29 - relationship marketing of services

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Relationship Marketing of Services--Growing InterestEmerging Perspectives

Leonard L BerryTexas A M University

Relationship marketing is an old idea but a new focus nowat the forefront of services marketing practice and aca-demic research. The impetus fo r its development has comefrom the maturing o f services marketing with the emphasison quality, increased recognition of potential benefits fo rthe firm and the customer, and technological advances.Accelerating interest and active research are extending theconcept to incorporate newer, more sophisticated view-points. Emerging perspectives explored here include tar-geting profitable customers, using the strongest possiblestrategies for customer bonding, marketing to employeesand other stakeholders, and building trust as a marketingtool Although relationship marketing is developing, moreresearch is needed before it reaches maturity. A baker'sdozen of researchable questions suggests some future di-rections.

Relationship marketing is a new-old concept. The ideaof a business earning the custom ers ' favor and loyalty bysatisfying their wants and needs w as not unknow n to theearl iest merchants. G rrnr oos (1994, p. 18) ci tes this Mid-

dle Eastern prove rb from ancient trade: As a merchant,you 'd be t te r have a f r iend in every town.

Yet the blossoming of relat ionship marketing, the crea-t ion of a conceptual frame work for understanding i ts prop-ert ies and studying i ts possibili t ies, was slow to develop.Until recently, marketing's focus wasacquiring custom-ers. Formally marketing to exist ing customers to securetheir loyalty was not a top priori ty of most businesses nora research interest of marketing academics. As S chneiderwrote in 1980:

Journal of the A cademy of Marketing Science.Volume 23, No. 4, pages 236-245.Copyright 9 1995 by Acade my of Marketing Science.

Wh at is surprising is that (1) researchers and busi-nessmen have concent ra ted far more on how toattract consumers to produ cts and services than onhow to retain those customers, (2) there is almost nopublished research on the retention o f service con-sumers, and (3) consumer evaluation of products orservices has rarely been used as a cri terion or indexof organizational achievements. (p. 54)

The phrase relat ionship marketing appeared in theservices marketing literature for the first time in a 1983paper by Berry (Barnes 1994; Grrnroos 1994). Berrydefined relat ionship marketing as at tracting, maintainingand- - in mu l t i - s e rv i ce o rgan i za t i ons - - enhanc ing cus -tomer relat ionships (p. 25). He stressed that the at tractionof new customers should be view ed only as an intermedi-ate step in the marketing process. S olidifying the relat ion-ship, transforming indifferent customers into loyal ones,and serving customers as cl ients also should be co nsideredas marketing. Berry outl ined five strategy elements forpracticing relat ionship marketing: dev eloping a core ser-vice around which to build a custom er relat ionship, cus-tomizing the re la t ionship to the indiv idual cus tomer,augmenting the core service with extra benefi ts , pricingservices to encourage customer loyalty, and marketing to

employees so that they, in turn, wil l perform well forcustomers (Berry 1983).

Although relat ionship marketing terminology in theservices l iterature can be traced back to 1983, recognit ionof the need to formally market to exist ing customers ap-peared earl ier. Ryans and Witt ink suggested that manyservice firms pay inadeq uate at tention to encouraging cus-tomer loyalty in a 1977 paper. Levit t emphas ized the needfor f irms m arketing intangible products to engage in con-stant resell ing efforts in 1981. George (1977), Grrnroos(1981), and Berry (1980, 1981) each wrote about imp rov-ing the performance of service personnel as a key toretaining customers.


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Today, re la t ionship market ing is a t the forefront ofmarket ing pract ice and acade mic market ing research. Theconcept of market ing to exis t ing customers to win theircont inuing patronage and loyal ty is becoming wel l in te-grated into the var ious subdiscipl ines of mark et ing as thisspecial issue o f theJournal of the cademy of MarketingScience at tes ts . On market ing 's back burner for so manyyears , re la tionship m arket ing now si ts on the f ront burner.The p urpose of th is ar t ic le is to explore the s ta te of re la-t ionship market ing in services market ing. Reasons for thegrow ing interes t in re la t ionship market ing and emergingthemes in the li terature are discussed~ A list of futureresearch topics concludes the article.

R E L AT I O N S H I P M A R K E T I N G I N S E R V I C E SIN T H E G R O W T H P H A S E

Using produc t l i fe cycle terminology, re la tionship mar-

ket ing in both pract ice and research is beyond the int ro-duct ion s tage and on a growth curve toward becoming amature concep t . Wh at accoun ts for the accelerated interes tin re la t ionship market ing in services? Four convergentinf luences have propel led the current focus on re la t ionshipmarket ing: the m atur ing of services market ing, increasedrecogni t ion of potent ia l benef i ts for the f i rmand the cus-tomer, and technolog ical advances .

M a t u r i n g o f S e r v i c e s M a r k e t in g

The implicat ions of market ing a performance ra therthan an object are wel l unders tood today. The real i ty ofmany services being rendered on an ongoing or per iodicbasis coupled w ith the real i ty of customers forming re la-t ionships with people ra ther than goods paves the way forrela t ionship market ing. Repeated contact between custom-ers and service providers faci l ita tes re la t ionship market-i n g . M o r e o v e r, p r o d u c t i n t a n g i b i l i ty o f t e n r e q u i re sresel l ing effor ts . As L evi t t (1981) wrote:

The m os t impor tan t th ing to know abou t in tang ib leproducts is that the customers usual ly don ' t knowwhat the y ' re get t ing unt i l they d on ' t get it . Only thendo they become aware o f wh a t they ba rga ined fo r ;on ly on d i s sa ti s fac t ion do they dwell . . . i n keep ing

customers for in tangibles , i t becomes importantregu la r ly to remind and show them wha t they ' r eget t ing so that occasional fa i lures fade in re la t iveimportance. (p. 100)

The core subject as the services market ing f ie ld hasdeve loped - - se rv ice qua l i ty - -a l so has s t imula ted in te res tin re la tionship market ing. T he ob ject of improving servicequality, after all , is to engen der cu stom er loyalty. A naturalextension o f the s t rong interes t in service qual i ty is grow-ing interes t in re la t ionship m arket ing. Effect ive re la t ion-ship market ing should help a company capi ta l ize on i tsinvestme nt in service improv ement .

Berry RELATIONSHIPMARKETINGOF SERVICES 237

B e n e f i t s t o t h e F i r m

The developm ent of services marke t ing was i tse l f fu-eled by intensifying int ra type and inter type compet i t ion inthe late 1970s and early 1980s, inclu ding the deregulationof banking, a i r line , t rucking, and other service industr ies(Berry and Parasuraman 1993) . In the mid-1990s, serviceindustry compet i t ion has never been more f ierce . AT&Tand M CI a re con t inua l ly ra id ing each o the r ' s cus tomerbase, supermarkets are compet ing with warehouse c lubssuch as Sam's Club and Pr ice/Costco, discount brokerCharles Schw ab is a t t ract ing mil lions of inv estmen t dollarsfrom ful l -service brokerages and commercial bank ac-counts every week, and ai r l ines have implemented lowercost service s t ra tegies (Uni ted Express) to t ry to s tem thet ide of pr ice leader Southw est Air lines . In the m id-1990s,market ing to protect the customer base has become animperative.

Reichheld and Sasser (1990) have dem onstra ted acrossa var ie ty of service industr ies that prof i ts c l imb s teeplyw h e n a c o m p a n y s u c c e s s f u l l y l o w e r s i t s c u s t o m e r-defect ion ra te . Based on an analysis of more than 100comp anies in two dozen industr ies , the researchers foundthat the f irms could im prove prof i ts f rom 25 percent to 85percent by reducing custom er defect ions by just 5 percent .Not on ly do loya l cus tomers genera te more revenue fo rmore years , the costs to maintain exis t ing customers f re-quent ly are lower than the costs to acquire new customers .An ana lysi s o f a c red it ca rd company showed tha t lower ingthe defect ion ra te f rom 20 pe rcent to 10 percent doubledthe longevi ty of the average custo me r 's re la t ionship f rom5 years to 10 and more than dou bled the net present valueof the cumulat ive prof i t s t reams for th is customer f rom$135 to $300. I f the defect ion ra te decl ines another 5percent , the durat ion o f the re la tionship doubles again andprof i ts increase 75 percent-- f rom $300 to $525 (Reich-held and S asser 1990).

B e n e f i t s to t h e C u s t o m e r

Relat ionship market ing benef i ts the custom er as wel l asthe f i rm. For c ont inuou sly or per iodical ly delivered ser-vices that are personal ly important , var iable in qual i ty,and/or complex, ma ny customers wil l desi re to be re la-t ionship custom ers . High-inv olvem ent services a lso holdrela t ionship appeal to cu stomers . Med ical , banking, insur-ance, and hairs tyl ing services i l lus t ra te som e o r a l l of thesignif icant character is t ics--impo rtance, var iabil i ty, com-p lex i ty, and invo lvement - - tha t would cause many cus -tomers to desi re cont inui ty with the same provider, aproact ive service a t t i tude, and customized service del ivery.All are potent ia l benef its of re la t ionship market ing.

The intangible nature of services makes the m diff icul tfor customers to evaluate prior to purchase. T he heteroge-nei ty of labor- intensive services encourages custom er loy-al ty when excel lent service is exper ienced. No t only do esthe auto repair f i rm want to f ind customers who wil l beloyal , but customers want to f ind an auto repair f i rm thatevokes their loyal ty.


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238 JOURNALOF THE ACADEMYOF MARKETINGSCIENCE FALL 1995

In addit ion to the r isk-reducing benefi ts of having arelat ionship with a given supplier, customers also can reapsocial benefi ts . Barlow (1992) points out that "i t funda-mentally appeals to peopl e to be dealt with on a one-on-on ebasis" (p. 29). Jackson (1993) argues that relat ionshipmarketing addresses the basic hum an need to feel impor-tant. Czepiel (19 90) writes that because service encountersalso are social enco unters, repeated contacts naturally as-sume personal as well as professional dimensions.

Relationship m arketing allows service providers to be-come more know ledgeable about the cus tomer ' s requi re-ments and needs . Know ledge of the cus tomer combinedwith social rapport buil t over a series of service encountersfacil i tate the tai loring or customizing of service to thecustomer 's specifications.

Parasuraman, Berry, and Zeithaml (1991) report thatcustom ers ' desires for m ore personalized, closer relat ion-ships with service providers are evident in customer inter-view transcripts for b oth on going services (e.g. , insurance,truck leasing) and services provided intermittently (e.g. ,hotel , repair services). The follow ing customer commen tsil lustrate many expressed in a series of 16 focus groupsessions in f ive ci t ies (Parasuraman, Berry, and Zeithaml1991, p. 43):

They should be a par tner and more ac t ive ly g ive meadvice on what my calculated risks are. When theyare a partner our mon ey is their money too. (Busi-ness insurance customer)

I would l ike them to be a distant extension of mycompany. They should take care of the details .(Truck leasing customer)

You need to kno w the service tech. I should be ableto call him directly. I want to know the tech on aone - to -one basi s . (Bus ines s equ ip men t r epa i rcus tomer)

Agents should com e back to you and ask you i f youneed mo re coverag e as your assets increase. (Autoinsurance customer)

When employees r emem ber and r ecogn ize you a sa regular cus tomer you fee l rea l ly good. (Hote lcustomer)

Relationship marketing does not apply to every servicesituation, as Barnes (1994) emphasizes. H oweve r, for ser-vices dist inguished b y the characterist ics discussed in thissection, it is a potent marketing strategy.

Technological dvances

Relationship marketing appears to be an expensivealternative to mass marketing. Thus marketers are l ikelyto becom e interested only if i t is deemed to be affordableand practical . Rapid adv ances in information technologyare decreasing the costs and increasing the practicali ty ofrelat ionship marketing while i ts potential benefi ts are be-coming be t te r known.

Information technolog y enhances the practical value ofrelat ionship marketing by effi ientperformance of keytasks:

9 tracking the buying patterns and overall relat ionshipof exist ing customers

9 customizing services, promotion s, and pricing tocustom ers ' specific requirements

9 coordinating or integrating the delivery of multipleservices to the same custo mer

9 p r o v i d i n g t w o - w a y c o m m u n i c a t i o n c h a n n e l s - -company to cus tomer, cus tomer to com pany

9 minimizing the probabil i ty of service errors andbreakdowns

9 augmenting core service offerings with valued ex-tras

9 personalizing service encounters as appropriate

The Uni ted Services Automo bi le Associa tion (USAA ),Walgreen, and Bradys i l lustrate these applications o f tech-

nology to relat ionship marketingJ USAA is a San Anto-nio-based insurer primarily serving a mili tary cl ientelewho are "members" of the "associa t ion ." USA A has in-vested heavily in automating insurance policy writ ing,member inquiries, claims, and bil l ing, among other pro-cesses. Building a com puterized, integrated memb er data-base was a pivotal step. By 1994, USA A had informatio non more than 2.6 mill ion members and associate members(members ' children and grandchildren) in i ts database.Although USAA's mili tary cl ients are spread throughoutthe world and c hange locations frequently, policy changesare a simple matter. In on e brief phone call , a memb er caninsure a new car, add a driver, change an address, or effect

any number of o ther changes . The m ember ' s f i le is con-solidated. No handoffs to other departments are necessary.In a one-stop process, the transaction is completed, and thenew or changed policy is mailed the next morning.

One of USAA's most impor tant technology inves t -ments is an electronic imaging system. The more than30,000 pieces of daily mail never leave the mail room.Instead, the correspondence is scanned onto optical diskand inserted in the memb er 's p olicy service f i le, accessibleelectronically to 2,500 service representatives. The servicerepresentative who answers Colonel Smith 's phone callabout his recent correspond ence is posit ioned to custom izeand personalize the service encounter. Colonel Smith 'srecent let ter, plus the rest o f his f i le, is accessible to therepresentative on his or her IMA GE terminal.

Walgreen, the nation's largest drugstore chain f i l l ing 7percent of al l prescriptions in the U nited States, also usesinformation technology at the heart of i ts relat ionshipmarketing strategy. Intercom is a satel l i te-based comp utersystem that l inks al l Walgreens2 stores in 30 states plusPuerto Rico---more than 2,000 stores in 1994. The sys temmaintains customers ' prescription records for t imely usein emergencies. Where state law allows, customers canobtain a refill at a Walgreens store in a different state.Walgreens ' customers can reach a pharmacist 24 hours aday via a toll-free 800 number, and the com pany will send


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the prescription by overnight mail. Through Intercom,Walgreens can provide a patient's prescription records tohospital emerg ency room s 24 hours a day, 7 days a week.Intercom can supply customers a printout of prescriptionpurchases f or their tax and insuran ce records.

Bradys, a San Diego chain of men's clothing stores,uses a personal computer system to capture customer

information such as demographics, clothing size and stylepreferences, purchasing history, and hobbies. Through thisdatabase, the company customizes and personalizes ser-vice. For examp le, Brady s mails personalized letters at thestart of each mon th to clients having birthdays that month.A 15 percent discount coupon is included for any merchan-dise in the store. Regular customers are notified a weekbefore a sale is publicly announ ced, allowing them the firstlook at the sale merchandise. If overstocked in certainsizes, Bradys w rites and calls clients to invite them to thestore for discoun ts on their sizes (Zielinski 1994).

In effect, information techno logy advances are creatingthe opportunity for firms to move from segmenting mar-

kets by groups to segmenting by individual households.From Business Week ( A Potent New Tool, 1994) comesthis comment:

In ever-expanding processing power, marketers seean opportunity to close the gap that has widenedbetween companies and their customers with the riseof mass m arkets, mass media, and mass m erchants.Database m arketing, th ey believe, can create a sili-con simulacrum of the old-fashioned relationshippeople used to hav e with the corner grocer, butcher,or baker. (p. 58)

EMERGING PERSPE TIVES

Accelerating interest and research is deepening andextendin g understand ing of relationship marketing. In thissection, we explore some o f these emerging perspectives.Building on Berry's 1983 definition of relationship mar-keting as attracting, maintainin g, and enhancing customerre la t ionships , Gr6nroos (1990) adds the perspect ivesof noncustomer partnerships, mutual benefit , promise-keeping, and profitab ility: Ma rketin g is to establish,maintain, and enhance relationships with customers andother partners, at a profit, so that the objectives of theparties involved are met. This is achieved by a mutual

exchan ge and fulfillmen t of promises (p. 138). Gr6nroosemphasizes thepromise concept articulated by Calonius(1988), as integral to the practice o f relationship market-ing. Calonius argues thatkeeping promises, rather thanmaking them, is the key to mainta ining and enhanc ingcusto mer relationships.

Czepiel (1990) notes that relationship marketing in-volves the mutu al recognition of a special status betweenexchan ge partners. Thus, f or a relationship to exist, it hasto be mutu ally perceived and mu tually beneficial (Barnes1994).

Hunt and Morgan (1994), in the spirit of Gr6nroos(1990), broaden the scope o f relationship marketing to

include all forms of relational exchange, not solely cus-tomer relationships: Relationsh ip marke ting refers to allmarketing activities directed at establishing, developing,and maintaining successful relational exchanges in . . .supplier, lateral, buye r, and internal part ners hips (p. 23).

Targeting Profitable ustom ers

Some customers typically are far more profitable to afirm than others. So me customers actually may be unprof-itable to serve. Some customers may be loyalty-prone,hoping to find a supplier that will effectiv ely deliver thedesired service and intending to stay with that supplier.Other customers may be deal-prone, receptive to a betteroffer from a competitor, or even seeking o ut such offers.

Relationship marketing involves fixed- and variable-cost investments during the customer attracting phase tocreate an opportunity for maintaining and enhancingcustomer relationships--which offers the mo st profit po-tential. Accordingly, the idea of targeting the right cus-tomers for relationship marketing has emerged in theliterature. Reichheld (1993) is a vigorous prop onent o f thisview, stressing that companies aspiring to practice rela-tionship marketing should m ake formal efforts to identifythose customers who are most l ikely to be loyal anddevelop their overall strategy around delivering superiorvalue to these customers. He points out that USA A couldnot have achieved a 98 percent retention rate in automobileinsurance for i ts military clientele (a group know n for i tsfrequent moves) without its integrated, centralized ffata-base and telephone sales force that members can accessworldwide. Those who may have been the wrongcus tomers fo r some au to in su re r s - -mob i l e mi l i t a ry

personne l--are h ighly profitable to USA A, which is posi-tioned to provide superior value to them.

Targeting profitable customer s for relationship m arket-ing involves study and analysis o f loyalty- and defection-prone customers, searching for distinguishing patterns inwhy they stay or leave, w hat creates value for them, andwho t hey are. Relationship mark eting firms need to deter-mine w hich types of customer defectors they wish to try tosave (e.g., price, product, or service defector s) and createa value-adding strategy that fits their requirements andstrengthens the bond(s) w ith loyalty-pro ne customers.

Importantly, some customers may be profitable astransactional customers, even if the y are not profitable as

relationship customers. Thus certain com panies m ay w ishto mount dual strategies: relationship marketing for somemarket segments, transactional marketing for other seg-ments. The emerging focus on relationship profitabilityshould not be interpreted by marketers as a mandate toforfeit customers lacking relationship potential . Thehealthier interpretation is that relationship marketin g is notan appropriate strategy for all customers, b ut other strate-gies may be appropriate. Moreover, mu ltiple relationshipmarketing strategies may be necessary for differ ent marketsegments. Walgreen might design on e relationship market-ing strategy for moderate and heavy prescription drugusers wh o prefer coming to the store, another relationship


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240 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE FALL 1995

TABLEThree Levels of Relationship Marketing

Degree of Potential orLeve l Pr im ar y ond Service Customization Sustain ed ompetitive dvantage Examples

One Financial Low Low American Airline s AAdv antag e ProgramTwo Social Mediu m Medium Harley-Davidson s Harley Owner s Group (HOG)

Three Structural Medium to High High Federal Express Powership Program

SOURCE: Adapted from Berry and Parasuraman (1991).

marketing strategy for regimen pharmacy customers whofind mail order more cost-effective and c6nvenient, an-other relationship marketin g strategy for prescribing phy-sicians, and a convenience -based transactional strategy forcustomers wh o primarily purchase m erchandise other thanprescription drugs. Whereas a pure service company likeUSA A with a sharply focused customer niche l ikely wouldstrive to build profitable relationships with all customersfall ing within the niche, Walg reen--w ith i ts goods-servicemix, chain of stores, and large, heterogeneous customerba se- -w ou ld app ropriately stress the profitable attraction,retention, and enhancement of some customers (relation-ship marketing) as well as effecting profitable, inde-pende nt transactions with others.

Multiple Levels of Relationship Marketing

Relationship marketing can be practiced on multiplelevels, depending on the type of bond(s) used to fostercustomer loyalty. More recent literature in relationshipmarketing (e.g., Turnbull and Wilson 1989; Berry andParasuraman 1991) distinguishes amon g types of linkagesor bonds and their relative effects; these distinctions arenot stressed in earlier literature. As show n in Table 1, thehigher the level at which relationship marketing is prac-ticed, the greater its potential for sustained competitiveadvantage.

evel one relationship marketing relies primarily onpricing incentives to secure customers' loyalty. Higherinterest rates for longer duration bank accounts, a freevideo rental after 10 paid rentals, and frequent flyer pointsillustrate level one relationsh ip marketing. Un fortunately,the potential for sustained com petitive advantage from thisapproach is low because price is the mo st easily imitatedelement of the m arketing mix. Within 3 years of Am ericanAirlines establishing i ts A Advantage frequent flyer pro-

gram, 23 other airlines offered their own frequent flyerprogram s (Stephenson and Fox 1987). Moreover, custom-ers most interested in pricing incentives are particularlyvulnerable to competitor promotions and ma y well f lunkthe profitability test discussed in the last section. Market-ers seeking to establish the strongest possible relationshipstypically must be m ore than a price competitor.

evel two relationship marketing relies primarily onsocial bonds, although aggressive pricing may be a vitalelement of the marketing mix. Level two relationshipmarketers attempt to capitalize on the reality that manyservice encounters also are social encounters (McCallumand Harrison 1985; Czepiel 1990). Social bondingin

volves personalization and customization of the relation-ship---for example, commun ication with customers regu-larly through multiple means, referring to customers byname during transactions, providing continuity of servicethrough the same representative, and augmen ting the coreservice with educational or entertainment activities suchas seminars or parties.

Harley-Davidson has forged a powerful relationshipmarketing strategy on the foundation of i ts Harley OwnersGroup (HOG). Harley-Davidson dealers each have localHOG chapters. Harley-Davidson pays the first year 'smembership dues for customers who bu y one o f i ts motor-cycles. The underlying purpose of H OG is to help buyersenjoy and use their motorcycles. Thus the com pany and itsdealer network spon sor and facilitate wee kend riding ral-lies, training sessions, and other events that bring like-minded peop le toge the r. Har l ey -Dav idson ma i l s abimonthly magazine to HO G members that l ists regional,national, and international riding events. Most dealersdistribute a local chapter newsletter. With more than250,000 mem bers, HOG is level two relationship market-ing at its best. Michael Keefe, director of the HOG pro-gram, refers to the process as custo mer bonding. If people

use the m otorcycle, they'l l stay involved. I f there 's no-where to ride, no place to go, the mo torcyc le stays in thegarage, the battery goes dead, and a year from now, theyjust sell it ( A Potent New Too l, 1994, p. 59).

Although social bonding normally cannot overcome anoncom petitive core product (Crosby an d Stephens 1987),i t can drive customer loyalty when competit ive differencesare not strong. A social relationship also may promptcustomers to be m ore tolerant of a service failure or to givea company an opportunity to respond to competitor en-treaties. Crosby, Evans, and Cowles (1990) found a sig-nificant effect of l ife insurance salesperson relationalselling behaviors (staying in touch w ith clients; personal-

izing the relationship by confid ing in clients and sendingcards and gifts; demonstrating a cooperative, responsiveservice attitude) on relationship quality (client trust in, andsatisfaction with, the salesperson). Re lationship quality, inturn, had a significant positive influen ce on clients' antici-pation of futu re interactions with the salesperson.

evel three relationship marketing relies primarily onstructural solutions to important customer problems.When relationship marketers can offer target customersvalue-adding benefits that are difficult or expensive forcustomers to provide and that are not readily availableelsewhere, they create a strong foun dation for maintainingand enhan cing relationships. If the marketers also are using


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financial and social bonds, the foundation is even moredifficult for compe titors to penetrate.

At level three, the solution to the customer's problemis designed into the service-delivery system rather thandepen ding upon the relationship-building skills of individ-ual service providers. The problem solution is structuraland thus binds the customer to the comp any instead of---or

in addition to- -an individual service provider who m ayleave the firm.

Federal Express's Powership program, which installscomputer terminals in the offices of high-volume custom-ers, illustrates level three relationship marketing. Pow er-ship comprises a ser ies of automated shipping andinvoicing systems that save customers t ime and moneywhile solidifying their loyalty to Federal Express. Thesystems are scaled to customers' usage. Customers receivefree an electronic weighing scale, microcomp uter terminalwith mo dem , bar-code scanner, and laser printer. Pow er-ship rates packages with the correct charges, combinespackage weights by destination to provide volume dis-

counts, and prints address labels from the customer 's owndatabase. Users can automa tically prepare their own in-voices, analyze their shipping expenses, and trace theirpackages through Federal Express ' s t racking sys tem(Lovelock 1994, p. 275). By 1994, Federal Express wasprocessing close to 60 percent of i ts volume through morethan 60,000 Pow ership sys tems deployed at customer sites(Miller 1994).

Marketing to mployeesand Other Stakeholders

The idea of marketing to service employees to improve

their performan ce with customer s predates the first paperson relationship marketing. George (1977), Gr/3nroos(1978, 1981), and Berry (1981, 1983) were early, arden tproponents of service firms practicing internal marketingto improve external marketing. Internal marketing is in-cluded as an emerging perspective nonetheless because ofits increasingly sophisticated treatment in the literature,including its linkag e to relationship marketing, and becauseits maturation as a construct has pro vided a natural path torelationship building w ith multiple stakeholder groups.

Internal marketing has b een emph asized in the servicesmark eting literature because the services product is a per-formance and the performers are employees. Thus servicefirms must focus attention and resources on attracting,developing, motivating , and retaining qualified emplo yeesthrough job-products that satisfy their needs (Berry andParasuraman 1991, p. 151). Only when service providersperform well does the l ikelihood of customers continuingto buy increase (B erry 1983).

Gu mm esso n (1981, 1987) coined the phrase part-timemark eter to stress the critical marketing role performedby custom er-contact employ ees in service organizations, atheme o f Gr6n roos's work from his earliest publicationson services mark eting to his most recent works. In a 1994article, Gr6nro os und erscores the lim itations of the tradi-tional marketing mix para digm for relationship marketing:


For a firm apply ing a relationship strategy the mar-keting mix often becomes too restrictive. The mostimportant customer contacts from a m arketing suc-cess point of view are the ones outside the realm ofthe marketing mix and the mark eting specialists. Themarketing impact of the customer's contacts withpeople, technology and systems of operation and

other non-marketing functions determines whetherhe or she (or the organizational buyer as a unit) willcontinue doing business with a given firm or not.Al l these cus tomer contacts are more or lessinteractive ... In relationship marketing interactivemarketing becomes the dominating part of the m ar-ketin g func tion. (pp. 10-11)

Attracting employe es with the potential to be part-timemarketers, developing their marketing skills and knowl-edge, and building an o rganizational climate for market-ing will fail to deliver intended results if employeesconstantly turn over and customers continually must dealwith different-- or inexperienced--serv ice providers. Re-cent literature positions emplo yee retention as an antece-dent o f customer retention. Schlesinger and H eskett (1991)view high employ ee turnover as a central factor in whatthey label the cycle of failure. High employee turnoverdiscourages managem ent from investing much in hiring,training, and other comm itment-b uilding activities; this, inturn, leads to ineffective perfor man ce and/or the percep-tion of dull or dead-end work, which feeds employeeturnover. High employee turnover negatively affects ser-vice quality and customer retention, thus hurting profit-ability and further reducing resources available to investin employ ees' success.

Reichheld (1993) argues that the longer emp loyees staywith a company, the better they are able to serve theircustomers. Long-term employees know more about thebusiness and have h ad more opportunity to develop bondsof trust and familiarity with customers. Reichhe ld writes,Just as it is important to select the right kinds o f customers

before trying to keep them, a company must find the fightkind of employees before enticing them to stay (p. 68).He suggests that companies analyze the cases o f formeremployees wh o defected early, looking for patterns. Healso recommends that companies typically rotating man-agers through a series of branch offices reconsider thispractice, which has the effect of discouraging the long-term perspective required in relationship marketing.

Starbucks Coffee Comp any is o ne of A merica's fastest-growing companies. The centerpiece of i ts growth strategyis an innovative, comprehens ive internal marketing strat-egy that includes health care benefits, stock options, in-depth training, career counseling, and product discountsfor all employees, including part-time w orkers. Chief Ex-ecutive Officer and president Howard Schultz has beenquoted as saying that the quality of Starbucks' wo rkforceis what makes and keeps the company competit ive. Hebelieves in the necessity of creating pride in, and givingworkers a stake in, the compan y, so that workers perceiveboth financial and spiritual ties to their jobs (Rothman,1993, p. 59).


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Starbucks 's stock option plan, called Bean Stock, isdesigned to red uce emp loyee turnov er and insti l l the prideof ownership. The plan is structured on a 5-year vestingperiod. I t s tarts 1 year after the option is granted, then veststhe employ ee a t 20 percent each year. Every employee a lsoreceives a n ew stock-option grant each year, ini tiat ing anew vesting period. The percen tage of the grant is l inked

to the comp any's pro fi tabil i ty (Rothman 1993).Conceptu alizing effective internal marketing as a pre-

requisi te to effe ctive external marketing reveals relat ion-sh ip marke t ing i n a means -end con tex t . I n e f f ec t ,companies must establish relat ionships with noncustomergroups (the means) to successfully establish relat ionshipswith custo mers ( the end). Internal relat ionship marketingto pave the w ay for external relat ionship marketing is anexample. As mentioned earl ier, Hunt and Morgan (1994)extend relat ionship marketing to include internal , supplier,and lateral partnerships, as well as b uyer partnerships. Inan eco nom ic era characterized by more prevalent strategicnetwork competi t ion (networks of independent enti t ies

collaborating as partners and comp eting against other suchnetworks), Hunt and Morgan stress that cooperation isincreasingly necessary to compete. Gum messon , in a 1994paper, proposes 30 potential types of relat ionships, includ-ing those of a compan y with customers, employees, inves-tors, suppliers, mass media, and government; front-l inepersonnel with customers; and full- t ime marketers withpart- t ime marketers. He suggests that managers need toestablish the mix of relat ionships essential to the com-pany 's success, as not al l relat ionships are important to al lcompan ies al l the t ime.

Trus t as a a rke t ing Tool

For a strong relat ionship to exist , i t must be m utuallybeneficial (Czepiel 1990). The good intentions of partnersin a relat ionship cannot be in doubt. Commu nications mu stbe open, honest , and frequent. Similar values must prevail .Partners must be will ing to give, not just get .

Relationship marketing is buil t on the foundation oftrust, as accum ulating research d emonstrates (e.g. , Crosby,Evans , and Cowles 1990; Parasuraman, Berry, andZeithaml 1991; Morgan and Hu nt 1994). Trust is a wil l-ingness to rely on an exchange partner in whom one hasconf id ence (Moo rman, Deshpand6, and Zal tman 1993,p. 3). I t is cri t ical to the formation of service-based rela-

t ionships because of the intangibil i ty of services. Mostservices are diff icult to evaluate prior to purchasing andexperiencing them, and so me services remain diff icult toevaluate even after they have been performed. These lat terservices, labeled black box services by van' t Haaff(1989), are typically technical in nature, such as automo-bile repair, or are performed away from the customers 'view, such as a restaurant meal. Customers purchasingblack box services are part icularly vulnerable because theyhave less know ledge than the supplier about what actuallytranspired in the service performance.

Under the best of circumstances, customers using aspecific service supplier for the f irst t ime generally feel

some u ncertainty and vulnerabil i ty. As discussed earl ier,these feelings are l ikely to be heig htened fo r services thatare personally important to customers, require consider-able involvement , a re he terogeneous , or a re complex(black box) . Cus tomers who develop t rus t in serv ices u p p l ie r s b a s e d o n t h e ir e x p e r i e n c e s w i t h t h e m - -especia l ly suppl iers of serv ices wi th these s igni f icant

charac ter i s t ics - -have good reasons to remain in theserelat ionships: they reduce u ncertainty and vulnerabil ity.

The inherent nature of services, coupled w ith abundantmistrust in America, posit ions trust as perhaps the singlemost powerful relat ionship marketing tool available to acompany. Yankelovich Partners has documented an ero-sion of trust among American consumers in i ts annualmon i to r s t udy o f consu mer a t t i t udes and l i f e s ty l e s .Barbara Caplan (1993), a senior researcher at YankelovichPartners, writes:

How people are feeling and thinking speaks to anational mood of skepticism. Distrust permeates the

very fabric of American l ife . . . Ther e is a sense thatintegri ty, credibil i ty, and competence are lacking.Consumers are wary of misrepresentation, exag-geration and hype and are determined to stamp de-ceptio n out. (p. 1)

Ho w can relat ionship marketers demons trate their trust-worthiness?

Opening lines of communication Forthright, frequent,two-way communications clearly are important . MaritzMarket ing Research surveyed consumers about be ing con-tacted by a company and found that 80 percent of i tssample fel t it was important for a com pany to k eep in touchwith i ts customers. Eighty-seven percent indicated theywould buy f rom a company tha t had a reputa t ion forkeeping in touch (Cottrel l 1994). Lexus, consistentlyranked first by American consumers in J .D. Power re-search in both product quali ty and dealer service, offersfree 1,000- and 7,500-mile maintenance che ckups to own-ers even though the company 's engineers say the checkupsare unnecessary. The rat ionale is to increase person al con-tact between the custo mer and dealer (I l l ingworth 1991).Two-th irds of Lexus buyers today have bo ught on e before ,the highest repeat purchase rate in the lu xury car market(Hen koff 1994).

Parasuraman, Berry, and Zeitham l (1991) rep ort that the

automobi le insurance cus tomers they in terv iewed ex-pressed strong resentment and m istrust of their insurancecompanies because they believed these f irms were pricegouging, making false promotional promises (such aslower premium s for safe drivers), and w ere prone to canceltheir insurance if they had an accident. Based on thesefindings, the researchers advise auto insurers to commu ni-cate with their policyhold ers more o penly, regularly, andcreatively about the rat ionale for rate hikes, their cri teriafor canceling insurance, and other sensit ive subjects. Theresearchers suggest that insurance companies sponso r edu-cation seminars and town hall meetings in local marketsas well as other comm unications init iat ives.


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Berry RELATIONSHIPMARKETINGOF SERVICE S 243

Regu la r, open , two-way communica t i ons conveys t hef i r m 's i n t e r es t in t h e c u s t o m e r s ' w e l f a r e - - w h a t P H H C o r -po ra t i on ca l l s i ts "Ev e rg reen Ph i lo sop hy" i n i ts 1993 an -nua l sha reho lde r s r epo r t . Communica t i on l eads t o t r u s tand t ru s t t o r e l a t i onsh ip commi tmen t (Morgan and Hun t1994) . Com mu nica t i on i n t ens i t y a l so can encou rage cus -tomer pe rcep t ions o f " spec i a l s t a tu s " (Czep ie l 1990 ) and"c lo senes s " (Ba rnes 1994) t ha t a r e i nd i ca t ive o f t r ue r e l a -t i onsh ips , p lu s a l l ow marke t e r s t he oppor tun i ty t o con t inu -a l ly " rese l l" in tangib le serv ices (Le vi t t 1981) .

Com mun ica t i ons e f f ec t i venes s in bu i ld ing t ru s t c anhave imp l i ca t ions fo r o rgan i za t iona l s t ruc tu re , e spec i a l l yin compan ie s t yp i ca l l y s e rv ing cus tomer s t h rough d i f f e r-en t r ep re sen t a t i ve s a t e ach s e rv i ce con t ac t . Warne r Corpo -ra t ion , a la rge hea t ing , vent i la t ion , and a i r-condi t ioningcompany in Wash ing ton , D .C . and su r round ing marke t s ,r eo rgan i zed i t s s e rv i ce de l i ve ry sys t em so t ha t e ach t ech -nic ian i s respons ib le for a spec i f ic geograp hic area . Ins teado f mak ing s e rv i ce ca ll s t h roughou t t he t r ade a r ea and r a r e lysee ing t he s ame cus tom er tw ice , t he t e chn ic i an focuses on

one o r s eve ra l z ip codes . Ca l l ed "A rea Techn ica l D i r ec -tors ," each technic ian i s exp ected to bui ld a bus iness in theas s igned a r ea. A new incen t ive sys t em deve loped concu r-r en t ly w i th t he r e s t ruc tu r ing encou rages t he t e chn ic i an ' ss t ay ing i n touch w i th cus tomer s and m ak ing su re t hey a r esa t is f i ed w i th t he s e rv i ce . One A rea Techn ica l D i r ec to r s a idtha t he goes so f a r a s t o g ive h i s page r number t o h i scus tomers (Finegan 1994, p . 66) .

De l ive r ing s e rv i ce s t h rough c ros s - func t iona l t e ams a l sofos t e r s s e rv ice con t inu i ty and co mm unica t i ons w i th cus -tomer s . Cus tomer s a r e s e rved by a t e am fo r mos t o r a l l o ft he i r s e rv i ce r equ i r emen t s , g iv ing a b ig com pany the op -po r tun i ty t o de l i ve r a l eve l o f pe r sona l i zed s e rv i ce morecha rac t e ri s t ic o f a sma l l com pany (Be r ry 1995).

Guaranteeing the service Serv i ce gua ran t ee s a r e an -other means to bui ld t rus t . Dissa t i s f ied cus tomers caninvoke t he gua ran t ee and r ece ive compensa t i on fo r t hebu rden t hey have endu red . Whe n ex ecu t ed we l l, s e rv i cegua ran t ee s can symbo l i ze a compa ny ' s com mi tmen t t o f a i rp l ay w i th cus tom er s and f ac i li t a te compe t i t i ve d i f f e r en ti a -t i on . Gua ran t ee s a l so fo r ce t he o rgan i za t i on t o improvese rv i ce t o avo id t he cos t and embar r a s smen t o f f r equen tpayou t s .

A se rv i ce company shou ld neve r imp lemen t a s e rv i cegua ran t ee w i thou t a t ho rough ana lys is o f it s pu rpose andr i sks . Gua ran t ee ing a poo r s e rv i ce is a lways a mi s t ake .

F i rms de l i ve r ing poo r s e rv i ce f i r s t shou ld s ign i f i can t lyimprove t he i r s e rv i ce qua l i t y. Then they can cons ide r agua ran t ee t ha t w i l l he lp f ac i l i ta t e fu r the r improvemen t .

W hen Ban k On e acqu i r ed a f a il ed Texas bank in 1989 ,i t found i t se l f in the unusual s i tua t ion of needing to s ta r t at ru s t bank ing d iv i s ion b ecause t he f a i l ed bank ' s t r u s t de -pa r tmen t had been so ld . New m anagem en t f aced t he daun t-i ng cha l l enge o f d i s lodg ing p rospec t i ve c l i en ts f rom the i rexis t ing ins t i tu t ions . Today, Ba nk O ne 's Tex as Trus t Divi -s ion i s among the f a s t e s t g rowing t ru s t compan ie s i n t heUn i t ed S t a t e s w i th more t han 4 ,500 accoun t s . An uncon-d i t i ona l s e rv i ce gua ran t ee ancho r s t he Trus t D iv i s ion ' s

marke t - en t ry and con t inued po s i t ion ing s t r a t egy o f s e rv i ceexcel lence .

The guarantee i s s imple . Cl ients d issa t i s f ied wi th these rv i ce need no t pay t he f ee . G iven t o ev e ry new c l i en t , t hewr i t t en gua ran t ee r eads : " I f you a r e no t s a t i s fi ed w i th o u rse rv i ce qua li t y i n any g iven yea r, we w i l l r e tu rn t o you thefee s pa id , o r any po r t i on t he reo f you f ee l i s f a i r." Cus tom-e r s w i sh ing t o i nvoke t he gua ran t ee mus t i n fo rm the bankin wr i t i ng w i th in 90 days o f t he end o f t he accoun t yea r.Fou r c l i en t s i nvoked ' t he gua ran t ee du r ing t he f i r s t f ou ryea r s o f ope ra t i on . Acco rd ing t o managemen t , a l l t hec l a ims were j u s ti f i ed and w ere fo r t he s ame r ea son : ov e r-p romis ing .

A higher standard of conductCompan ie s s eek ing t obu i ld genu ine r e l a t ionsh ips w i th cus tomer s mus t b e w i l l i ngto ope ra t e w i th a h ighe r s t anda rd o f conduc t t han j u s tl egal it y. Corpo ra t e p r ac t i ce s t ha t r ob cus tomer s o f s e l f -e s t eem o r j u s t ic e m ay b e l ega l, bu t t hey d es t roy t ru s t andconsequen t ly t he po t en t i a l f o r r e l a t i onsh ip bu i ld ing . Re l a -t i onsh ip marke t e r s mus t b e p r epa red t o sub j ec t eve ry po l -icy and s t ra tegy to a fa i rness test . The y must b e wi l l ing tol eve l t he p l ay ing f i e ld . They m us t be w i l l i ng t o a sk no t on ly" I s i t l ega l ? " bu t a l so " I s i t r i gh t ? " (Be r ry and Pa ra su raman1991, p. 145).

G O I N G F O R W R D

Rela t i onsh ip marke t ing ' s t ime has come . Marke t ingprac t i t ioners and acad emics are in teres ted in i t s poss ib i l i -t i e s a s neve r be fo re and fo r good r ea sons . Vi r tua l l y a l lm a r k e t o f f e ri n g s h a v e a s e r v ic e c o m p o n e n t ( f r o m m a n u -f ac tu red goods t o pu re s e rv i ce s ) , and r e l a t i onsh ip marke t -i n g f i t s t h e s a l i e n t c h a r a c t e r i s ti c s o f s e r v i c e s . B o t hcom pany and cus tomer bene f i t f r om e ff ec t i ve r e l a t ionsh ipmarke t ing . Advances i n i n fo rma t ion t echno log y a r e mak-ing r e l a t ionsh ip marke t ing p rog ram s m ore a f fo rdab l e , f ea -s ib le , and powerfu l .

Growing in t e r e s t and ac t i ve r e sea rch i n r e l a t i onsh ipmarke t ing o f s e rv i ce s a r e b r ing ing newer, m ore soph i s t i -ca t ed pe r spec t ive s t o t he sub j ec t . These i nc lude focus ingon p ro f i t ab l e re l a ti onsh ips , r ecogn iz ing mu l t i p l e l eve l s o fre la t ionship market ing wi th d i fferent e ffec ts , prac t ic ingre l a t i onsh ip marke t ing w i th noncus tomer s such a s em-ploy ees and s t ra tegic a l l iance par tners to be t te r serve cus-tomer s , and l eve rag ing an o ld - f a sh ioned idea - - t ru s t - - a s a

cent ra l re la t ionship bui ld ing b lock .A l though r e l a ti onsh ip marke t ing i n s e rv i ce s i s deve lop -ing , i t i s f a r f rom ma tu re . He re i s a bake r ' s dozen l i s t o fi ssues requi r ing more research:

9 W ha t t ypes o f cus tomer s a r e mos t r ecep t ive t o r e l a -t i onsh ip marke t ing?

9 W ha t s e rv i ce cha rac t e r is t i c s i nc rea se o r dec rea se t heappea l o f r e l a ti onsh ip marke t ing t o cus tomer s?

9 W ha t a r e t he comm on cha rac t e r is t i cs o f succes s fu lr e l a ti onsh ip marke t ing p rog ram s?

9 W ha t d r ive s cus tomer l oya l t y fo r s e rv i ce s?


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244 JOURNAL OF THE ACADEMY OF MARKETING SCIENCE FALL 1995

9 Wh at are the antecedents of custom er trust in serviceproviders, and ho w do these ra nk for different typesof serv ices?

9 Does the number of services a cus tomer uses f rom asingle comp any sou rce affect future retention?

9 Does duration of a cust ome r 's relat ionship with acompany affect future retention?

9 Wh at are the implications of relat ionship marketingfor organizational structure?

9 Wh at are the implications of relat ionship marketingfor technology?

9 Wh at is the role of pricing in relat ionsl~ip marketing ?9 Wh at is the role of advert ising in relat ionship mar -

keting?9 What i s the assoc ia tion between employee turnover

and custo mer defection in different types of servicecompanies?

9 Wha t a re the d iffe rent types of membership pro-grams marketers can consider, and what are theirstrengths and l imitat ions?

Service f irms can increase market share three ways:at tract mor e new custom ers, do mo re business with exist-ing customers, and re duce the loss of customers. By direct-i n g m a r k e t i n g r e s o u r c e s t o e x i s t i n g c u s t o m e r s ,relat ionship marketing directly addresses two of theseopportunit ies: expanding relat ionships and reducing cus-tomer defec t ions . Because many cus tomers want to berelat ionship customers, relat ionship marketing also can'help f irms at tract more new customers. Relat ionship mar-keting is a potent strategy for today and tomorrow; i twarrants the at tention i t now is receiving in the discipline.

NOTES

1. These examples, and several others used in this article, are ba sedon m aterial appearing in Leonard L. Berry (1995).

2. The reader may wonder about the use of both Walgreen andWalgreens. Walgreen is the compa ny nam e and Walgreens the store name.

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Berry / RELATIONSHIP MARKE TING OF SERVICES 245

van 't Haaff, E Anne. 1989. Top Quality: A Way of Life. InDistin-guished Papers: Service Quality in the 1990s. Eds. Eberhard E.Scheuing and Charles H. Little. New Y ork: St. John's UniversityBusiness Research Institute, World Future Society.

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B O U T T H E U T H O R

e o n a r d L. Be r ry (Ph .D ., Ar i zona S t a t e Un ive r s i t y ) ho lds t heJ . C. Penney Ch air of Reta i l ing Studies , i s a professor o f Market -ing, and is d i rec tor of the Center for Reta i l ing S tudies a t TexasA& M Univers ity. He is a former nat ional pres ident of the Ameri -can Market ing Associa t ion. His research in teres ts are servicesmarketing, service quality, and retail ing strategy. He has pub-

l i shed numerous journal ar t ic les and books , inc ludingDeliveringQuality Service: Balancing Customer Perceptions and Expecta-tions (F ree P re s s , 1990) , Marketing Services: CompetingThrough Quality (Free Press, 1991), and On Great Service: AFramework o r Action (Free Press, 1995).

29 - relationship marketing of services

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