL PARTNERS

THE STAR ALLIANCE,FEBRUARY 2008


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Government

EUHotel chain headquarters

Competingdestinations

Customers:touristsbusiness travellers

Hotels

Tourist and Congress Office

THE HOTEL GROUP

Destination marketing by the town of Östersund, SwedenSource: von Friedrichs Grängsjö, Yvonne and Gummesson, Evert, “Hotel Networks and Social Capital in Destination Marketing (forthcoming 2005)


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Networks compete with networks


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Message-ID: [email protected] From: [email protected] (Linus Benedict Torvalds) To: Newsgroups: comp.os.inix Subject: What would you like to see most in minix? Summary: Small poll for my new operating system

Hello everybody out there using minix-I’m doing a (free) operating system (just a hobby, won’t be big and professional like gnu) for 386 (486) AT clones. This has been brewing since april, and is starting to get ready. I’d like any feedback on things people like/dislike in minix, as my OS resembles it somewhat

Any suggestions are welcome, but I won’t promise I’ll implement them

Linus


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“Networks are the fundamental stuff of which neworganizations areand will be made.”

Source: Castells, Manuel, The Rise of the Network Society.Oxford, UK: Blackwells, 1996, s 168


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“No business is an island.” Håkan Håkansson & Ivan Snehota

Researchers of B2B networks

“Everything touches everything.” Jorge Luis Borges

Argentinean author

“...nothing happens in islolation.” Albert-László Barabási

Professor of Physics

“No man is an island, entire of itself.” John Donne (1572-1631)

Poet

“Tell me who you associate withand I will tell you who you are”

Euripides (400 BC)Dramatist


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“Society is a network of relationships - and so is business.”

And my own conclusions:


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HUB

NODE

LINK

CENTRALIZED NETWORKDECENTRALIZED NETWORK

DISTRIBUTED NETWORK

THREE EXAMPLES:


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* Nodes and links* Hubs* Random networks* Planned networks* Clusters* Connectors* Preferential attachment* Rich gets richer* Fitness* Fit-get-rich* Winner-takes-all* Scale-free networks* Power laws* Phase transition* Robustness, error tolerance* Cascading failure* Tipping points* Thresholds* Spreading rates* Self-organizing* Six degrees of separation* What is the Internet, really?

A SAMPLE OF CONCEPTS AND

ISSUES FROM

NETWORK THEORY:


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* Nodes and links* Hubs* Random networks* Planned networks* Clusters* Connectors* Preferential attachment* Rich gets richer* Fitness* Fit-get-rich* Winner-takes-all* Scale-free networks* Power laws* Phase transition* Robustness, error tolerance* Cascading failure* Tipping points* Thresholds* Spreading rates* Self-organizing* Six degrees of separation* What is the Internet, really?

A SAMPLE OF CONCEPTS AND

ISSUES FROM

NETWORK THEORY:


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Albert-László Barabási, Professor of Physics, in Linked: The New Science of Networks (2002) underscores network applications to markets:

“…understanding network effects becomes the key to survival in a rapidly evolving new economy.”

(p. 200)

“In reality, a market is nothing but a directed network.”

(p. 208)


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Networks of life:the network of agalaxy


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Networks of life:network of interactionsbetween proteins inbaker’s yeast

Source: Buchanan, Mark (2003), Small World. London: Phoenix, p. 144.


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Source: Buchanan, Mark (2003), Small World. London: Phoenix, p. 81.


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OVERLOAD?

TOO COMPLEX?

YES, BUT COMPLEXITY IS CHARACTERISTIC OF LIFE AND BUSINESS!


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SERVICE-DOMINANT LOGIC(S-D LOGIC)


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STAGE 1. SERVICE MANAGEMENT AND

SERVICES MARKETING GET STARTED


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GOODSSERVICES

THE MARKETING LANDSCAPE IN THE 1970s

SOMETHING WASMISSING!


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THE FOCUS WAS ON* the division of goods and services* differences between goods and services

This was perhaps a necessary buttransient stage. Let’s scrap it!


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STAGE 2. S-D LOGIC

FROM DIVISION TO UNIFICATION


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S-D logic is based on a synthesis of service researchand its future directions

by Steve Vargo and Bob Lusch


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References:

Total Relationship Marketing pp. 9-11 and other pages (see Index)

Vargo, S. L. and Lusch, R. F. (2008), “Service-dominant logic: continuing the evolution”, Journal of the Academy of Marketing Science, Vol. 36 No 1, pp.1-10.

Vargo, S. L. and Lusch, R. F. (2008), “Why ‘service’?” Journal of the Academy of Marketing Science, Vol. 36 No 1, pp.25-38.


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THE MARKETING LANDSCAPEOF THE FUTURE

SERVICE or VALUE


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Foundational premise (FP) of S-D logic

Revised and extended version 2008


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FP1Service is the fundamental basis of exchangeThe application of operant resources (knowledge and skills), “service,”as defined in S-D logic, is the basis for all exchange. Service is exchanged for service

FP2 Indirect exchange masks the fundamental basis of exchangeBecause service is provided through complex combinations of goods, money, and institutions, the service basis of exchange is not always apparent

FP3 Goods are a distribution mechanism for service provisionGoods (both durable and non-durable) derive their value through use – the service they provide

FP4 Operant resources are the fundamental source of competitive advantageThe comparative ability to cause desired change drives competition

FP5 All economies are service economiesService (singular) is only now becoming more apparent with increased specialization and outsourcing


38FP6 The customer is always a cocreator of valueImplies value creation is interactional

FP7 The enterprise cannot deliver value, but only offer value propositionsEnterprises can offer their applied resources for value creation and collaboratively (interactively)create value following acceptance of value propositions, but can not create and/or deliver valueindependently

FP8 A service-centered view is inherently customer oriented and relationalBecause service is defined in terms of customer-determined benefit and co-created it isinherently customer oriented and relational

FP9 All social and economic actors are resource integratorsImplies the context of value creation is networks of networks (resource integrators)

FP10 Value is always uniquely and phenomenologically determined by the beneficiaryValue is idiosyncratic, experiential, contextual, and meaning laden


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STAGE 3. COMBINING S-D LOGIC WITH MANY-TO-MANY MARKETING:

VALUE IS CREATED IN NETWORKS


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OUR FREEZER

Madelene, daughter in the city

Dagmar, 85,neighbor

Ingrid & Gunnar,neighbors

Laila, Sverker,Linnea & Daniel,neighbors

Retailer

Transportcompany

Electrolux

WE


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SERVICE SCIENCEA HUGE DEVELOPMENT PROGRAM

RUN BY

SERVICE SCIENCE, MANAGEMENT AND ENGINEERING (SSME)USUALLY REFERRED TO AS


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At IBM Stockholm in May 2008


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References:

Total Relationship Marketing, pp. 11-12

Maglio, P.P. and Spohrer, J., (2008), “Fundamentals of service science”, Journal of the Academy of Marketing Science, Vol. 36 No.1, pp.18-20.


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Dr. James ("Jim") C. Spohrer is the Director of Service Research at IBM Almaden Research Center in San Jose, CA. Dr. Spohrer is pioneering the development of the emerging field known as Service Science, which seeks to understand service systems and improve service quality, productivity, compliance, and innovation.


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Service Science is the study of service systems, aiming to create a basis for service innovation and improved service systems.

Service Science defines service systems as value-co-creation configurations of people, technology, value propositions connecting internal and external service systems, and shared information (e.g., language, laws, measures, and methods).

The smallest service system centers on an individual as he or she interacts with others, and the largest service system comprises the global economy. Cities, city departments, businesses, business departments, nations, and government agencies are all service systems.


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Service Science combines organization and human understanding with business and technological understanding to categorizeand explain the many types of service systems that existas well as how service systems interact and evolve to cocreatevalue.

The goal is to apply scientific understanding to advance our ability to design, improve, and scale service systems.

The Service Science project has taken a grand grip on service by inventorying what is done in universities, engaging not only business schools but also schools of technology and other disciplines and by starting new training programs and research projects.


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In its beginning Service Science was technologically-focused and was first called Services Science based on the idea that there is an identifiable service sector which grows.

After contact with S-D logic the s in services was dropped. This is one of several tokens of IBM’s sensitivity to new knowledge. There is a desire to innovate efficient service systems and to reduce the gap between theory and practice through multidisciplinary cooperation engaging both academe and business.

The Service Science project has been in a state of search and in 2007 a strategy could be discerned. The project is promising and can make a pivotal contribution to business and several management disciplines in the current and future economic reality.


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T. J. Watson, Jr., President of IBM 1952-1971

RE-THINK


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IBM Nobel Prize Winners

1987 K. Alex Mueller, along with his colleague, J. Georg Bednorz, was awarded the Nobel Prize in Physics in 1987 for his discovery of high-temperature superconductivity in a new class of materials.

1973 Leo Esaki was awarded the Nobel Prize in Physics in 1973 for his discovery of tunneling in semiconductors.

1986 Gerd K. Binnig, along with his colleague, Heinrich Rohrer, was awarded the Nobel Prize in Physics in in 1986 for his work in scanning tunneling microscopy.

1987J. Georg Bednorz, along with his colleague, K. Alexander Mueller, was awarded the Nobel Prize in Physics in 1987 for his discovery of high-temperature superconductivity in a new class of materials.

1986 Heinrich Rohrer, along with his colleague, Gerd K. Binnig, was awarded the Nobel Prize in Physics in 1986 for his work in scanning tunneling microscopy.


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Benoît B. Mandelbrot (born 1924) is the father of fractal geometry. Worked at the IBM Thomas J. Watson Research Center in Yorktown Heights, New York from 1955 to1987.

Partial list of awards (but not the Nobel Prize):

•2004 Best Business Book of the Year Award •AMS Einstein Lectureship •Barnard Medal •Caltech Service •Casimir Frank Natural Sciences Award •Charles Proteus Steinmetz Medal •Franklin Medal •Harvey Prize •Honda Prize •Humboldt Preis •IBM Fellowship

Japan Prize •John Scott Award •Lewis Fry Richardson Medal •Medaglia della Presidenza della Repubblica Italiana •Médaille de Vermeil de la Ville de Paris •Nevada Prize •Science for Art •Sven Berggren-Priset •Władysław Orlicz Prize •Wolf Foundation Prize for Physics


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Mandelbrot extended the scope of science to non-smooth parts of the real world, beyond the circle, square and the triangle.


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A fractal is an irregular geometric object that is self-similar to its substructure at any level of refinement.


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Mandelbrot emphasized fractals as realistic and useful models of many phenomena in the real world that can be viewed as rough.


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Natural fractals include the shapes of mountains, costlines and river basins; the structure of plants, blood vessels and lungs; the clustering of galaxies.

Man-made fractals include companies, management, service, and stock market prices, but also music, painting, and architecture.


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ILLUSTRATIONS TO OUR NEED TO

RETHINK


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Would we consider to squeeze the automobileinto the terminology of a horse and carriage?

Or force electronics into the languageof mechanics?

When are we going to stop squeezing goods, service and other phenomena into non-representative categories and instead recognize their complexity and true nature.


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Economies are traditionally divided into three sectors:

The industrial (or manufacturing or goods) sectorThe service sectorThe agricultural sector


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But is there a

SERVICESECTOR?


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...but we never had so much food

and have never been so overweight!

According to statistics, the agricultural sector is going down


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From the film ”The Meaning of Life” (Monty Python)


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...but we never had

so many products!

According to statistics, the industrial/manufacturing/goods sector is going down


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...but do we have the service we need?

According to statistics, the service sector is going up, up, up...


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Waiting lines – arethey good service?

“Just now there are many peoplecalling. Your waiting time is17 minutes. You can also go toour website www……

EMERGENCY CLINIC


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Do the statistics consider the work done buy customers? NO!

But most of the value added to any delivery or offering comes from the customer’s or citizen’s work, in part together with suppliers and governments

When service systems fail, companiesand government organization pass mostof the work on to customers and citizens


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Exemples of systems with low capability:

the legal system

the health care system

the financial system

They are not really systems,they are loosely connected fragments


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Buying a car:Manufacturing/industrial sector

Renting a car:Service sector

From a customer perspective: The supplier’s job is to make the car availableThe service of the car is transportation


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Service

Service

Agriculture

Manufacturing

Example:a restaurant

A restaurant is dependent on the factory (kitchen)and the food (from the agricultural and manufacturing sectors).The only sector it can do without and still feed people is the service sector. And yet it is classified as belongingto the service sector!

X


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The division in sectors is totally supplier and labor market focused

Customers and citizens are not in focus at all!

The ”growth” of the service sector is a statistical caricature and a distortion of what is happeningin today’s economy.


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The service sector is a ghost!


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SUMMING UP TOTAL

RELATIONSHIP MARKETING


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Total relationship marketing is interaction in networks of relationships, recognizing that marketing is embedded in the total management

of the networks of the selling organization, and its nano, market and mega relationships. It is directed to

long-term win–win relationships with individual customers, and value is co-created between the

parties involved. It transcends the boundaries between specialist functions and disciplines. It is

made tangible through the 30 relationships, the 30Rs. Total relationship marketing represents

a paradigm shift in marketing.

p. 40 in Total Relationship Marketing


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HOW ABOUT TRADITIONAL MARKETING MANAGEMENT &

THE 4Ps OF THE MARKETING MIX: PRODUCT, PRICE, PROMOTION & PLACE?


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From: [email protected]: Evert GummessonCopy: Subject: Comments on your papers

December 3, 2004 Dear Evert: ---The question becomes whether marketing management theory is useful as a subspecie of network theory or should be totally rejected as leading to specious conclusions and dysfunctional marketing decisions. ---Best regards,Phil

EXCERPT FROM AN EMAILFROM PHILIP KOTLER


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The 4Ps are neither 4 nor Ps any more!

See Total Relationship Marketing pp. 320-327


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P


77product: goods and servicespricepromotion: personal selling, advertising, SP place: distribution

experienceslifestylesdreamseventsstorytellinginformation

public relations, PRbrandingsponsoring political influence

public opinionlobbying

call centerstelemarketingTVemailInternetmobile phonestext messaging

scientific researcheducation

VALUE PROPOSITIONSupplier

CustomerVALUE ACTUALIZATION


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RM is more total than ever. S-D logic and the integration of goods and

services into service and value propositions;; the growing importance of the customer in co-creation and C2C; CRM as part of a company’s business system; many-to-many marketing addressing the whole network of stakeholders; the value-creating

network society; and the coming of service science –

they all point in the direction of a more systemic and complete view on marketing.


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How about the economic crisis?


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Do we ever learn from our mistakes?


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2001

The ENRON scandal


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July 5, 2006Enron’s Ken Lay dies of a heart attack in Colorado. He was 64.The charges against Lay carry a maximum penalty of 45 years in prison for the corporate trial and 120 years in the personal trial.

October 23, 2006 Jeff Skilling gets 24 years in prison for Enron fraud.


83Guilty of obstruction, Arthur Andersen, one of the five large firms of certified public accountants becomes the first courtroom casualty of the Enron collapse. In 2002 it ceased to exist leaving 85,000 employees behind.

THE SCENE: Arthur Andersen's Houston branch


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”If history holds one lesson, it’sthat we never learn from history”


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Must that be so?


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What can political leaders do?


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1. Make sure companies can get extended credit and other financial support for survival 2. Reduce interest rates3. Start public investment programs 4. Tax reductions that stimulate investment and consumption 5. Do away with stifling labor market regulations6. Speed up decison-making processes in public service agencies7. Psychological crisis, instill hope in people


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What can business leaders do?

Suggested in an article in Fortune (European Ed.),January 19, 2009, pp. 66-71 (”How to Manage Your Business in a Recession,” by Geoff Colvin)

1. Reset priorities to face the new reality

2. Keep investing in the core

3. Communicating like crazy, balancing realism and optimism

4. Your customers face new problems, so give them new solutions


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5. Don’t rush to cut prices

6. Focus on capital – how are you getting it and where are you using it

7. Reevaluate people – and steal some good ones

8. Reexamine compensation – what is it offering incentives for

9. Think twice before offshoring

10. Be smart about mergers and acquisitions


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In conclusion:

Back to basics!or rather

Forward to basics!


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relationship marketing

networks and many-to-many marketing

S-D logic and

service science

Forward to basics! is also what we try to achieve by developing

marketing thinking along the lines of


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THE END

© e. gummesson 2009 1 service and relationship marketing (srm) stockholm university school of...

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