Pathways less traveled to value creation : interaction, dialogue and knowledge generation 9781845443696, 9780861769421

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Volume 19 Number 2 2004

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ISSN 0885-8624

The Journal of

Business & Industrial Marketing Pathways less traveled to value creation: interaction, dialogue and knowledge generation Guest Editor: David Ballantyne

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Journal of Business & Industrial Marketing Volume 19, Number 2, 2004

ISSN 0885-8624

Pathways less traveled to value creation: interaction, dialogue and knowledge generation Guest Editor: David Ballantyne

Contents 94 Access this journal online 95 Abstracts & keywords 97 Guest editorial Pathways less traveled to value creation: interaction, dialogue and knowledge generation David Ballantyne 99 The relationship marketing process: communication, interaction, dialogue, value Christian Gro¨nroos 114 Dialogue and its role in the development of relationship specific knowledge David Ballantyne

136 Return on relationships (ROR): the value of relationship marketing and CRM in business-to-business contexts Evert Gummesson 149 Future directions in marketing knowledge: a panoramic perspective from Hollywood A. "Bruce" Smithee and Tommy Lee 155 Executive summary and implications for managers and executives 160 About the authors

124 Competitive advantage, knowledge and relationship marketing: where, what and how? Nikolaos Tzokas and Michael Saren

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Dialogue and its role in the development of relationship specific knowledge

Abstracts & keywords

David Ballantyne Keywords Communication, Innovation, Knowledge management, Trust, Relationship marketing In this article, dialogue is explored as an interactive process of learning together. This process is often spontaneous and unruly but bounded by a serious intent to reach mutual understanding. Also, the concept of relationship specific knowledge is introduced to explain how trust between business counterparts develops through dialogue in iterative cycles of learning. Dialogue also brings opportunities for generating new business knowledge, within the firm and between firms, in the form of creative solutions to marketing and supply problems. In this way, mutual value in buyer-supplier exchanges is enhanced. Pathways less traveled to value creation: interaction, dialogue and knowledge generation

Competitive advantage, knowledge and relationship marketing: where, what and how?

David Ballantyne

Nikolaos Tzokas and Michael Saren

Keywords Relationship marketing, Communication, Knowledge management

Keywords Communication, Knowledge organizations, Knowledge management, Relationship marketing, Competitive advantage

Relationship marketing is based on the idea that the existence of a relationship between customer and supplier creates value for both parties, in addition to the value of the products or services provided. In this special issue edition entitled “Pathways less traveled to value creation: interaction, dialogue and knowledge generation” articles are submitted from five sets of authors, giving different perspectives of marketing and the knowledge generation and communication aspects surrounding it.

An organization’s ability to enjoy long-term competitive advantage is closely related to its capacity for knowledge creation, dissemination and use. From a practical point-of-view the value of this statement could be increased if suggestions could be made to managers as to what kind of knowledge to seek for their organization, where and how to look for it. This article provides tentative answers to these questions from a relationship marketing perspective. In doing so the scope, processes and technologies of relationship marketing are discussed and their knowledge content and potential outlined. Finally, a conceptual framework for knowledge generation and dialogue in relationship marketing is proposed and directions for further research, alongside their practical implications for contemporary firms, delineated.

The relationship marketing process: communication, interaction, dialogue, value Christian Gro¨nroos Keywords Relationship marketing, Communication

Return on relationships (ROR): the value of relationship marketing and CRM in business-tobusiness contexts

The objective of the article is to discuss a framework of central processes in relationship marketing. The framework includes an interaction process as the core, a planned communication process as the marketing communications support through distinct communications media, and a customer value process as the outcome of relationship marketing. If the interaction and planned communication processes are successfully integrated and geared towards customers’ value processes, a relationship dialogue may merge.

Evert Gummesson Keywords Relationship marketing, Customer relations, Intellectual capital, Balanced scorecard, Business-to-business marketing This article is about ongoing efforts to come to grips with the question: Does relationship marketing pay? The question is discussed under the umbrella concept return on relationships. Much of what is being done in relationship marketing and customer relationship management has a bearing on both business-to-business and business-to-consumer marketing, and on manufacturing as well as services.

Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · Abstracts & keywords q Emerald Group Publishing Limited · ISSN 0885-8624

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Abstracts & keywords

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great Hollywood directors”) and completed by his successor in Hollywood, Tommy Lee. Offers some perspectives on what the future of marketing may hold based on past metamorphic successes and makes some critical suggestions for review. Considers a range of metaphors and associated (rather humorous) terminologies. Notes some key questions for marketing theorists, such as: what are the appropriate relationships between business disciplines and their philosophies; and how can marketing academia develop better relationships with practitioners to the mutual benefit of both parties? Points out that unless marketing academics address some of these key questions “significant contributions to knowledge” will continue to be viewed by practitioners as shifts in language rather than substance.

Although there is a shortage of empirical research and proven practice, the article aims to show current efforts to generate knowledge of return on relationships, with particular emphasis on businessto-business environments. The article ends with action strategies to improve return on relationships, and a summary of conclusions. Future directions in marketing knowledge: a panoramic perspective from Hollywood A. “Bruce” Smithee and Tommy Lee Keywords Marketing philosophy, Knowledge management, Metaphors, Relationship marketing, Interpersonal relations An unconventional article based on an unfinished manuscript from the late Alan Smithee (“one of the

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Relationship marketing came of age in the 1990s, with varying degrees of acceptance across all marketing sub-disciplines (Mo¨ller and Halinen, 2000). This emergence followed a long formative period in the 1970s and 1980s in industrial marketing and purchasing (Hakansson, 1982), and after being “named” in the 1980s in a services marketing context (Berry, 1983). Relationship marketing is of course a new-old concept (Berry, 1995), but in its current evolving form it still presents challenges of accommodation to the dominating “transactional” or mainstream marketing paradigm (Gro¨nroos, 1994). Relationship marketing has claimed to broaden marketing’s involvement in market based stakeholder relationships (Christopher et al., 1991; Morgan and Hunt, 1994; Gummesson, 2002). This broadened view of relationships is grounded in communities of mutual interest which have in turn been defined in terms such as “networks of relationships” (Axelsson and Easton, 1992), “value constellations” (Normann and Ramirez, 1993), and “interaction within networks of relationships” (Gummesson, 1999, p. 73). Practitioner interest in relationship based strategic approaches has increased strongly over the last decade in line with expanding global markets, the deregulation of many industries and the application of new information and communication technologies (ICTs). Notwithstanding, practitioners and academics alike often overlook the fact that business and industrial relationships are of many kinds (Wilkinson and Young, 1994), and that an understanding of the value generating processes of customers is required (Ravald and Gro¨nroos, 1996). Of course, cooperation is also needed (Anderson and Narus, 1990), commitment and trust (Morgan and Hunt, 1994), and much more. Interest in exchange relationships is also growing from the perspective of creating and delivering value (Wilson and Jantrania, 1994; Gro¨nroos, 1997; Anderson and Narus, 1999; Payne and Holt, 1999; Tzokas and Saren, 1999; Christopher et al., 2002; Donaldson and O’Toole, 2002; Ballantyne et al., 2003). Of course, the cocreation (or co-production) of value through interaction between customer and supplier (in the service encounter) has long been one of the core tenants of services marketing and the wellspring for much relationship marketing thinking. Rushing into relationships without adequate consideration of how value is to be created and shared is a “lobster pot” marketing approach – one or more parties can get “caught” and then regret their decisions over time. Putting this in economic terms, investing in business and industrial relationships creates positive financial returns as

Guest editorial Pathways less traveled to value creation: interaction, dialogue and knowledge generation David Ballantyne

The author David Ballantyne is Senior Fellow, Melbourne Business School, The University of Melbourne, Melbourne, Australia.

Keywords Relationship marketing, Communication, Knowledge management

Abstract Relationship marketing is based on the idea that the existence of a relationship between customer and supplier creates value for both parties, in addition to the value of the products or services provided. In this special issue edition entitled “Pathways less traveled to value creation: interaction, dialogue and knowledge generation” articles are submitted from five sets of authors, giving different perspectives of marketing and the knowledge generation and communication aspects surrounding it.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · pp. 97-98 q Emerald Group Publishing Limited · ISSN 0885-8624 DOI 10.1108/08858620410523972

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well as barriers to exit (structural bonds) where exit costs apply (Wilson and Mo¨ller, 1995). This special issue of JBIM opens up the topic of how value might be created in a business-tobusiness context from a relationship marketing perspective. We are especially interested in exploring the pathways less traveled: interaction, dialogue and knowledge generation. Each of our authors’ work is grounded in one or more of these themes. The authors and titles of their articles are: (1) Christian Gro¨nroos (Finland), “The relationship marketing process: communication, interaction, dialogue, value”. (2) David Ballantyne (Australia), “Dialogue and its role in the development of relationship specific knowledge”. (3) Nikolaos Tzokas and Michael Saren (UK), “Competitive advantage, knowledge and relationship marketing: where, what and how?” (4) Evert Gummesson (Sweden), “Return on relationships (ROR): the value of relationship marketing and CRM in business-to-business contexts”. (5) A. “Bruce” Smithee and Tommy Lee (Australia and USA), “Future directions in marketing knowledge: a panoramic perspective from Hollywood”.

Ballantyne, D., Christopher, M. and Payne, A. (2003), “Relationship marketing: looking back, looking forward”, Marketing Theory, Vol. 3 No. 1, pp. 159-66. Berry, L.L. (1983), “Relationship marketing”, in Berry, L.L., Shostack, G.L. and Upah, G.D. (Eds), Emerging Perspectives on Services Marketing, American Marketing Association, Chicago, IL, pp. 25-8. Berry, L.L. (1995), “Relationship marketing of services – growing interest, emerging perspectives”, Journal of the Academy of Marketing Science, Vol. 23 No. 4, pp. 236-45. Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing: Bringing Quality, Customer Service and Marketing Together, Butterworth-Heinemann, Oxford. Christopher, M., Payne, A. and Ballantyne, D. (2002), Relationship Marketing: Creating Stakeholder Value, 2nd ed., Butterworth-Heinemann, Oxford. Donaldson, B. and O’Toole, T. (2002), Strategic Market Relationships: From Strategy to Implementation, Wiley, Chichester. Gro¨nroos, C. (1994), “From marketing mix to relationship marketing: towards a paradigm shift in marketing”, AsiaAustralia Marketing Journal, Vol. 2 No. 1, pp. 9-29, republished in Management Decision, Vol. 35 No. 4, 1997, pp. 322-339. Gro¨nroos, C. (1997), “Value driven relational marketing: from products to resources and competencies”, Journal of Marketing Management, Vol. 13 No. 5, pp. 407-20. Gummesson, E. (1999), “Total relationship marketing: experimenting with a synthesis of research frontiers”, Australasian Marketing Journal, Vol. 7 No. 1, pp. 72-85. Gummesson, E. (2002), Total Relationship Marketing, 2nd ed., Butterworth-Heinemann, Oxford. Hakansson, H. Ed. (1982), International Marketing and Purchasing of Industrial Goods: An Interaction Approach, Wiley, Chichester. Mo¨ller, K. and Halinen, A. (2000), “Relationship marketing theory: its roots and direction”, Journal of Marketing Management, Vol. 16, pp. 29-54. Morgan, R.M. and Hunt, S.D. (1994), “The commitment-trust theory of relationship marketing”, Journal of Marketing, Vol. 58, July, pp. 20-38. Normann, R. and Ramirez, R. (1993), “From value chain to value constellation”, Harvard Business Review, July-August, pp. 65-77. Payne, A. and Holt, S. (1999), “A review of the “value” literature and implications for relationship marketing”, Australasian Marketing Journal, Vol. 7 No. 1, pp. 41-51. Ravald, A. and Gro¨nroos, C. (1996), “The value concept and relationship marketing”, European Journal of Marketing, Vol. 30 No. 2, pp. 19-30. Tzokas, N. and Saren, M. (1999), “Value transformation in relationship marketing”, Australasian Journal of Marketing, Vol. 7 No. 1, pp. 52-62. Wilkinson, I.F. and Young, L.C. (1994), “Business dancing: the nature and role of inter-firm relationships in business strategy”, Australasian Marketing Journal (formerly Asia-Australia Marketing Journal), Vol. 2 No. 1, pp. 67-79, also in Ford, D. (1997), Understanding Business Markets, 2nd ed., Dryden, London. Wilson, D.T. and Jantrania, S. (1994), “Understanding the value of a relationship”, Australasian Marketing Journal (formerly Asia-Australia Marketing Journal), Vol. 2 No. 1, pp. 55-66, Understanding Business Markets, 2nd ed., Dryden, London. Wilson, D.T. and Mo¨ller, K. (1995), “Dynamics of relationship development”, in Mo¨ller, K. and Wilson, D.T. (Eds), Business Marketing: An Interaction and Network Perspective, Kluwer, Boston, MA, pp. 53-70.

The first four of these articles began as contributions to the 2nd WWW Conference on Relationship Marketing. This conference was sponsored by the European Journal of Marketing, and hosted by the then MCB, UK (now Emerald Group Publishing Limited), who are also the publishers of this journal, and Monash University (Australia). The fifth and final article is from new and as yet unseeded researchers who offer a timely broadside from the Hollywood Hills on marketing communication and the state of marketing knowledge. When taken together, these five articles reveal new and interesting connections between interaction, dialogue, trust, learning, knowledge and social capital, and extend what we mean by value creation and its ethical limits. This is a marketing path less traveled, but we will surely see more activity on this road in the future.

References Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54, January, pp. 42-58. Anderson, J.C. and Narus, J.A. (1999), Business Marketing Management: Understanding, Creating and Delivering Value, Prentice Hall, Saddle River, NJ. Axelsson, B. and Easton, G. Eds. (1992), Industrial Networks: A New View of Reality, Routledge, London.

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An executive summary for managers and executive readers can be found at the end of this issue.

The relationship marketing process: communication, interaction, dialogue, value

Introduction: the relationship marketing paradigm The relationship marketing perspective is based on the notion that on top of the value of products and/ or services that are exchanged, the existence of a relationship between two parties creates additional value for the customer and also for the supplier or service provider (Gro¨nroos, 2000b; compare also Ravald and Gro¨nroos, 1996). An on-going relationship may, for example, offer the customer security, a feeling of control and a sense of trust, minimized purchasing risks, and in the final analysis reduced costs of being a customer. In a conference paper on service marketing, Berry (1983) first introduced the term relationship marketing, and a few years later Jackson (1985) used it in a business-to-business context. However, the phenomenon itself – a relationship approach to taking care of interactions with customers – is as old as the history of trade and commerce. The importance of relationships with customers was given less attention following the industrial revolution, when the middleman was introduced in the distribution chain (Sheth and Parvatiyar, 1995a). Even before the 1980s, Arndt (1979) observed a tendency of doing business in the form of long-term relationships, which he labelled domesticated markets”. He concluded that “both business markets and consumer markets benefit from attention to conditions that foster relational bonds leading to reliable repeat business” (Arndt, 1979, p. 72). A few years later, Levitt (1983a, p. 111) used a marriage analogy in noting that “the sale merely consummates the courtship. . . how good the marriage is depends on how well the relationship is managed by the seller”. Before Berry and Jackson used the term “relationship marketing”, an explicit relationship perspective in marketing was inherent in the Nordic School of thought (see for example, Gummesson, 1983, 1987; Gro¨nroos, 1980, 1983), even though the term was not taken into use until the end of the 1980s (Gro¨nroos, 1989). The relationship notion was also an integral part of the interaction and network approach to industrial marketing of the IMP Group (Ha˚kansson, 1982; Ha˚kansson and Snehota, 1995). Similarities and differences between relationship marketing studies of these two schools of thought have been discussed by Mattsson (1997). The nature of relationship marketing as a contemporary marketing practice has been discussed by Coviello

Christian Gro¨nroos

The author Christian Gro¨nroos is Professor of Service and Relationship Marketing at the Center for Relationship Marketing and Service Management, Hanken Swedish School of Economics, Helsinki, Finland.

Keywords Relationship marketing, Communication

Abstract The objective of the article is to discuss a framework of central processes in relationship marketing. The framework includes an interaction process as the core, a planned communication process as the marketing communications support through distinct communications media, and a customer value process as the outcome of relationship marketing. If the interaction and planned communication processes are successfully integrated and geared towards customers’ value processes, a relationship dialogue may merge.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · pp. 99-113 q Emerald Group Publishing Limited · ISSN 0885-8624 DOI 10.1108/08858620410523981

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and Brodie (1998) and Coviello et al. (1997). Finally, it is noteworthy that although it was not explicitly expressed, a relationship notion was present also in the North American 7Ps model of service marketing of the early 1980s (Booms and Bitner, 1981).

may easily start to develop and if the simultaneous consumption and production processes turn out well, an enduring relationship may follow. When manufacturers of industrial goods and equipment turn their interest from single transactions with their customers to doing business on a long-term scale, the nature of consumption or usage changes from pure outcome consumption to an on-going process consumption or usage. In this process the customer uses the outcomes of the manufacturer’s production processes (goods, equipment) that are exchanged between the parties in the relationship as well as a number of service processes that are produced and consumed or used before, during and in between the exchanges of outcomes. The nature of this process becomes very similar to the process consumption characteristic of services. From a marketing point of view, when the outcomes (goods and equipment) constantly become more similar as competition increases, this change of the nature of consumption or usage is emphasized even more. In most cases even continuous product development alone does not lead to a sustainable competitive advantage anymore. Hence, only services, such as tailormade design, deliveries and just-in-time logistics, installing equipment, customer training, documentation about how to install and use goods, maintenance and spare part service, customeroriented invoicing, handling inquiries, service recovery and complaints management are left for the marketer to use. Customer service as discussed by Christopher et al. (1991) also becomes an important means of competition. If one does not want to use the price variable, which seldom creates a sustainable competitive advantage, only services are left for developing such an advantage. Of course, transaction marketing may be justified in some cases (Jackson, 1985), but as the work by Reichheld and Sasser (1990), Reichheld (1993) and Storbacka (1994) demonstrates, longterm customer relationships often form a base for profitable business. In order to implement relationship marketing a shift of focus is required. In this article three areas that are vital for the successful execution of a relationship strategy are discussed: (1) An interaction process as the core of relationship marketing. (2) A planned communication process supporting the development and enhancement of relationships. (3) A value process as the output of relationship marketing.

Objective and perspective The objective of this article is to analyze the nature and content of relationship marketing, seen as a process. The perspective of the article is predominantly that of the Nordic School of marketing thought, according to which understanding and managing services in the relationship is at the core of relationship building and maintenance, although relationship marketing also is supported by other factors, such as building networks (Ha˚kansson and Snehota, 1995), creating strategic alliances and making partnership agreements (Hunt and Morgan, 1994), developing customer databases (Vavra, 1994) and managing relationship-oriented integrated marketing communications (Schultz et al., 1992; Schultz, 1996; Duncan and Moriarty, 1997). Marketing is also seen more as market-oriented management than as a task for marketing specialists only, which means that marketing is viewed more as an overall process than as a separate function (Gro¨nroos and Gummesson, 1985). In other approaches to relationship marketing, as in the network approach or in the strategic alliance and partnership approaches, other elements or phenomena are seen as the ground pillar. It all depends on the perspective of the researchers.

Services in relationship marketing An integral part of service marketing is the fact that the consumption of a service is process consumption rather than outcome consumption (Gro¨nroos, 1998). The consumer or user perceives the service production process as part of service consumption and not only the outcome of a process as in traditional consumer packaged goods marketing. Thus, service consumption and production have interfaces that always are critical to the consumer’s perception of the service and to his or her long-term purchasing behavior. In the services marketing literature the management of these interfaces is called interactive marketing, and this concept has been used in the relationship marketing literature as well (see Bitner, 1995). The service provider almost always has a direct contact with its customers. In these contacts relationships

The term planned communication process is used to indicate that in this process only communication through exclusive communication media, such as

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The relationship marketing process

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advertising, TV commercials, internet banners and sales calls, are included. Customers’ interactions with products, service processes and with other aspects of the interaction process also include elements of communication. These communication effects follow as a by-product from the manner in which the various interactions are managed by the firm and perceived by the customers. However, as part of a total communications impact on customers these types of communication may very well be even more important than the planned communication efforts (Duncan and Moriarty, 1997).

developing in networks of suppliers, distributors, and consumers or end users. The focal relationship is the one between a supplier or provider of goods or services and buyers and users of these goods or services. Relationship marketing is first and foremost geared towards the management of this relationship. However, in order to facilitate this, other stakeholders in the process may have to be involved. If marketing is to be successful, other suppliers, partners, distributors, financing institutions, the customers’ customers, and sometimes even political decision makers may have to be included in the management of the relationship in a network of relationships (Gummesson, 1999; compare also the six markets concepts in Christopher et al., 1991). A shift of focus in marketing decision making from the transaction toward a process where a relationship is built and maintained has important effects on central marketing areas, such as organization, planning, organizational development and the measurement of success in the marketplace (Gro¨nroos, 1999; Brodie et al., 1997). As this process becomes as important for the customer as the outcomes, for example, in the form of goods and equipment, the nature of the product concept changes. The product as the outcome of a production process is basically a transaction-oriented construct. In a relationship perspective physical goods and equipment (products) become a part of the process together with other element such as a host of services. In the best case these services enhance the value of the products as with just-in-time deliveries, prompt service and maintenance and customer-oriented and timely service recovery. In the worst case, for example with delays in deliveries, or unsuccessful maintenance and unclear documentation about the use of equipment that has been bought, they damage or altogether destroy their value. Customers do not only look for goods or services, they demand a much more holistic offering including everything from information about how to best and safest use a product to delivering, installing, repairing, maintaining and updating solutions they have bought. And they demand all this, and much more, in a friendly, trustworthy and timely manner. Moreover, the core product is less seldom than the elements surrounding the core the reason for dissatisfaction. As Webster (1994, p. 13) exemplifies, “the automobile purchaser is unhappy with the car because of lousy service from the dealer; the insurance customer has problems with the agent, not with the policy”. What Levitt (1983b, pp. 9-10) concluded already in the early 1980s about what should accompany the sale of the mere

Relationship marketing and service competition Marketing from a relational perspective can been defined as the process of managing the firm’s market relationships (Gro¨nroos, 1996), or more explicitly as the process of identifying and establishing, maintaining, enhancing, and when necessary terminating relationships with customers and other stakeholders, at a profit, so that the objectives of all parties involved are met, where this is done by a mutual giving and fulfillment of promises (Gro¨nroos, 1989, 2000a). This definition bears clear similarities with Berry’s services marketing definition from a relationship perspective (Berry, 1983) and with more recently offered definitions by Hunt and Morgan (1994), Sheth and Parvatiyar (1994) and Christopher et al. (1991). Gummesson (1999) defines relationship marketing as marketing seen as interactions, relationships and networks, thus emphasizing three central phenomena in this marketing perspective. As most definitions imply, relationship marketing is first and foremost a process. All activities that are used in marketing have to be geared towards the management of this process. Hence, no marketing variables are explicitly mentioned in these definitions. According to Gro¨nroos’ definition, the process moves from identifying potential customers to establishing a relationship with them, and then to maintaining the relationship that has been established and to enhance it so that more business as well as good references and favorable word of mouth are generated. Finally, sometimes relationships are terminated either by the supplier or by the customer (or by any other party in a network of relationships), or they just seem to fade away. Such situations must also be managed carefully by the supplier or service provider. As the Gummesson definition implies the relationship process includes interactions that form relationships which may be

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product, “having been offered these extras, the customer finds them beneficial and therefore prefers to doing business with the company that supplies them”, is very much true today. By and large customers are more sophisticated and better informed than ever and therefore more demanding. Moreover, the increasing global competition offers customers more alternatives than ever before. In a customer relationship that goes beyond a single transaction of a product, the outcomes themselves including goods, services outcomes or industrial equipment become just one element in the holistic, continuously developing service offering. For a manufacturer, the physical good is a core element of this service offering, of course, because it is a prerequisite for a successful offering. However, what counts beyond this prerequisite is the ability of the firm to manage the additional elements of the offering better than the competitors to create value for customers in their internal value-creating processes. The product becomes a process (compare Storbacka and Lehtinen, 2000), and the supplier has to truly serve its customers (Gro¨nroos, 1996). For manufacturers this means that products must be turned into elements of a holistic service offering. They must be servicefied (Gro¨nroos, 2000a). The product seen as a process or a total service offering thus becomes a service including tangible elements such as physical goods and equipment and intangible elements such as a host of various types of services. In a long-term relationship, firms face a competitive situation for which we in another context have coined the term service competition (Gro¨nroos, 1996). When service competition is the key to success practically for everybody and the product has to be defined as a service, every business is a service business (compare Webster, 1994).

(Schultz et al., 1992; Schultz, 1996; Stewart, 1996). Integrated marketing communications is clearly influenced by the relationship perspective in marketing. “As we are committed to two-way communication, we intend to get some response from those persons to whom the integrated marketing communications program has been directed. . . . We adapt the customer’s or prospect’s communication wants or needs and begin the cycle all over again. This is truly relationship marketing at its best” (Schultz et al., 1992, p. 59). Sometimes, communications researchers seem to treat integrated marketing communications using various means of communications in an integrated manner almost or totally as a synonym for relationship marketing. However, in transaction marketing effective marketing communication about a bad or inappropriate product does not lead to a good result. By the same token, if the customers’ interactions with products and services and other elements in the contacts between buyers and sellers are bad and create a negative communication effect, effective integrated marketing communications as a purely communications program does not develop lasting relationships. Hence, integrated marketing communications is not the same as relationship marketing, but clearly, it is an important part of a relationship marketing strategy (Duncan and Moriarty, 1999). If relationship marketing is to be successful, an integration of all marketing communications messages is needed to support the establishment, maintenance and enhancement of relationships with customers (and other stakeholders). Consequently, the integrated management of marketing communications activities, regardless of the source of communication messages, is required in relationship marketing.

The key processes of relationship marketing Communication In transaction marketing, marketing communication including sales is a central component. Marketing communication is predominantly mass marketing, however with a growing element of direct marketing. Sales are a directly interactive element of the communication process. In the field of marketing communication a new trend towards integrating communication elements such as advertising, direct marketing, sales promotion and public relation into a two-way integrated marketing communications perspective has emerged in North America during the 1990s

Interaction In a transaction-oriented approach to marketing, the product is the core of the marketing mix. There must be a product so that decisions can be made about how to distribute it, how to promote it, and how to price it. However, the product exists at one given point of time; it does not evolve in an on-going relationship. Hence, the product as the core construct has to be replaced with a long-term construct that fits the nature of relationship marketing. The relationship approach puts customer processes, or rather the internal valuegenerating processes of customers, not products, at the center of marketing. To be successful, the supplier or service provider has to align its resources, competencies and processes with the customer’s value-generating processes. This being the case, interaction evolves as a concept which

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takes the place of the product concept. It has been developed as one key construct in services marketing and in the network approach to industrial marketing as well, and has been taken over by relationship marketing. Thus, as the exchange of a product is the core of transaction marketing, the management of an interaction process is the core of relationship marketing. In this process, a supplier of goods or a service firm represented by people, technology and systems, and know-how interact with its customer represented by everything from a single consumer to a group of buyers, users and decision makers in a business relationship. Sometimes, more parties in a network may be involved in the interactions (Gummesson, 1996). Interactions may be prompted by planned communication messages and programs, but for a commercial relationship to develop successful interactions have to follow. A dialogue between the supplier or service firm and its customers only emerge from value-enhancing interactions. Only planned communication activities easily lead to parallel monologues, where the two parties never actually meet and get access to what is shared or common between them. A dialogue process is required for a sharing and even creation of knowledge among the parties to occur. We will return to this in a later section.

However, the value process has another aspect as well. Before the development of elements of the interaction process and of the dialogue process the marketer must develop an understanding of the customer’s internal process which the solution provided by the seller should fit. The customer has some needs but also a process whereby the organizational customer fulfils these needs. Hence, it is not enough to understand the needs of customers, one must also know how they strive to achieve the results required to fulfill these needs. This can be labelled the customer’s valuegenerating process (Gro¨nroos, 2000a; compare also Storbacka and Lehtinen, 2000). Moreover, one must know the value systems of the customer that guide this internal need-fulfilling and valuegenerating process. Examples of such values are an interest in preserving the rain forests, in recycling waste, in minimizing stocks, in creating a manufacturing process with a minimum of ecologically harmful effects, and in keeping standstill costs at a minimum. If the firm does not understand this aspect of the customer’s value systems and value-generating processes (this process could also be labeled the customer value chain), products, services, information and other elements of the interaction process cannot be developed and offered in a satisfactory way, and value for the customer cannot be created successfully.

Value One recent research stream in marketing is related to customer perception of value created in ongoing relationships (Ravald and Gro¨nroos, 1996). The importance of adding a relationship aspect in studies of customer value has also been demonstrated, for example, by Lapierre (1997), Payne and Holt (1999), Tzokas and Saren (1999), Collins (1999) and Wilson and Jantrania (1994). In the interaction processes a value base is transferred to and also partly created together with customers, and in the final analysis, the ultimate perceived value for them is emerging in the customer processes. Thus, if the supplier or service provider manages to successfully align its resources (physical product elements, service elements, information and other resources of various kinds) and competencies with its customers’ internal processes, in these processes this value base is turned into customer perceived value. This creation of value should be supported by marketing communication before and during the interaction process of the relationship. Therefore, a value process is needed to demonstrate how the customer indeed perceives the creation of value over time. When all three processes are in place and well understood we have a good part of a theory of relationship marketing.

The core: the interaction process of relationship marketing As was noted in the previous section, successful marketing requires a good enough solution for the user. In transaction marketing, this solution is a product in the form of a physical good or a core service. In relationship marketing the solution is the relationship itself and how it functions and leads to value creation and need satisfaction for the customer. Customers” perceptions of relationships are holistic and cumulative. As we have concluded before, the exchange or transfer of products managed in a trustworthy and timely manner are part of the relationship, but in addition to that a host of service elements is required. Without them the products may be of limited value or without value for the customer. For example, delayed deliveries, late service calls, badly handled complaints, lack of information or unfriendly personnel may destroy an otherwise good solution. The relationship proceeds in an interaction process where various types of contacts between the supplier or service firm and the customer occur over time. These contacts may be very different depending on the type of marketing situation.

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Some contacts are between people, some between people and machines and systems, and some contacts are between systems of the supplier and the customer, respectively. In order to be able to understand and in practical marketing situations analyze and plan the interaction process one has to divide it into logical parts. In the context of services the interaction process has been studied in terms of acts, episodes and relationship (Liljander, 1994; Liljander and Strandvik, 1995; see also Storbacka, 1994; Strandvik and Storbacka, 1996; Stauss and Weinlich, 1995). According to Liljander and Strandvik (1995) an episode is, for example, a visit to a bank office to discuss a loan, whereas an act among other is the meeting with the loan officer during the visit. In the context of business relationships, IMP researchers have traditionally offered a two-level approach including short-term episodes including exchange of goods and services, information, financial and social aspects, and longterm processes leading to adaptation and institutionalization of roles and responsibilities (Ha˚kansson, 1982; Mo¨ller and Wilson, 1995). In a more generic business relationship context, Holmlund (1996, 1997) has developed the understanding of the interaction process further, in order to achieve an extended analytical depth in the analysis of relationships. In Figure 1 the interaction process of the on-going relationship is divided into four levels of aggregation: the act[1], episode, sequence and relationship level. Acts are the smallest unit of analysis in the interaction process, such as phone calls, plant visits, service calls and hotel registration. In the service management literature they are often called moments of truth (Normann, 1992). Acts may be related to any kind of interaction elements, physical goods, services, information, financial aspects or social contacts.

Interrelated acts form a minor natural entity in a relationship, an episode such as a negotiation, a shipment of goods and dinner at a hotel restaurant during a stay at that hotel. Every episode includes a series of acts. For example, “a shipment may include such act(ion)s as the placement of an order by telephone, assembling and packing the products, transporting, . . . unpacking, making a complaint, and sending and paying an invoice”. (Holmlund, 1996, p. 49) Interrelated episodes form the next level of analysis in the interaction process, a sequence. According to Holmlund (1996, pp. 49-50) sequences can be defined in terms of a time period, an offering, a campaign or a project, or a combination of these. “This implies that the analysis of a sequence may contain all kind of interactions related to a particular year, when a particular project . . . has been carried out. Sequences may naturally overlap”. To take another type of example, in a restaurant context a sequence comprises everything that takes place during one visit to a particular restaurant. The final and most aggregated level of analysis is the relationship. Several sequences form the relationship. Sequences may follow one another directly, may overlap or may follow with longer or shorter intervals depending, for example, on the type of business. This way of dividing the interaction process in several layers on different levels of aggregation gives the marketer, and the researcher, a detailed enough instrument to be used in the analysis of interactions between a supplier or service providers and their customers. In the formation of a relationship over time all different types of elements in the interaction process, goods and service outcomes, service processes, information, social contacts, financial activities etc. can be identified and put into their correct perspective.

Figure 1 Interaction levels in a relationship

The planned communication process of relationship marketing According to the integrated marketing communications concept, various marketing communications media and communication efforts have to be integrated into one consistent message. However, only communicative activities that are more or less purely marketing communication, such as traditional advertising, direct response, public relations and also sales activities, are included (see the definition of integrated marketing communications by the American Association of Advertising Agencies” Integrated Marketing Communications Committee quoted in Reitman, 1994; see also

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Frischman, 1994). Other communications efforts are included only if they become transparent and merge with the marketing communications elements, as when distribution and communication might become the same in the case of direct response marketing (Stewart et al., 1996; Stewart, 1996). The characteristic aspect of marketing communication in a relationship marketing context is an attempt to create a two-way or sometimes even a multi-way communication process. Not all activities are directly two-way communication, but all communication efforts should lead to a response of some sort that maintains and enhances the relationship. Any given effort, such as a sales meeting, direct mail letter or an information package, should be integrated into a planned on-going process. This planned communication process includes a variety of elements that, for example, can be divided into sales activities, mass communication activities, direct and interactive communication (other than sales efforts where a direct response is sought) and public relations. Any other number or type of categories could of course also be used, and the suggested groups naturally include a number of subgroups. Mass communication includes traditional advertising, brochures, sales letters where no immediate response is sought and other similar activities, whereas direct communication includes personally addressed letters including offers, information, recognition of interactions that have taken place, request of data about the customer etc. Here, a more direct response is sought in the form of feedback from previous interactions, request for more information or an offer, data about the customer, a purely social response, etc. In Figure 2 the planned communication process is illustrated as a circle which parallels the interaction process, which in turn includes a number of episodes consisting of individual acts. For the sake of illustration, various types of communication efforts have been depicted throughout the on-going planned communication process. As can be seen this process often, but by no means not always, starts before the interaction process. This is, of course, the stage where the relationship is established. From the point where the two processes go together the relationship is maintained and further enhanced. At some point the relationship may be broken or terminated. The interaction and planned communication processes indeed parallel one another, which means that they should support and not counteract one another. The two-way arrows between the two circles in Figure 2 indicate this. An activity in the planned communication process, a sales meeting or a

personally addressed letter creates an expectation, and the interaction process must follow up on this expectation. If, for example, only the planned communication process is considered part of relationship marketing, negatively perceived acts or episodes in the interactions process easily destroy the initially good impression of a planned communication effort, and no relationship development takes place. As a conclusion, although communication efforts such as sales negotiations and personally addressed letters may look relational, just planning and managing marketing communication through distinct communications media, even as a two-way process, is not relationship marketing. Only the integration of the planned communication and the interaction processes into one strategy that is systematically implemented creates relationship marketing. In such a case customers’ perceived value of the relationship is developing favorably, as indicated by the value process circle in the middle of Figure 2.

Relationship marketing dialogue Activities on both the interaction process and planned communication process send messages to customers about the firm and its way of serving its customers. Duncan and Moriarty (1997) divide the possible sources of messages into four groups, namely, planned marketing communication (i.e. messages sent as part of the planned communication process), product and service messages (i.e. messages created throughout the interaction process) and unplanned messages, where the first group can be expected to have the lowest credibility and the last group the highest credibility in the minds of customers. Planned marketing communication makes promises of how a solution to a customer’s problems should function. Product messages include, for example, what the design, technical features, durability and distribution of product elements in a relationship communicate to customers. Service messages originate from interactions with an organization’s customer service and other processes. Unplanned messages are communicated via news stories, employee gossip and word-of-mouth communication. In this context one should remember that absence of communication also sends distinct messages and therefore also contributes to the total communication process (Calonius, 1989). In Figure 3 these five sources of communication messages (including absence of communication) in on-going relationships are summarized and illustrated with examples (Figure 3).

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Figure 2 The interaction, planned communication and value processes

Figure 3 Sources of communication messages in a relationship

Planned marketing communication takes place in the planned communication process in Figure 2. Product and service messages are created in the interaction process. Word-of-mouth referrals and other unplanned messages are a result of how customers and other individuals perceive these two processes and how they support or counteract one another. The various types of messages are developing in a continuous process, and in the

minds of customers their effects are probably accumulating. This is illustrated in Figure 4 by the relationship communication globe. In the middle of the globe is the flow of interactions building up episodes, sequences of related episodes and eventually growing into a relationship (the interaction process zone of the globe). If the planned communication process with its planned marketing communication (source 1 in the upper

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Figure 4 The relationship communication globe

part of Figure 4) is supporting and supported by the product and service messages (sources 2 and 3) created in the flow of episodes of the interaction process, favorable unplanned communication (source 4) resulting in positive word-of-mouth communication will probably occur (Gro¨nroos and Lindberg-Repo, 1998). Both the firm and the customer can be expected to be motivated to communicate with one another, which according to Dichter (1966) is a prerequisite for two parties to engage in a dialogue. A dialogue can be seen as an interactive process of reasoning together (Ballantyne, 1999/2000), so a common knowledge platform is possible. If this knowledge platform enables the supplier to create additional value for the customer, relationship marketing is facilitated. Moreover, this should create extra value for the supplier as well. A connection between the firm and the customer has to be made, so that they find that they can trust one another in this dialogue or process of reasoning together. The intent of this process is to build shared meanings, and get insights in what the two parties can do together and for one another through access to a common meaning or shared field of knowledge (Schein, 1994; Bohm, 1996).

Being involved in a dialogue means that one avails oneself of existing knowledge but also is involved in creating new knowledge (Gummesson, 1999), which, among other things, may lead to the development of better solutions for customers than otherwise would have been possible (Wikstro¨m and Normann, 1994). Customers should feel that the firm which communicates with them shows a genuine interest in them and their needs, requirements and value systems and in a convincing way argues for products, services or other elements of the total offering. Furthermore, they should see that the firm appreciates feedback and makes use of it. In such a situation the communication aspects of the interaction process of relationship marketing merge with the planned communication process into one single two-way communication process, i.e. the two processes merge into a relationship dialogue (Gro¨nroos, 2000a, 2000b). The integration of planned communication messages with messages from the interaction process is required for dialogue to emerge. When a customer gets personal experiences of products, services, information etc. in the episodes of the interaction process, what Berlo (1960) calls connotative

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meaning might then be created. Through our personal experiences messages take on meaning[2] and a common knowledge platform of shared meanings has a chance to develop. However, for this to happen, all the parties involved have to be able to listen and respond to the other party’s messages. In other words, planned communication messages do not lead to a dialogue. They may initiate a dialogue process, but interactions and interaction-based messages are required for oneway or even parallel monologues to develop into a dialogue. Finally, the nature and content of wordof-mouth referrals will probably differ depending how long the customer has been involved in the interaction process (Lindberg-Repo and Gro¨nroos, 1999).

for purchasing from a given supplier” (Lapierre, 1997). One can also imagine that even if the solution in terms of goods and services is not the best possible, if the relationship is considered valuable enough the parties involved may still find an agreement. “Value is considered to be an important constituent of relationship marketing and the ability of a company to provide superior value to its customers is regarded as one of the most successful strategies...” (Ravald and Gro¨nroos, 1996, p. 19; Heskett et al., 1994; Nilson, 1992; Treacy and Wiersema, 1993). When transactions are the foundation of marketing, the value for customers is more or less totally embedded in the exchange of a product for money in an episode. The perceived sacrifice equals the price paid for the product. However, when relationships are the base of marketing, the role of the product becomes blurred. In the case of industrial robots, for example, if the customer is to be satisfied with what has been bought, delivery, customer training, maintenance and spare part service, information and documentation about the use of a robot, claims handling and perhaps joint development of the final robots, and a number of other activities, are necessary additions to the core solution – the robot. If the additional services are missing or not good enough, it is easy to see how the value of the core of the offering becomes highly questionable. In a case like this the role of the core product to the value perception of customers is indeed very much blurred. Without the valueadding additional services it is highly questionable whether the core product, in this case the industrial robot, has any value at all. In a relationship context the total offering includes both a core solution and additional services of various kinds (for instance, as demonstrated by the example of industrial robots). The sacrifice includes a price and also additional costs for the customer, owing to the fact that one is in relationship with another party. In a relationship context such additional sacrifice can be called relationship costs (Gro¨nroos, 2000a). Such costs follow from the decision to go into a relationship with a supplier or service firm. Relationship costs may increase, if the customer, for example, has to keep larger inventories than necessary because of the delivery policy of the supplier (directly occurring relationship costs) or suffer from higher standstill costs than expected because of delayed repair and maintenance service or some other deviation from what has been agreed on (indirectly occurring relationship costs). Sometimes relationship costs are also purely psychological costs caused by the customer’s feeling that he or she has lost control of the situation or cannot trust

The value process of relationship marketing Clearly, relationship marketing takes more efforts than transaction marketing. Therefore, a relationship marketing strategy must create more value for the customer or for some other party, such as a distributor, than the value of the mere transactions of goods or services in single episodes. The customer has to perceive and appreciate this value that is created in the on-going relationship. As a relationship is a process over time, value for customers is also emerging in a process over time. We call this a value process. If relationship marketing is to be successful and accepted as meaningful by the customer, there must be such a positive value process paralleling the planned communication and interaction processes that is appreciated by the customer. Traditionally, value has been used in the marketing and consumer behavior literature as “the value of customers for a firm”. Only to some extent has “value for the customer” been discussed in the literature (for example, Peter and Olson, 1993; Zeithaml, 1988), and then it has more or less been in a transaction marketing context. For example, Zeithaml (1988) defines customer perceived value as the consumer’s overall assessment of the utility of a product based on a perception of what is received and what is given. However, as Ravald and Gro¨nroos (1996, p. 23) observe, “the relational aspect as a constituent of the offering is not taken into account. . . . We suggest that the relationship itself might have a major effect on the total value perceived. In a close relationship the customer probably shifts the focus from evaluating separate offerings to evaluating the relationship as a whole. The core of the business, i.e. what the company is producing, is of course fundamental, but it may not be the ultimate reason

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a supplier or service firm to perform according to plans. Another way of looking at value for customers is to distinguish between a core value of an offering and an added value of additional elements in the relationship. Finally, the value for customer in a relationship can be seen as the sum of an episode value component and a value component that is embedded in the relationship itself. Hence, customer perceived value (CPV) in a relationship context can be described with the following three equations (Gro¨nroos, 2000a):

should always remember that the value-enhancing effect of new services is counteracted and often offset by the value destruction of existing services that are perceived in a negative way. Finally, as demonstrated by equation (3), on top of the value created by singular episodes (including the exchange of, for example, product elements, service elements, information or other kinds of resources), customer perceived value can be expected to include an explicit value component related to the mere fact that a relationship with a supplier or service provider exists (compare Sheth and Parvatiyar, 1995b; and Bagozzi, 1995). This value component includes, for example, a feeling of security, and a sense of trust, controlled relationship costs and minimized purchasing risks. This relationship value part of the equation should be positive, of course. However, if value destructors are present in the relationship, it can also be negative. In that case it is debatable whether the customer perceives that a relationship with the other party really exists. The customer may continue doing business with the same supplier only because of bonds related to, for example, price, location or technology. Theoretically, it seems important to keep the episode and relationship value components apart. Customer may, however, not always perceive them separately. The core solutions and additional services provided in the sequences of episodes in the interaction process should create a perceived value for the customer on an on-going basis. The core value should not be counteracted by negative added value through badly or untimely handled services. Simultaneously, the communication activities in the planned communication process should support this value process and not counteract or destroy it. In conclusion, a successful relationship marketing strategy requires that all three of the processes discussed be taken into account in relationship marketing planning. The interaction process is the core of relationship marketing, the planned communication process is the distinct communications aspect of relationship marketing, and the value process is the outcome of relationship marketing. When these processes are integrated a consistent total marketing communication impact is created. If this integration is successful, the interaction and planned communication processes may merge into a dialogue in an on-going relationship between a customer and a supplier or service provider. If the progress of the customer value processes is not carefully analyzed, wrong or inadequate actions in the two other processes may easily be taken. In that case, owing to conflicting signals to

CPV ¼

Coresolution þ additional services Price þ relationship costs

CPV ¼ Core value ^ added value

ð1Þ

ð2Þ

CPV ¼ Episode value ^ relationship value ð3Þ In a relationship customer perceived value is developing and perceived over time. In equation (1), the price has a short-term notion; in principle it is paid on delivery of the core product. However, relationship costs occur over time as the relationship develops, the usefulness of the core solution is perceived and the additional services are experienced in sequences of episodes and single acts. In equation (2), a long-term notion is also present. The added value component is experienced over time as the relationship develops. However, here it is important to observe the double signs. Often added value is treated as if something is always indeed added to a core value. This is clearly not the case, because the added value can also be negative. For example, a good core value of a machine can be decreased or even destroyed by untimely deliveries, delayed service, lack of necessary information, bad management of complaints handling, unclear or erroneous invoices, etc. The additional services do not add a positive value, instead by creating high and unexpected relationship costs they subtract from the basic core value, i.e. they provide a negative added value or cause value destruction. In situations with negative added value, creating added value for customers does not necessarily require the addition of new services to the offering. Instead, in order to reduce or altogether eliminate the negative added value or rather value destruction effects, the firm must improve existing services in the relationship, such as deliveries, service and maintenance, invoicing, etc. Probably, this is a faster and more effective way of creating added value in most relationships than what the addition of new services is. When appropriate, new services, or physical product components, can of course be included in the offering. However, one

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customers and promises which are not fulfilled, the value process may easily take a negative turn. If anyone of the three key processes is not analyzed and planned carefully, the implementation of relationship marketing may suffer.

customer relationships has often been minor. Marketing departments have frequently been preoccupied with planned marketing communication, however without integrating this very much with other elements of the relationships with the firm’s customers. In business-to-business relationships the relationship perspective offers a comprehensive framework for integrating planned communication with the whole range of interactions with customers that take place. In that way marketing can truly be instilled in the organization and a true customer orientation be achieved.. The phenomenon “marketing”, i.e. managing the market relationships of an organization, is increasingly important, but the term “marketing” may not always be the best possible anymore. Although in principle, people outside the group of marketing specialists, for example the part-time marketers and their supervisors and managers, may accept their role and responsibilities as parttime marketers, they do not necessarily want to associate themselves with something that is labelled marketing. For many of them the term marketing has a meaning which is colored by its transaction marketing history. Frequently marketing as practised by the marketing department has lost its credibility. “To create an understanding of relationship marketing in an organization and to implement a culture of relationship marketing, it may be necessary to replace the term marketing with a psychologically more readily accepted term to describe the task of managing the firm’s customer relationships” (Gro¨nroos, 1999, p. 334). This notion offers interesting and challenging research opportunities. To some people, academics as well as practitioners, the idea of abolishing the term marketing may sound unnecessary, even heretic, but there are examples of firms that have renamed the process of managing their market relationships, and with successful results as far as the customer orientation of the organization as well as an increased acceptance of “marketing” throughout the firm are concerned (see, for example, Gro¨nroos, 2000a). We should also remember that the term “marketing” is not more than a century old, whereas the phenomenon “marketing” is as old as the history of trade and commerce. The term used for this phenomenon has been changed before. A shift towards the adoption of a relationship marketing approach will demand a number of changes to old structures and attitudes. Substantial internal marketing (George, 1990; Ballantyne, 1997; Gro¨nroos, 2000a; Voima, 2000) will be required. The traditional way of organizing the firm, the system for planning marketing, the methods and instruments for measuring success in the marketplace, the philosophy of market

Conclusions In the literature relationship marketing is often offered as a solution for all customers in all situations where such a relationship approach is suitable. This is probably not the case. Some customers may be more willing to accept a relational contact with a firm, whereas others may want to have a transactional contact. Moreover, a person may in one situation be interested in a relationship and in other situations not. “Thus, in a given marketing situation the consumer (or user in a business-to-business relationship) is either in a relational mode or in a transactional mode. Furthermore, consumers in a relational mode can be either in an active or passive relational mode. Consumers or users in an active mode seek contact, whereas consumers in a passive mode are satisfied with the understanding that if needed the firm will be there for them” (Gro¨nroos, 1997, p. 409). There has been some suggestions in the literature why customers choose to enter a relational mode and react favorably to a relationship marketing approach (for example, Sheth and Parvatiyar, 1995b; Bagozzi, 1995), but so far there is almost no empirical research in this area. For example, we know far too little about the antecedents of an active or a passive relational mode, and about endogenous or exogenous factors that trigger a shift from a transactional mode to a relational mode or from a passive relational mode to an active one. When the process of managing the firm’s market relationships is approached from a relationship perspective, marketing is spread throughout the organization. Marketing resources, for example part-time marketers (Gummesson, 1991), are found all over the firm, and not only in a marketing department. Although specialists on traditional marketing areas such as market research, marketing communication and pricing still are needed, of course, marketing is no longer only or even predominantly a function of its own. It becomes part of many functions in the firm. In such a situation “marketing cannot be organized. . . . Marketing can only be instilled in the organization” (Gro¨nroos, 2000a, p. 311). In business-to-business relationships the problems with traditional marketing mix approaches have long been recognized. In many firms the role of marketing as a separate function in

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segmentation as a way of structuring the total market into a meaningful market platform, to mention a few only, have to be challenged, which we have done in another context (Gro¨nroos, 1999). The need for such changes is really not very surprising. After all, most of the structures and attitudes that still are dominating marketing research and the practice of marketing alike are from the industrial era where a transactional approach to marketing did well for firms. However, today we live in a post-industrial society, sometimes labeled “the new economy”. Marketing cannot live on untouched by the changes in the surrounding world.

marketing”, Marketing Thought and Practice in the 1990s, Proceedings from the XVIIIth Annual Conference of the European Marketing Academy, Athens. Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing: Bringing Quality, Customer Service and Marketing Together, Butterworth-Heinemann, Oxford. Collins, B. (1999), “Pairing relationship value and marketing”, Australasian Marketing Journal, Vol. 7 No. 1, pp. 63-71. Coviello, N.E. and Brodie, R.J. (1998), “From transaction to relationship marketing: an investigation of managerial perceptions and practices”, Journal of Strategic Marketing, Vol. 6 No. 3, pp. 171-86. Coviello, N.E., Brodie, R.J., Brookes, R.W. and Collins, B. (1997), “From transaction marketing to relationship marketing: an investigation of market perceptions and practices”, Fifth International Colloquium in Relationship Marketing, November, Cranfield University, Cranfield. Dichter, E. (1966), “How word-of-mouth advertising works”, Harvard Business Review, Vol. 44 November-December, pp. 147-66. Duncan, T. and Moriarty, S. (1997), Driving Brand Value, McGraw-Hill, New York, NY. Duncan, T. and Moriarty, S. (1999), “Commentary on relationship-based marketing communications”, Australasian Marketing Journal, Vol. 7 No. 1, pp. 118-20. Frischman, D.E. (1994), “A voice of reality”, in Faure, C. and Klein, L. (Eds), Marketing Communications Strategies Today and Tomorrow: Integration, Allocation, and Interactive Technologies, Report 94-109, Marketing Science Institute, Cambridge, MA, pp. 35-6. Gayeski, D. (1993), Corporate Communication Management, Focal Press, Boston, MA. George, W.R. (1990), “Internal marketing and organizational behavior: a partnership in developing customer-conscious employees at every level”, Journal of Business Research, Vol. 20 No. 1, pp. 63-70. Gro¨nroos, C. (1980), “Designing a long range marketing strategy for services”, Long Range Planning, Vol. 13 April, pp. 36-42. Gro¨nroos, C. (1983), Strategic Management and Marketing in the Service Sector, Marketing Science Institute, Cambridge, MA (original published in 1982). Gro¨nroos, C. (1989), “Defining marketing: a market-oriented approach”, European Journal of Marketing, Vol. 23 No. 1, pp. 52-60. Gro¨nroos, C. (1996), “Relationship marketing logic”, AsiaAustralia Marketing Journal, Vol. 4 No. 1, pp. 1-12. Gro¨nroos, C. (1997), “Value-driven relational marketing: from products to resources and competencies”, Journal of Marketing Management, Vol. 13 No. 5, pp. 407-20. Gro¨nroos, C. (1998), “Marketing services: the case of the missing product”, Journal of Business and Industrial Marketing, Vol. 13 No. 4/5, pp. 322-38. Gro¨nroos, C. (1999), “Relationship marketing: challenges for the organization”, Journal of Business Research, Vol. 46 No. 3, pp. 327-35. Gro¨nroos, C. (2000a), Service Management and Marketing: A Customer Relationship Management Approach, Wiley, New York, NY. Gro¨nroos, C. (2000b), “Creating a relationship dialogue: communication, interaction, value”, Marketing Review, Vol. 1 No. 1, pp. 5-14. Gro¨nroos, C. and Gummesson, E. (1985), “The Nordic School of service marketing”, in Gro¨nroos, C. and Gummesson, E. (Eds), Service Marketing – Nordic School Perspectives, Stockholm University, Stockholm, pp. 6-11.

Notes 1 Holmlund (1997) uses the term action, but here we use the term act, originally suggested by Liljander and Strandvik (1995) to describe the smallest unit of analysis. 2 As Gayeski (1993) argues, message and meaning are the two fundamental components of a communication process.

References Arndt, J. (1979), “Towards a concept of domesticated markets”, Journal of Marketing, Vol. 43, Fall, pp. 69-75. Bagozzi, R.P. (1995), “Reflections on relationship marketing in consumer markets”, Journal of the Academy of Marketing Science, Vol. 23 No. 1, pp. 272-7. Ballantyne, D. (1997), “Internal networks for internal marketing”, Journal of Marketing Management, Vol. 13 No. 5, pp. 343-66. Ballantyne, D. (2000), “Dialogue and knowledge generation: two sides of the same coin in relationship marketing”, paper presented at the 2nd WWW Conference on Relationship Marketing, November 1999 – February 2000, Monash University and MCB University Press, available at: www.mcb.co.uk/services/conferen/nov99/rm/paper3.html Berlo, D.K. (1960), The Process of Communication, Holt Rinehart & Winston, New York, NY. Berry, L.L. (1983), “Relationship marketing”, in Berry, L.L., Shostack, G.L. and Upah, G.D. (Eds), Emerging Perspectives on Services Marketing, Proceedings Series, American Marketing Association, Chicago, IL. Bitner, M.J. (1995), “Building service relationships: it’s all about promises”, Journal of the Academy of Marketing Science, Vol. 23 No. 4, pp. 246-51. Bohm, D. (1996), On Dialogue, Routledge, London. Booms, B.H. and Bitner, M.J. (1981), “Marketing strategies and organization structures for service firms”, in Donnelly, J.H. and George, W.R. (Eds), Marketing of Services, Proceedings Series, American Marketing Association, Chicago. IL. Brodie, R.J., Coviello, N.E., Brookes, R.W. and Little, V. (1997), “Towards a paradigm shift in marketing? An examination of current marketing practices”, Journal of Marketing Management, Vol. 13 No. 5, pp. 383-406. Calonius, H. (1989) Avlonitis, G.J., Papavasiliou, N.K. and Kouremeos, A.G. (Eds), “Market communication in service

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Gro¨nroos, C. and Lindberg-Repo, K. (1998), “Integrated marketing communications: the communications aspect of relationship marketing”, The IMC Research Journal, Vol. 4 No. 1, pp. 3-11. Gummesson, E. (1983), “A new concept of marketing”, Proceedings of the European Marketing Academy (EMAC), Institut d’Etudes Commerciales de Grenoble, France, April. Gummesson, E. (1987), “The new marketing – developing longterm interactive relationships”, Long Range Planning, Vol. 20 No. 4, pp. 10-20. Gummesson, E. (1991), “Marketing revisited: the crucial role of the part-time marketer”, European Journal of Marketing, Vol. 25 No. 2, pp. 60-7. Gummesson, E. (1996), “Relationship marketing and imaginary organizations: a synthesis”, European Journal of Marketing, Vol. 30 No. 2, pp. 31-44. Gummesson, E. (1999), Total Relationship Marketing. Rethinking Marketing Management: From 4 Ps to 30 Rs, ButterworthHeinemann, Oxford. Ha˚kansson, H. Ed. (1982), International Marketing and Purchasing of Industrial Goods, Wiley, New York, NY. Ha˚kansson, H. and Snehota, I. (1995), Developing Relationships in Business Networks, Routledge, London. Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E. and Schelsinger, L.A. (1994), “Putting the service-profit chain to work”, Harvard Business Review, Vol. 72, March-April, pp. 164-74. Holmlund, M. (1996), A Theoretical Framework of Perceived Quality in Business Relationships, Hanken Swedish School of Economics Helsinki/CERS, Helsingfors. Holmlund, M. (1997), Perceived Quality in Business Relationships, Hanken Swedish School of Economics Finland/CERS, Helsingfors. Hunt, S.D. and Morgan, R.M. (1994), “Relationship marketing in the era of network competition”, Marketing Management, Vol. 3 No. 1, pp. 19-30. Jackson, B.B. (1985), “Build customer relationships that last”, Harvard Business Review, Vol. 63, November-December, pp. 120-8. Lapierre, J. (1997), “What does value mean in business-tobusiness professional services?”, International Journal of Service Industry Management, Vol. 8 No. 5, pp. 377-97. Levitt, T. (1983a), The Marketing Imagination, Free Press, New York, NY. Levitt, T. (1983b), “After the sale is over”, Harvard Business Review, Vol. 61, September-October, pp. 87-93. Liljander, V. (1994), “Introducing deserved service and equity into service quality models”, in Kleinaltenkamp, M. (Ed.), Dienstleistungsmarketing – Konzeptionen und Anwendungen, Gabler Edition Wissenschaft, Berlin, pp. 1-30. Liljander, V. and Strandvik, T. (1995), “The nature of customer relationships in services”, in Bowen, D., Brown, S.W. and Swartz, T.A. (Eds), Advances in Services Marketing and Management, Vol. 4, JAI Press, Greenwich, CT, pp. 141-67. Lindberg-Repo, K. and Gro¨nroos, C. (1999), “Word-of-mouth referrals in the domain of relationship marketing”, Australasian Marketing Journal, Vol. 7 No. 1, pp. 109-17. Mattsson, L-G. (1997), “Relationship marketing and the “market-as-networks” approach: a comparative analysis of two evolving streams of research”, Journal of Marketing Management, Vol. 13 No. 5, pp. 447-61. Mo¨ller, K. and Wilson, D. (1995), “Business relationships: an interaction perspective”, in Mo¨ller, K. and Wilson, D. (Eds), Business Marketing: An Interaction and Network Perspective, Kluwer Academic, Boston, MA, pp. 23-52.

Nilson, T.H. (1992), Value-Added Marketing: Marketing for Superior Results, McGaw-Hill, London. Normann, R. (1992), Service Management, 2nd ed., Wiley, New York, NY. Payne, A. and Holt, S. (1999), “Review of the ”value” literature and implications for relationship marketing”, Australasian Marketing Journal, Vol. 7 No. 1, pp. 41-51. Peter, J.P. and Olson, J.C. (1993), Consumer Behavior and Marketing Strategy, 3rd ed., Irwin, Homewood, IL. Ravald, A. and Gro¨nroos, C. (1996), “The value concept and relationship marketing”, European Journal of Marketing, Vol. 30 No. 2, pp. 19-30. Reichheld, F.E. (1993), “Loyalty-based management”, Harvard Business Review, Vol. 2, March-April, pp. 64-73. Reichheld, F.E. and Sasser, W.E. Jr. (1990), “Zero defections: quality comes to services”, Harvard Business Review, Vol. 68, September-October, pp. 105-11. Reitman, J. (1994), “Integrated marketing: fantasy or the future?”, in Faure, C. and Klein, L. (Eds), Marketing Communications Strategies Today and Tomorrow: Integration, Allocation, and Interactive Technologies, Report 94-109, Marketing Science Institute, Cambridge, MA, pp. 30-2. Schein, E.H. (1994), “The process of dialogue: creating effective communication”, The Systems Thinker, Vol. 5 No. 5, pp. 1-4. Schultz, D.E. (1996), “The inevitability of integrated communications”, Journal of Business Research, Vol. 37 No. 3, pp. 139-46. Schultz, D.E., Tannenbaum, S.I. and Lauterborn, R.F. (1992), Integrated Marketing Communications, NTC Publishing, Lincolnwood, IL. Sheth, J.N. and Parvatiyar, A. Eds. (1994), “Relationship marketing: theory, methods, and applications”, Proceedings of the 1994 Relationship Marketing Research Conference, Center for Relationship Marketing, Emory University, Atlanta, GA, June. Sheth, J.N. and Parvatiyar, A. (1995a), “The evolution of relationship marketing”, International Business Review, Vol. 4 No. 4, pp. 397-418. Sheth, J.N. and Parvatiyar, A. (1995b), “Relationship marketing in consumer markets”, Journal of the Academy of Marketing Science, Vol. 23 No. 4, pp. 255-71. Stauss, B. and Weinlich, B. (1995), “Process-oriented measurement of service quality by applying the sequential incident technique”, paper presented at the Fifth Workshop on Quality Management in Services, EIASM, Tilburg. Stewart, D.W. (1996), “Market-back approach to the design of integrated communications programs: a change in paradigm and a focus on determinants of success”, Journal of Business Research, Vol. 37 No. 3, pp. 147-54. Stewart, D.W., Frazier, G. and Martin, I. (1996), “Integrated channel management: merging the communications and distributions functions of the firm”, in Thorson, E. and Moore, J. (Eds), Integrated Marketing and Consumer Psychology, Lawrence Erlbaum Associates, Hillsdale, NJ. Storbacka, K. (1994), The Nature of Customer Relationship Profitability: Analyses of Relationships and Customer Bases in Retail Banking, Swedish School of Economics and Business Administration, Helsingfors. Storbacka, K. and Lehtinen, J.R. (2000), Customer Relationship Management (in Swedish), Liber Ekonomi, Malmo¨. Strandvik, T. and Storbacka, K. (1996), “Managing relationship quality”, paper presented at the QUIS 5 Quality in Services Conference, University of Karlstad, Karlstad.

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Treacy, M. and Wiersema, F. (1993), “Customer intimacy and other value disciplines”, Harvard Business Review, January-February, pp. 84-93. Tzokas, N. and Saren, M. (1999), “Value transformation in relationship marketing”, Australasian Journal of Marketing, Vol. 7 No. 1, pp. 52-62. Vavra, T.G. (1994), “The database marketing imperative”, Marketing Management, Vol. 2 No. 1, pp. 47-57. Voima, P. (2000), “Internal relationship management – broadening the scope of internal marketing”, in Varey, R.J. and Lewis, B.R. (Eds), Internal Marketing: Directions for Management, Routledge, London. Webster, F.E. Jr (1994), “Executing the new marketing concept”, Marketing Management, Vol. 3 No. 1, pp. 9-18. Wikstrom, S. and Normann, R. Eds. (1994), Knowledge and Value: A New Perspective on Corporate Transformation, Routledge, London.

Wilson, D.T. and Jantrania, S. (1994), “Understanding the value of a relationship”, Asia-Australia Marketing Journal, Vol. 2 No. 1, pp. 55-66. Zeithaml, V.A. (1988), “Consumer perceptions of price, quality and value: a means-end model and a synthesis of evidence”, Journal of Marketing, Vol. 52, July, pp. 2-22.

Further reading Dixon, N. (1998), Dialogue at Work, Lemos and Crane, London. Gro¨nroos, C. (2000c), “Relationship marketing: the Nordic School perspective”, in Sheth, J.N. and Parvatiyar, A. (Eds), Handbook of Relationship Marketing, Sage, Thousand Oaks, CA, pp. 95-118.

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An executive summary for managers and executive readers can be found at the end of this issue.

Dialogue and its role in the development of relationship specific knowledge

Introduction

David Ballantyne

The author David Ballantyne is Senior Fellow at the Melbourne Business School, The University of Melbourne, Australia.

Keywords Communication, Innovation, Knowledge management, Trust, Relationship marketing

Abstract In this article, dialogue is explored as an interactive process of learning together. This process is often spontaneous and unruly but bounded by a serious intent to reach mutual understanding. Also, the concept of relationship specific knowledge is introduced to explain how trust between business counterparts develops through dialogue in iterative cycles of learning. Dialogue also brings opportunities for generating new business knowledge, within the firm and between firms, in the form of creative solutions to marketing and supply problems. In this way, mutual value in buyer-supplier exchanges is enhanced.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · pp. 114-123 q Emerald Group Publishing Limited · ISSN 0885-8624 DOI 10.1108/08858620410523990

It is almost 20 years since Porter (1985) provided a value chain blueprint for coordinating traditional organizational functions around both supply and demand imperatives. Since then, various “value chain” diagnostic approaches have become part of marketing and supply orthodoxy. For example, when relevant internal control data and market knowledge is freely shared between buyers and suppliers, firms can identify and eliminate the nonvalue steps in their delivery systems. In this way, firms have improved productivity for themselves and upstream partners, and product and service reliability for downstream customers (see for example, Christopher, 1992; Lanning, 1998). These coordinating efforts were once adequately explained by the “value chain” model and its step-wise integration, but no more. As Bean and Robinson (2002) put it, a re-evaluation of marketing’s role in value creation is in order. The commonplace problem today is not the circulating of market knowledge or finding the enabling technology to store it, but learning how to support, enhance and bring to consciousness the everyday experience of employees that represents a firm’s unique knowledge – the kind of knowledge that is difficult for competitors to copy (see for example, Fruin, 1997; Inkpen, 1996). The argument put in this article is that dialogue offers a largely untravelled pathway to new business knowledge. Dialogical interaction helps trust develop between participants, and this facilitates learning and the generation of knowledge in the form of solutions to marketing and supply problems. I define dialogue quite specifically as an interactive process of learning together. In dialogue, mutual value in buyersupplier exchanges is enhanced. The structure of this article is as follows: First, the interaction concept in marketing is discussed. Then the nature of dialogue is explored and insights from the organizational learning and psycho-dynamics literatures are highlighted. Next, the concept of relationship specific knowledge is introduced. Finally, the potential for generating new knowledge and expanding common knowledge through dialogue is explored.

Interaction concept in marketing At a fundamental level, interaction begins when any action generates a response. In physical

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sciences, two cells can collide and take on some of the attributes of the other. Or, in fusion, each may take on the character of something new. Of course, in human interaction, a distinction can be made between reactive responses, reflective responses, and a range of participative possibilities between. In marketing interaction, while the common objective of all the parties involved is to gain some equitable value for themselves, the origin of this participation is still some form of initial action and response. This might lead to a once only transaction, or to the co-creation of mutual value over time. It is not usually put this way but marketing exchange is an open ended process and interactions are the enactment of that process[1]. Gronroos (1990, p. 42) has used the term interactive marketing to describe a service focused relationship strategy built on customer-supplier interactions. He represented the behavioral aspects of interactions as moments of truth, the customers were seen as co-producers of the service, and key management tasks were to create a climate for the customer conscious behavior of employees with necessary organizational systems in support (Gronroos, 1990, p. 147). Under such operating arrangements, customer contact people in any part of the firm become part time marketers because of their interactive, customer service roles (Gummesson, 1987). This interactive perspective is a common platform in services marketing and much of it is derived from the work of the so-called Nordic School. A slightly different perspective is taken by the Industrial Marketing and Purchasing Group (IMP). They use the term interaction to indicate that sales and purchase transactions are only one part of a range of episodic B2B interactions within an exchange relationship. These interactions are embedded in relationships, or by extension, in networks of relationships (see for example Axelsson and Easton, 1992; Hakansson and Snehota, 1995). This interaction perspective is a common platform in B2B marketing in Europe and becoming so in the Americas. Both these perspectives are complementary, even although they emphasize different things. The first emphasizes marketing behaviors, and the second emphasizes time-based episodic periods in which those behaviors occur. What is common to both perspectives is communicative interaction. This goes to the heart of how meaning is made.

emotions, ideas, facts, arguments, opinions and plans. Yet marketing communication is commonly presented and practiced as one-way message making. Reference to any mainstream marketing text will confirm that prominence is given to the planning and crafting of persuasive messages. As many such outgoing messages will remain unopened, unseen and unheard, they are really messages of intent to communicate. Communicative interaction only takes place when the receiver derives some meaning from the message, which of course may be other than that which the sender intended. The problem facing one-way message makers is that words are seldom adequate to represent what we mean. The problem is not in the limited way language is used; the problem is the limitation of language. That is, words imitate but never replicate our sense of the experience. Of course there is also the phenomenon of “non-verbal” communication, which is a common cultural understanding that needs no words, sometimes simply called “body language”. In two-way communication mode, the range of possibilities might include gaining a response to well crafted messages, face to face encounters, technologically enabled interaction through direct marketing and call centers, and reaching a mutual understanding between one another in dialogue. The opportunity for a more integrated communication approach is thus broadened and deepened. This in turn supports the development of more useful relationships with customers and other stakeholders (Duncan and Moriarty, 1997). The potential for integration of these various forms of communication is presented as a marketing communication matrix – stretching from monologue to dialogue (see Figure 1). This includes one-way messages from the focal firm directed “to” or “for” its customers and other parties, where “to” represents the basic offering and “for” represents a more value added and targeted format. As well, there is two-way communication “with” customers and other parties; and also dialogical interaction “between” the focal firm and its customers and other parties[2]. This last category is valued for its spontaneity and creative potential, and as a method of working through problems and opportunities together, as we will see.

Communicative interaction: from monologue to dialogue

Dialogical interaction

Communicative interaction potentially allows interplay between actors through language of

In this section the nature of dialogue is explored and insights from the organizational learning and psycho-dynamics literatures are discussed. While

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Figure 1 Marketing communication matrix

Senge (1990) gave international prominence to dialogue as a core discipline in his thesis on learning organizations, dialogue is still given only perfunctory treatment in the marketing literature (notwithstanding some headway by Slater and Narver (1995) on market orientation, and Madhavan and Grover (1998) on new product development).

Dialogue aims to achieve deeper levels of understanding between those participating. The etymological roots are dia (through), and logos(word). Not all interactions between buyers and suppliers or within firms require this depth of attention to what is being said “through word”. Dialogue works to reconcile what seems contrary between parties, making the reconciliation of

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meaning possible. This can be contrasted with discussion, which is more concerned with the exchange of opinions. Also outside the ambit of dialogue are everyday talk and conversation, which have sociability through communication as their purpose. Some scholars define dialogue more radically, as the fundamental way of being human in the world. Then dialogue comes before all else and an end in itself[3]. Another possible way of expressing dialogical depth is to say that dialogue is reasoning together (Schein, 1994; Ballantyne, 1999/2000). However, “reasoning together” can descend into a dialectical contest between adversaries, in which case shared meaning might be lost in the combat. For example, witness the advocacy and defense practices in English speaking legal systems. Dialogue is certainly not an adversarial form of communication, nor another manipulative communication technique for transferring messages and meanings.

itself. Argyris (1994) over many years has encouraged executives and managers to work to bring any gap between these two positions into mutual awareness, as part of a facilitated process of organization development.

Dialogue as learning together I believe there is a mid-way position between the two dialogical perspectives described above, where dialogue can be understood as an interactive process of learning together.This definition recognizes a necessary sense of spontaneity, bounded by a serious intent to reach mutual understanding by listening and learning. This understanding may lead to a common agreement on a particular issue, or perhaps a variety of different interpretations will remain in play. It is quite possible to achieve understanding, even if we agree to differ. Dialogical interaction means becoming more aware of your routine but hidden thought patterns (mental models, logics, cognitive constructs, gestalts or schemas). To do this well, an attempt must be made to query your participants’ assumptions and prejudices and likewise confront your own, some of which are really difficult to access. Dialogical interaction clearly confirms that latent motives are silently at work in all people in all situations. Thus, assumption checking is fundamental to learning together, and helpful in reaching more enlightened exchanges of mutual value. Espoused theory and theory in use This mid-way or learning perspective on dialogue fits well with Argyris and Schon’s (1978) theory of action. In this they make a clear distinction between what is said in communication (espoused theory) and what is done in action (theory in use). In other words, becoming aware of the hidden assumptions which inform what you say and do, and reciprocally, suspending hasty judgments about the motives of others, is a learning process in

Gaining access to a common meaning Senge (1990, p. 241) claims that the purpose of dialogue is to go beyond the understanding of any one person, to seek to bring to the surface insights that would otherwise remain hidden. Senge draws much of his dialogical inspiration from the work of David Bohm, quantum physicist and philosopher of science. However, Bohm’s (1996) perspective on dialogue goes further. For him, participants in dialogue gain their insights through access to a common meaning, a unified field of human knowledge. For Bohm thinking is in some degree collective; it is not amenable to being contained within any one individual. Thus, dialogue moves from interaction to participation through a pool of “common meaning” developed and accessed by those engaged in direct encounter. I argue that this kind of experience is sensed by many but not so frequently expressed or given due consideration[4]. Representation and participation Bohm also argues that past “thought” stays on as a pervasive presence in our current thinking, manifesting as “traces” in our mental models that guide or divert current thinking and sensing about what is going on around us. In Bohm’s (1996, pp. 51-53) schema, “thought” (as remnants from past experience) has an ever-present tendency to create false coherence in interpreting the present. Trapped in the theatre of our mental processes, past “thought” may distort our representation of current reality and stand as a block in the way of insightful perception. Then, marketing communication becomes rigid and monological. For example, we may choose to believe that complaining customers are unreasonable, when listening and learning might discover a new and unique opportunity. We could choose to believe that suppliers cannot be trusted with access to forward projections of sales, even though freely exchanging such information would improve efficiencies and reduce transaction costs. We might want to believe that accounting standards offer a true and fair representation of the financial position of the firm, notwithstanding that the value of intellectual capital is ignored. Thus, there is a representative barrier (thought) and a participative capability (thinking) in Bohm’s division between “thought” and “thinking”, where the former conceals and the latter reveals new knowledge. This is expressing at the interpersonal

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level what we already recognize at the level of organizational culture. Merely by becoming aware of the pervasiveness of past “thought”, be it of an individual or collective nature, will help steady our dialogical interaction. As Senge (1990, p. 242) puts it, “people become observers of their own thinking”. Both Argryis’ and Bohm’s schemas offer insights into the operation of dialogue as a learning process that allows people to connect at an authentic level of “thinking”. The key point is that dialogue aims to address the more complex mutual concerns of the parties involved. Yet, the alternative path is all too common, where meanings are routinely filtered by past “thought” and exchanged uncritically in language and action.

by emotion, and dialogue impoverished by the lack of it. In his efforts to improve the dialogical capability of groups, Bion (1961) identified the kind of group that had the capacity to cooperate effectively in achieving a specific task. These work groups successfully manage to “work through” the linked emotions that are nonetheless an essential part of being in the world. In other words, the groups that stay reason-able in dialogue are not swamped by emotional states. However, this dialogical state of reasonableness is not so straightforward, as we will see. Certainly, emotional phenomena are a normal part of attending to any group dynamic, activated spontaneously through group interaction. As we have seen earlier in discussing Bohm’s ideas, this is traditionally presumed to be a property of the individual rather than the group. Bion asked the question, “What if emotions in groups are cocreated and amplified collectively, by the group itself?” Bion’s findings in clinical practice were that individual emotional phenomena expressed in a dialogical group setting could become collective mental phenomena, held in operation by the basic assumptions (ba)shared by that group. The critical point is that any group in this state behaves as if the ba underpinning its behavior makes sense in terms of the task that it is working to resolve. Thus, the behavior of a group in the grip of emotionally grounded ba is irrational, dysfunctional and potentially dangerous. Bion’s basic assumptions take three archetypal forms: (1) Dependency. Where the basic assumption operating is that only the leader provides security for the group, and that only this leader has the means and the will to protect the others. (2) Fight/flight. Where the assumption operating is that unity and cohesiveness is preserved in courageous action and selfless sacrifice, acted out in fighting, or alternatively in escape (3) Pairing. Where the assumption operating is that hope is rewarded by way of a future coming of a savior figure, a fantasy sexual union, or a vision for the future that is out of reach for the present.

Structural barriers to dialogue Organizations can unintentionally create systemic constraints which obstruct dialogue and inhibit people from learning together (Dixon, 1999, p. 116). For example, the expert divisions within an organization (as well the boundaries between organizations) are created out of a need for efficiency but they often become systems of control and communicative constraint. Each boundary is the end of one zone of likeness and the beginning of a zone of difference. At the interpersonal level, perceived differences can be magnified over time. Smith (1987, p. 649) cautions, “each side abdicates responsibility for its own actions and makes the others the “cause”, thereby creating the experience of being controlled by the outside”. As a consequence, when hierarchical authority operates coercively to impose a singular view of order, complex relations between departments and divisions are denied, and routine processes and their performance are bound to suffer. When boundaries act as constraints, whether between people, activities or resource allocations, dialogue acts as a conduit across those constraints. Extending the level of intra-organizational and inter-organizational collaboration then becomes possible. Anxiety and the subjective dilemma With any unexpected changes to organizational routines, or happenstance into unknown territory, some anxiety is always activated. Emotions impact on our ability to be reasonable. If reason were the only operative component in our business life, then the outcomes for organizations might seem to be the better for it. However, this is not life, as we know it[5]. Reason is always at risk of being hijacked by emotion. On the other hand, the emotional wellsprings of spontaneity can contribute creatively to dialogue. Clearly, there is a fine line between dialogue becoming overwhelmed

These basic assumptions impact on a range of emotions from uncertainty and fear to faith. Once in operation, there may be some oscillation from one to the other. Yet the irrational consequences for the group remain the same. People can be caught up together in the group fantasy without awareness of how the basic assumptions are underpinning their thought and behavior. Yet it usually becomes observable to others. Bion cautions us that all work groups, from

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time to time, may get caught up emotionally in the irrationality of these basic assumptions[6]. For example, in dependency, employees may take unreasonable comfort from the presence of a “strong” leader figure and attribute to him or her singularly great powers; or in fight/flight, act too willingly to support a marketing warfare approach to business success no matter the ethical consequences; or in pairing, have faith in renewed business success as soon as a “turnaround” champion can be found. Perhaps of greater concern is that conscious or unconscious manipulations by leaders can stimulate these latent group tendencies to respond deeply and in concert to appeals to the emotions. Small groups (or whole societies) can be caught up unknowingly in the emotional sway of one basic assumption and then another. Thus, caught up, people can interpret any communication at all in terms of the unquestioned “rightness” of the basic assumption then in play. That is the way emotional hijack works. It is the loss of awareness of individual values and valid differences of opinion that is most serious. Such conditions suit the emergence of leaders with latent psychotic tendencies (Kets de Vries, 1990). In other words, in extreme cases, the interplay between the leader and the led can amplify the shared fantasy.

Is it still safe to go outside? To bring some balance to the discussion thus far, it is useful to contrast Bion’s ba derived sources of group irrationality with Bohm’s notion of collective thinking. Bion emphasized the negative aspects of the “collective” that create shared fantasy while Bohm emphasized the positive potential of the “collective” in the development of mutual understanding. Without denying Bion’s profound insights, there is in his work little regard for the emotional wellspring of creativity and creative play. I would argue that a sensible dialogical approach would combine both emotional energy and reasoning with critical pragmatism. It might also be argued that there is a methodological difficulty in Bohm and Bion. It is never easy to deal scientifically with individual or collective feelings, to consider what is real, and what can be known[7]. Yet in both Bohm and Bion there is a suggestion that what is important is not inside or outside us, but between us. This is a dialogical space, and its phenomena cannot simply be ignored through lack of objectivist proof, or dismissed and split off as attributes or properties of the people involved.

Relationship specific knowledge Developing or maintaining a special business relationship becomes difficult if participants cannot adequately communicate, reach mutual understanding of the meanings of events, and test assumptions behind decisions that impact on one or the other party. However, in any kind of business relationship, even in those that are somewhat impersonal, there is a relationship specific knowledge that can be accessed by participants. This kind of knowledge is the ebb and flow of experience and grounded in interaction. Relationship specific knowledge is coping knowledge about how to deal with one another, the kind of tacit knowledge that might have positive use in dealing with current dilemmas and determining future expectations. While this knowledge is based on past relational experiences it is co-created and constantly updated in interaction by new experiences. Of course, relationship specific knowledge might bring counterparts closer together over time, or it could lead to separation. Some relationship specific knowledge will be common between counterparts, based on their mutual understandings, but there will be interpretive diversity as well. What is brought to consciousness at any time includes “traces” of past experience but interpreted in the present, through the eyes, ears and feelings of each party in dialogical interaction. If parties in dialogical interaction are to maintain trust in one another, it becomes important periodically to explicitly review and share these otherwise hidden assumptions and judgments about one another. This might be thought of as process maintenance, as distinct from the creative and practical knowledge outcomes that dialogue brings through continuing cycles of learning together. A distinction is made between relationship specific knowledge and the notion of structural bonding, which is the consequence of investments and adaptations to routines made between firms (Wilson and Jantrania, 1994). Another necessary distinction is made between relationship specific knowledge and what Madhavan and Grover (1998) identify as shared mental models. This notion suggests the reification of past behavior, highlighted earlier in Bohm’s (1996) distinction between past “thought” that remains forgetfully hidden but active in the present, and “thinking” which is dynamically ever present. I see the concept of relationship specific knowledge is a commonsense notion, that is, it is already part of our business sense-making activity.

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Yet, there seems to be no marketing term to adequately account for it.

Trusting and risking Mutual trust has an opportunity to develop naturally in dialogical interaction, given the emphasis on listening, asking questions, and reflecting on the meaning of the information so gathered as a basis for further interaction. It would seem that relationship specific knowledge has been overlooked as a mediating factor in developing trust between participants. However, Ganesan (1994) found that willingness to cooperate increases when parties consistently make positive judgments about one another over time. I would suggest that such judgments about trustworthiness in a business context are largely based on relationship specific knowledge. Trust has been conceptualized in many ways and there is no achieved consensus (compare for example, Anderson and Narus, 1990; Ganesan, 1994; Moorman et al., 1993; Doney and Cannon, 1997; Jap, 1999). That being so, I feel free to add my own insights, based on my reflective learning during and after a five year action research study at a large Australian Bank (Ballantyne, 2003). My perspective is that trust is a composite judgment made by one party of another. This judgment is based on three major considerations, that is, the expected capability, integrity and commitment of the other party(ies) to act in ways that will advance (or perhaps not interfere with) the interests of the first party. Making judgments about the capability, integrity and commitment of other parties means going outside the framework of “calculative risk” beloved of the institutional economists (for example, Williamson, 1993, p. 477). The problem with risk assessment is that no one can have perfect knowledge of future events, and no one can really enforce a single meaning on past or current events. Trust judgments must often be based on perceptions and beliefs that go beyond any formal calculus of risk, especially in innovative situations where what is being considered is new and where institutional norms offer no protective support. As there is always some risk in cooperating in the face of imperfect knowledge, being in trust also means containing one’s anxiety. In such situations, trust becomes viable when it is tested in learning together. Trust develops in what Fukuyama (1995, pp. 26-27) has called the human capacity for spontaneous sociability. This is a how we begin the co-creation of value, often in new and surprising ways. Conversely, co-creating value can start with working to dissolve known sources of distrust between those involved. An appropriate process

for overcoming a lack of mutual trust is dialogical interaction. Even so, trust is always provisional, as the correctness of its judgment waits on the unfolding of the future consequences of past actions and interactions.

Dialogue and knowledge generation As we have seen so far, dialogical interaction involves learning together, in business conditions that by definition must lack perfect information. Relationship specific knowledge provides the basis for generating mutual trust yet trust is always provisional. Dialogue may be influenced by emotional energy, spontaneity, mutual interest and rational reason. Its creative potential lies in the way new perspectives on problems and opportunities are offered and considered by the parties involved and fed back into further dialogue. Opportunities for creating value in new ways might then emerge. What does this mean in terms of practical knowledge generation in business and industrial settings? First, without relationship specific knowledge to mediate the exchanges between members of an interdepartmental team or inter-firm project group, only the most perfunctory business knowledge is going to be widely shared. As relationship specific knowledge grows through iterations of the dialogical process, mutual trust might develop. More creative outputs in dialogical interaction then become possible. Second, current attempts to calculate the “book value” of organizational knowledge as part of intellectual capital (Edvinsson and Molone, 1997) may be less significant strategically than the processes that account for these knowledge resources. This is because the objectification of knowledge as a resource does not tell you anything about how this knowledge it was generated. In the same way, measuring customer satisfaction does not tell you how to make needed improvements. Third, and more radically, I see knowledge to be relatively fluid, socially constructed and subject to constant revision. Much of what we legitimize as common knowledge occurs out of constantly changing viewpoints, which is to say, knowledge renewal starts with recognizing potentialities, a process of new pattern recognition. This applies throughout life generally, as well as in business. The creative potential of dialogue Nonaka (1991), and later Nonaka and Takeuchi (1995), say that creating knowledge is not just a matter of capturing and sharing objective information (with technologies such as data mining and data warehousing). This they say is a

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useful but limited objective. What is more challenging is gaining greater access to the experience based tacit knowledge of employees. Tacit knowledge is what we know below the threshold of consciousness, and it often surfaces as skills in action. On the other hand, explicit knowledge is codified as procedures, published, written or externalized in some other way. Tacit and explicit knowledge can be thought of as endto-end extremes on a continuum of all knowledge possibilities (Dixon, 2000). So the resource creating task at the organizational or interorganizational level is to make tacit knowledge explicit where possible, then circulate and share it with those who can benefit. However, this knowledge renewal process can go further and deeper in dialogical interaction, leading to the cocreation of new knowledge. Much of what we call knowledge is co-created like this but in an ad-hoc way, so we pay no attention to it. In any dialogical process of knowledge renewal, comfortable assumptions within a firm (or between firms) are likely to be challenged, and updated in terms of policies, procedures and the skills base of employees. However, commitment from employees is needed for any large-scale review process to be successfully installed, that is, employees’ trust in the integrity of the organization and its capability to see the job through is needed, and they need to see some value from their participation in such ventures. There are serious issues involving trust and integrity here. Given this proviso, one cycle of dialogical interaction tends to lead to opportunities for further knowledge renewal. There is a process circularity which contrasts with the traditional marketing communication model. In this, communication is thought to be a step-wise linear process with a start-point and an end-point. The linear model misses the point. That is, creative synergies open up when we consider dialogue and knowledge generation as complementary processes, as two sides of the one coin. To be creative means putting ideas together that people conventionally don’t think go together. In this way, diverse information is re-framed and the illusion of one pattern of cause and consequence is broken. However, the creative soul can find that his or her contributions are outside the boundaries of the permitted and therefore interpreted as heresy, subversion, delinquency, or the work of a mad mind (Miller, 1983, p. 5). Thus, establishing a creative knowledge-generating climate within the firm, or between firms, may in the end depend on the willingness of those in authority to allow it and support it in the face of what may seem to be uncertain outcomes.

Our diverse capabilities as humans working together in businesses do seem under utilized. Many ideas lie dormant, perhaps because they are perceived as a challenge to authority and its homogenizing mediocrity. My positive experience in one large scale internal marketing project may be insightful here. Under a board level approved strategy to put the “customer first”, previously disempowered employee groups were asked to find solutions to intractable service problems, and encouraged to do it in their own way. An action research program was built on iterative cycles of dialogue. A review of job designs, process flows and service environments then followed. This continued for five years without tight goals or timetables. In this dialogical space, a network of supporting relationships developed among participating employees, and self-initiated learning took place with innovative outcomes for customers (Ballantyne, 1997). Bold ideas are seldom taken up unless they are moved through the organization by the innovators with courage and persistence. However, new ideas do take hold when there is a common understanding that the conditions that have supported old business assumptions have become untenable, or when new ideas are demonstrated to work better. Thus, support gradually takes hold in an evolutionary sense. In this context relationship specific knowledge becomes powerful, and the pathway to it is dialogue.

Conclusions I have argued that we should pay more attention to the processes by which dialogue and knowledge are generated. First, dialogue has been discussed as an interactive process of learning together. This process between business counterparts is often spontaneous and unruly yet bounded by a serious intent to reach mutual understanding. This understanding – relationship specific knowledge – is constantly updated and fed back into dialogue in iterative cycles of learning. Second, relationship specific knowing has a mediating influence on the development of trust and the generation of practical business knowledge in ways that have been overlooked. Trust between co-participants supports the generation of new business knowledge, and also helps spread the acceptance of existing knowledge (thus, making it “common”). Third, I see dialogical interaction and knowledge renewal as processes that might coevolve within firms and between firms. In this way, mutual value in buyer-supplier exchanges might be

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Figure 2 Strategic perspectives on dialogical interaction

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enhanced in the form of innovative solutions to marketing and supply problems. These strategic perspectives on dialogical interaction are represented in Figure 2. Dialogical interaction has broad application within the firm as a part of a strategy for internal marketing and organization-wide knowledge renewal (Ballantyne, 2003). It is particularly apt when there are conflicting knowledge claims across inter-functional organizational boundaries, or when some broadening of the scope and scale of new product development is needed, or in service system redesign where there are no fixed formulaic answers, or in efforts to achieve market orientation where there is none. Likewise, in external relations, dialogue helps in facing up to critical stakeholders, developing sales management teams and key account relationships, collaborating across borders in supply chain management, and contributing creatively to buyer/supplier projects and partnerships. With dialogical interaction, creative ideas do emerge. Finally, we seem at present to be testing a variety of business to business and business to consumer network structures. Marketing needs to help create dialogical space within these new social, economic and technical structures, through which relationship specific knowledge, trust and knowledge generating processes may continue to co-evolve.

Notes 1 This definition emerged after an extended e-mail exchange between my colleagues in dialogue about the

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nature of “interaction”, Iain Waller, Chris Medlin and Paul Steffans. I particularly recognize Iain Waller’s insight that “interactions are an enactment of exchange”. Using different prepositions to separate distinctive communication types follows an idea suggested by Coviello et al. (1997). I have respect for this radical dialogical view, which says that dialogue is a fundamental ontological notion and at the centre of what it means to be human. Taking this perspective, dialogue becomes an end in itself. However, I want to explore a slightly more pragmatic learning perspective, which means that dialogue between participants might be “used” as a communicative means to any ethical “learning” end. Of course, the exact nature of that “end” cannot be predetermined. For a discussion on the ontological perspective on dialogue applied to education, see Sidorkin (1999). For access to the literary analysis and philosophy which partly inspired Sidorkin’s perspective, see Bakhtin (1984) and Buber (1987). On this point, Bohm’s ideas seem to run parallel to the radical research agenda on “distributed cognition” which is now achieving some respectability. The conventional view of cognition of course, is that it is individual phenomena, located within the individual. The alternative “distributed” view, first developed by Hutchins and others at the University of California in the 1980s, is that cognition might be understood (in some cases) as distributed between people, through collaboration and complex interdependencies (see Hutchins, 1991). By way of a parable, the different behaviors of the Mr Spock and the “Bones” characters in the original Star Treck TV series make this point. Reason without emotion is useful for tightly specified, clinically complex tasks (Spock), yet reason informed by emotion but not dominated by it is better at providing deep human understanding in everyday situations (“Bones”). See particularly, Bion (1961, p. 118). Recognition of the instability of rational action is present at least as far back as Freud’s work on the ego, or in Max Weber’s work on instrumental rationality. On these points, see Bocock (1983, p. 125). Freud said that his way of working inductively was to describe the physiological signs of the feelings exhibited by his patients. Failing that, he said, one is reduced to representing feelings as ideas, which is to say, an imagined form associated with particular feelings. See Freud (1930/1961, p. 12).

References Anderson, J.C. and Narus, J.A. (1990), “A model of distributor firm and manufacturer firm working partnerships”, Journal of Marketing, Vol. 54, January, pp. 42-58. Argyris, C. (1994), “Good communication that blocks learning”, Harvard Business Review, Vol. 72 No. 4, pp. 77-85. Argyris, C. and Schon, D.A. (1978), Organizational Learning: A Theory of Action Perspective, Addison-Wesley, Reading, MA. Axelsson, B. and Easton, G. Eds. (1992), Industrial Networks: A New View of Reality, Routledge, London. Bakhtin, M. (1984), Problems of Dostoevsky’s Poetics, University of Minnesota Press, Minneapolis, MN. Ballantyne, D. (1997), “Internal networks for internal marketing”, Journal of Marketing Management, Vol. 13 No. 5, pp. 343-66.

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Ballantyne, D. (2000), “Dialogue and knowledge generation: two sides of the same coin in relationship marketing”, paper presented at the 2nd WWW Conference on Relationship Marketing, Monash University and MCB University Press, available at: www.mcb.co.uk/services/ conferen/nov99/rm/paper3.html Ballantyne, D.A. (2003), “A relationship mediated theory of internal marketing”, European Journal of Marketing, Vol. 37 No. 9. Bean, C.J. and Robinson, L. Jr (2002), “Marketing’s role in the knowledge economy”, Journal of Business & Industrial Marketing, Vol. 17 No. 2-3, pp. 204-14. Bion, W.R. (1961), Experiences in Groups and Other Papers, Tavistock-Routledge, London. Bocock, R. (1983), Sigmund Freud, Tavistock, London. Bohm, D. (1996), On Dialogue, Routledge, London. Buber, M. (1987) Smith, R.G. Transl. (Ed.), I and Thou, Collier, New York, NY. Christopher, M. (1992), Logistics and Supply Chain Management, Pitman, London. Coviello, N.E., Brodie, R.J. and Munro, H.J. (1997), “Understanding contemporary marketing: development of a classification scheme”, Journal of Marketing Management, Vol. 13 No. 6, pp. 501-22. Dixon, N. (1999), The Organizational Learning Cycle, 2nd ed., Gower, Aldershot. Dixon, N. (2000), Common Knowledge: How Companies Thrive by Sharing What they Know, Harvard Business School Press, Boston, MA. Doney, P.M. and Cannon, J.P. (1997), “An examination of the nature of trust in buyer-seller relationships”, Journal of Marketing, Vol. 61 No. 2, pp. 35-51. Duncan, T. and Moriarty, S. (1997), Driving Brand Value: Using Integrated Marketing to Manage Profitable Stakeholder Relationships, McGraw-Hill, New York, NY. Edvinsson, L. and Malone, M.S. (1997), Intellectual Capital, Harper Collins, New York, NY. Freud, S. (1961), Civilization and its Discontents, Norton Publishers, Guildford, CT. Fruin, W.M. (1997), Knowledge Works: Managing Intellectual Capital at Toshiba, Oxford University Press, New York, NY. Fukuyama, F. (1995), Trust: The Social Virtues and the Creation of Prosperity, Hamish Hamilton, London. Ganesan, S. (1994), “Determinants of long term orientation in buyer-seller relationships”, Journal of Marketing, Vol. 58 No. 2, pp. 1-19. Gronroos, C. (1990), Service Management and Marketing, Lexington, Lexington, MA. Gummesson, E. (1987), “The new marketing-developing long term interactive relationships”, Long Range Planning, Vol. 20 No. 4, pp. 10-20. Hakansson, H. and Snehota, I. Eds. (1995), Developing Relationships in Business Networks, Routledge, London. Hutchins, E. (1991), “Organizing work by adaptation”, Organizational Science, Vol. 2, pp. 14-39. Inkpen, A.C. (1996), “Creating knowledge through collaboration”, California Management Review, Vol. 39 No. 1, pp. 123-40. Jap, S. (1999), “Pie – expansion efforts: collaboration processes in buyer-supplier relationships”, Journal of Marketing Research, Vol. 36 November, pp. 461-75.

Kets de Vries, M. (1990), Prisoners of Leadership, Wiley, New York, NY. Lanning, M.J. (1998), Delivering Profitable Value, Capstone, Oxford. Madhavan, R. and Grover, R. (1998), “From embedded knowledge to embodied knowledge: new product development as knowledge management”, Journal of Marketing, Vol. 62, October, pp. 1-12. Miller, E.J. (1983), “Work and creativity”, Occasional Paper No. 6, Tavistock Institute, London, pp. 1-15. Moorman, C., Deshpande, R. and Zaltman, G. (1993), “Factors affecting trust in market research relationships”, Journal of Marketing, Vol. 57, January, pp. 81-101. Nonaka, I. (1991), “The knowledge-creating company”, Harvard Business Review, November-December, pp. 96-104. Nonaka, I. and Takeuchi, H. (1995), The Knowledge Creating Company: How Japanese Companies Create the Dynamics of Innovation, Oxford University Press, New York, NY. Porter, M.E. (1985), Competitive Advantage, Free Press, New York, NY. Schein, E.H. (1994), “The process of dialogue: creating effective communication”, The Systems Thinker, Vol. 5 No. 5, pp. 1-4. Senge, P.M. (1990), The Fifth Discipline, Doubleday, New York, NY. Sidorkin, A.M. (1999), Beyond Discourse: Education, the Self and Dialogue, State University of New York Press, New York, NY. Slater, S.F. and Narver, J.C. (1995), “Market orientation and the learning organization”, Journal of Marketing, Vol. 59, July, pp. 63-74. Smith, K.K. (1987), “A paradoxical concept of group dynamics”, Human Relations, Vol. 40, p. 1. Williamson, O. (1993), “Calculativeness, trust and economic organisation”, The Journal of Law and Economics, Vol. 36 No. 1, pp. 485-6. Wilson, D.T. and Jantrania, S. (1997), “Understanding the value of a relationship”, Australasian Marketing Journal, Vol. 2 No. 1, pp. 55-66 (formerly Asia-Australia Marketing Journal), also in Ford, D. (1997), Understanding Business Markets, 2nd ed., Dryden, London.

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Further reading Christopher, M., Payne, A. and Ballantyne, D. (2002), Relationship Marketing: Creating Stakeholder Value, 2nd ed., Butterworth-Heinemann, Oxford. Dixon, N. (1998), Dialogue at Work, Lemos and Crane, London. Leonard, D. (1995), Wellsprings of Knowledge, Harvard Business School Press, Boston, MA. Sveiby, K.E. (1997), The New Organizational Wealth: Managing and Measuring Knowledge Based Assets, Berrett-Koehler, San Francisco, CA. Wikstrom, S. and Normann, R. Eds. (1994), Knowledge and Value: A New Perspective on Corporate Transformation, Routledge, London.

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An executive summary for managers and executive readers can be found at the end of this issue.

Competitive advantage, knowledge and relationship marketing: where, what and how?

Introduction

Nikolaos Tzokas and Michael Saren The authors Nikolaos Tzokas is Professor in Marketing at the School of Management, University of East Anglia, Norwich, UK. Michael Saren is Professor in Marketing in the Department of Marketing, Strathclyde University, Glasgow, UK.

Keywords Communication, Knowledge organizations, Knowledge management, Relationship marketing, Competitive advantage

Abstract An organization’s ability to enjoy long-term competitive advantage is closely related to its capacity for knowledge creation, dissemination and use. From a practical point-of-view the value of this statement could be increased if suggestions could be made to managers as to what kind of knowledge to seek for their organization, where and how to look for it. This article provides tentative answers to these questions from a relationship marketing perspective. In doing so the scope, processes and technologies of relationship marketing are discussed and their knowledge content and potential outlined. Finally, a conceptual framework for knowledge generation and dialogue in relationship marketing is proposed and directions for further research, alongside their practical implications for contemporary firms, delineated.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · pp. 124-135 q Emerald Group Publishing Limited · ISSN 0885-8624 DOI 10.1108/08858620410524007

The capacity to create and maintain competitive advantage over rival firms is one of the more appealing areas of organizational research. Years of extensive research have created a pluralistic forum of inquiry where researchers have been encouraged to look beyond singular views by employing multiple theoretical perspectives. It may be argued that these perspectives are a direct result of an eclectic appreciation of capabilities that are uniquely developed within the different internal constituencies of the firm, as well as perceptions of the environment and the organization of the industry and the market place. In recent years the need to integrate these different perspectives has become apparent. In the strategic management field the resource-based view of the firm (RBV) and the knowledge organization (KO) are two integrative perspectives that have gained considerable currency. These perspectives have advanced the discussion on competitive advantage by acknowledging the proactive nature of the firms” strategies. Strategists and their firms do not simply react to the environment but they enact it through their strategic decision making which is firmly based on knowledge superior to their rivals. In addition the two perspectives are interrelated since in recent years knowledge has emerged as the most significant organizational resource (Grant, 1996; Nonaka, 1994; Spender, 1996). Furthermore, it is acknowledged that knowledge immutability is fundamental in the analysis of competitive advantage (Spender, 1996). However, recently, Rindova and Fombrun (1999, p. 706) moved one step further suggesting that the construction of competitive advantage is contingent on both the micro-efforts of the firm, the macro conditions of the environment and the nature of the firm-constituent interactions. They postulated that competitive advantage is built on relationships and that “relationships with constituents . . . are not just exchanges but sustained social interactions in which past impressions affect future behaviors”. From a marketing management’s point of view the latter is very gratifying. Indeed during the last decade researchers in the marketing field have questioned transaction-costs and exchange based arguments in favor of relationships. In the present article we espouse the view that “knowledge” is critical for the development of

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competitive advantage. We argue that relationships help create unique, difficult to imitate knowledge for firms and seek to understand: . how advances in relationship marketing enhance our understanding of the knowledge required for competitive success; and . how advances in relationship marketing actually assist the processes of knowledge construction, embodiment, dissemination and use, which are at the heart of the knowledge management field.

the scope of this paper, it is useful to outline briefly some key theoretical developments. To begin with organizational researchers have debated on knowledge forms and sought to distinguish between scientific and commercial knowledge. Scientific knowledge denotes knowledge as “truth” and represents the output of scientific methods (i.e. experimentation and facts) which cannot be disputed (Morgan, 1986). According to (Demarest, 1997, p. 375) “commercial knowledge is not truth, but effective performance: not “what is right” but “what works” or even “what works better” where better is defined in competitive and financial terms”. He suggests that “commercial knowledge is very close to what the French call bricolage: the provisional construction of a messy set of rules, tools and guidelines that produce according to the expertise and sensitivity of the craftsman, not the empirical accuracy of the rules, tools and guidelines” (Demarest, 1997, p. 375). This view is significant in the sense that it allows for reconciliation of different and competing views on knowledge. Indeed, the expertise of the “bricoleur” (manager) denotes the cognitive aspects of knowledge; sensitivity introduces the creative and strategic abilities of the manager who can make strategic investments, projections and plots (Rindova and Fombrun, 1999); the provisional and the messy accord with the social construction view of knowledge (Burrell and Morgan, 1979; Daft and Weick, 1984); and finally, the whole idea of the bricolage suggests that knowledge can in fact be managed purposefully, which is a basic tenet of organizational research on knowledge (Grant, 1996; Nonaka, 1994). The aim of managing knowledge purposefully has provided the impetus to a number of researchers to deconstruct the idea of knowledge and determine its various dimensions. Despite valid criticism, such deconstruction allows researchers to concentrate and devote research efforts on specific areas of the knowledge construct, which is a necessary step towards theory building. Of course, it should be noted that integration of these various efforts is needed for a robust theory of knowledge and knowledge management within the firm. By all accounts this is, as yet, an elusive target, as researchers still have to agree on the various dimensions of knowledge and the processes (which are amenable to managerial activity) that can give rise to its creation, dissemination and use. Based on the deconstruction principle, various taxonomies of knowledge have appeared in the organizational literature. For example, Nonaka (1994) suggested a continuum from tacit to explicit knowledge; Collins (1993) classified

Based on this discussion we draw a number of research directions.

On knowledge and knowledge management Knowledge has been the subject of intensive research in almost every area of organizational inquiry. For example, in the general management literature knowledge appears among the key objectives of the organizational learning efforts of the firm (Sinkula, 1994; Sinkula et al., 1997). In the strategic alliances and joint ventures field, researchers have examined processes of knowledge transfer and postulated that knowledge represents a key objective of such organizational schemata (Inkpen and Dinur, 1998; Inkpen and Li, 1999; Kotabe and Swan, 1995). In the strategic decision making literature the knowledge generative mechanisms of teams and decision making units also have been addressed (Eisenhardt and Brown, 1998; Eisenhardt and Zbaracki, 1992). In marketing, knowledge constitutes the basic tenet of the marketing concept as this is expressed by means of market orientation, which denotes the case of a firm that methodically collects and disseminates information about its customers and competitors, and takes decisions that are firmly based on this information (Hurley and Hult, 1998; Jaworski and Kohli, 1993; Kohli and Jaworski, 1990). Finally, research on knowledge figures prominently in the new product development literature (AtuaheneGima, 1996; Li and Calantone, 1998; Madhavan and Grover, 1998). It is interesting to note here that the positive contribution of knowledge to new product success is heavily quoted as the unquestionable relationship between knowledge and performance of the firm (Webster, 1988). However, despite this considerable body of research, the different perspectives utilized by researchers have created a fragmented theoretical picture. While a detailed encounter of what we know about knowledge in organization is beyond

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organizational knowledge as embrained, embodied, encultured, embedded and encoded, and similar classifications have been produced in the field of organizational memory (Day and Nedungadi, 1994; Deshpande et al., 1993; Sinkula, 1994). In an attempt to integrate the literature on knowledge and organizational learning, Blackler (1995) developed a typology of organizations and knowledge types based on whether the emphasis placed by the organization is on contributions of key individuals or collective endeavor, and whether the focus of the organization is on familiar problems or novel problem. As such, he produced four different types namely, expert-dependent organization which capitalize on the embodied competencies of key members; knowledge-routinized organizations which capitalize on technologies, rules and procedures; symbolic-analyst-dependent organizations which capitalize on the embrained skills of key member; and communication intensive organizations which place their emphasis on the encultured knowledge and collective understanding. Blackler (1995) continues suggesting that despite the usefulness of his typology, knowledge remains problematic. Capitalizing on activity theory he draws a distinction between knowledge and knowing and conceptualizes knowing as a phenomenon within organizations which is mediated, situated, provisional, pragmatic and contested. In our opinion, a key problem of research on organizational knowledge lies in the fact that knowledge has been conceptualized in very abstract terms whereas firms need a more pragmatic view. Such a view needs to address questions such as where to look for knowledge, what to look for and how to look for it. We believe that answers to these questions are necessary for managers to be persuaded to invest financial and human resources for creating and managing knowledge.

use first mover advantages. By the same token the resource based view (RBV) of the firm makes the case that success is the output of a unique bundle of resources and the economic rents associated with these resources. As such it directs attention, among other things, to knowledge about research and development, internal capabilities and competencies as well as superiority of plant and equipment. Similarly, the structure-conduct-performance paradigm in strategic management directs to knowledge on how to align the structure and strategy of the firm; the market orientation philosophy of the firms outlines knowledge about customers and competitors; the stakeholder theory of the firm points to the various responsibilities of the firm and requires knowledge about different constituencies and finally Porter’s value chain approach requires knowledge for aligning the primary and support activities of the firm. Furthermore, if each of these theories would be perceived as modes of managerial conduct, their actualization requires specific processes, which, to a large extent, are unique to each mode. This is the actionable content, which enhances the usefulness of the theory by transcending it from the conceptual echelon to the operational level. For example, the market orientation philosophy is firmly based on market research, which enables the firm to understand the extant and latent needs of their customers. Finally, the actionable content of the above theories is practiced through the use of specific technologies i.e. tools and techniques such as SWOT analysis, PEST, ECR, SERVQUAL, the Balanced Scorecard, input-output analysis, structural analyses of the industry and matrices for segmentation and strategic positioning. Based on the above, we suggest that to draw a picture of knowledge and knowledge management in relationship marketing we need to address knowledge in relation to the scope, processes and technologies of relationship marketing. These three aspects of relationship marketing summarize well the research effort in the field and provide good grounds for establishing its uniqueness as compared to other theories in the general management and marketing literature. In addition, they can provide answers to the question of where, what and how to look for knowledge.

The knowledge discourse in relationship marketing Our discussion is guided by the assertion that different theories of competitive advantage direct to different knowledge pools or domains. For example, organizational economics suggest that competitive advantage is attributed, among other things, to competitive structures in the industry, barriers to entry and technological trajectories. As such it directs attention to knowledge about industry structures, how to erect barriers to entry, how to safeguard patents, how to utilize technological trajectories, how to appreciate and

Scope of relationship marketing The scope of RM is at the core of its philosophy and outlines the way researchers view the relationships that firms develop with external and internal constituencies. The scope of RM has been addressed by a number of authors including, among others, (Christopher et al., 1991; Doyle,

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1995; Kotler, 1992; Morgan and Hunt, 1994; Webster, 1992). According to Christopher et al. (1991), this scope includes six markets namely, internal, customer, referral, supplier, influencer and employee recruitment markets. A recent revision of the above six market models has placed alliance markets together with supplier markets. However, customer markets remain at the core of relationship marketing (see Figure 1). The key tenet of this model is that “marketing’s new remit will revolve around maximizing customer value through the boundary spanning roles of customer advocate, internal integrator, strategic director and, within network organizations, partnership broker” (Peck et al., 1999). The latter role of RM is further qualified by Gummesson’s (1987) dictum that “everyone in the firm is a part-time marketer”. It is interesting to note here that similar to RM the much older stakeholder theory of the firm addresses issues of relationships between the firm and investors, employees, customers, suppliers and the relevant community. However, the stakeholder theory of the firm approaches the external and internal constituencies of the firm as points of the firm’s responsibility. It accepts that various groups hold a stake in the firm’s operations actively or passively by means of operating in the same economic or environmental space. In contrast, the six-market stakeholder model in RM conveys a different and unique message. This is, RM views stakeholders as potential active partners who are capable of contributing, if reciprocal value is offered, to the effectiveness of the firm’s market purpose i.e. the competitive satisfaction of customers through the development and provision of superior customer value. As such, in RM

stakeholders are actively implicated in the firm’s overall marketing effort. Furthermore, in RM stakeholders are not perceived as totally separate groups, but their interrelationships are acknowledged and the multiple natures of their roles appreciated; for example shareholders are also customers, resource holders, referrals and potential influencers, as well as part of the employee recruitment market. Building on Gummesson’s part-time marketer concept, RM conveys the unique message that customer value and satisfaction can not be delivered by one function alone and it is not only the responsibility of those with a direct customer contact. For example, production workers rarely have a direct contact with a customer, yet interruptions in the production schedule can have detrimental effects to customer satisfaction. Based on the discussion above, the scope of RM enhances the notion that the market effectiveness of the firm is directly affected by its internal and external constituencies and their interrelationships. As such, in terms of knowledge, the scope of RM directs us to the loci of relevant information, thus answering the question “where to look for information and knowledge”. Furthermore, it provides answer to the question on “how to look”, by outlining the significance of the inter-relational character of the firm’s constituencies and therefore knowledge or information residing in each of these interrelationships.

Figure 1 The six markets model

Processes of relationship marketing As it was noted above, processes represent the actionable content of theories. We suggest that if theories denote perceived realities, managerial processes provide the means for constructing desired realities. Within RM it has been noted that the various conceptual definitions of the field lack an actionable content (Blois, 1996). Although the latter is valid criticism, careful examination of developments in RM suggests that at least three RM processes, namely the relationship life cycle and loyalty ladder, the relationship management chain, and the value chain of the customer, provide useful suggestions for action. These processes are based on the fundamental notion of customer value. Indeed customer value is a cornerstone concept in the relationship marketing suggesting that unless value is created and delivered to customers, the firm has no legitimate reason to exist nor can it accomplish its corporate objectives (see, for example, Alderson, 1957; Anderson, 1982; Drucker, 1973; Woodruff, 1997). In terms of our discussion the answer to question “what knowledge?” lies in knowledge about what constitutes value for the customer and how this

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value can be mutually agreed with the firm and its customers, produced and eventually delivered in the long term. Further insights about “what knowledge” is required can be gained by a detailed examination of the above processes.

enhancing the appreciation of one another’s capabilities. “Knowledge based trust” is the result of this stage since those participating in the relationship had a chance of working together on specific tasks and a first hand evaluation of one another’s behavior and performance (Lewicki and Bunker, 1995). At the identification stage, closer and ambitious collaboration is undertaken. The boundaries between/among the organizations are dissolved and projects with greater conceptual risk are undertaken. Organizational and relational skills are required at this stage in order to maintain strategic and purpose consistency in thick and intense communications and interactions. The direct result of this stage is “identification based trust” which is characterized by mutual sharing of values (Lewicki and Bunker, 1995). Finally, the stage of dissolution or continuous renewal presents some unique requirements for relationship managers. First, if dissolution is a direct result of the task’s accomplishment, integrity is required and fair distribution of the resulting benefits. If on the other hand dissolution is the output of conflict, special skills are required to maintain the identity of the parties involved and alleviate negative images in the market place. However, similar to product lives, relationships do not necessarily reach the stage of dissolution. They can be renewed continually as the collaborative efforts of the partners identify new tasks to be

The relationship life cycle and the loyalty ladder Similar to the product life cycle (PLC), the relationship life cycle (RLC) suggests that relationships develop over time and different stages in the cycle present unique requirements and opportunities for those involved in the relationship. They are illustrated in the following Figure 2. In terms of knowledge the RLC suggests that specific knowledge requirements are presented to the firm at each stage of the cycle. As such at the introduction stage those involved in the relationship seek a mutual understanding of one anothers capabilities and concerns as well as strategic, behavioral, cultural and purpose fit. This stage provides the ground on which the decision to get into a relational arrangement is justified. A direct result of this stage is a “calculus based trust” i.e. a subjectively rational trust based on formal evaluation (Lewicki and Bunker, 1995). At the experimentation stage, the first joint tasks are undertaken by those involved in the relationship. Usually, they are firmly agreed tasks and serve the purpose of testing the effectiveness and efficiency of the relationship as well as Figure 2 The relationship life cycle

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performed. Furthermore, appreciation of the uniqueness and value of their relationship based capabilities drive firms to enhance further their relational mode of operations. The discussion thus far has delineated a number of requirements or skills to be attained by those involved in a relationship. Clearly, these requirements translate to knowledge needs, which directly answer the question of “what relationshipcritical knowledge” needs to be developed.

further our understanding of “what” kind of knowledge is required for successful relationship marketing. Nevertheless, it must be acknowledged that little research exists on “how” firms perform each of these processes.

The relationship management chain Payne et al. (1995, p. 7) provide a planning template called a relationship management chain (see Figure 3) to operationalize the six market model of RM. The focus of this template is customer value. It delineates the various managerial processes that need undertaken by the firm to define the value proposition, identify appropriate customer value segments, design value delivery systems and evaluate its value performance. Each of these processes advances

The value chain of the customer A unique aspect of RM lies in the fact that it acknowledges the significant role of the customer in the value creation process. This has appeared in the literature as value co-production, or prosumer (Rindova and Fombrun, 1999; Wikstrom, 1996). In a recent article attention was drawn to the fact that “that the current invitation to customers for joint value creation is limited to the characteristics of the product/service and constitutes a myopic view of the customer’s productive means and capabilities. Customers are invited to join the value chain of the firm productively, but the means offered to them are supplier specific” (Tzokas and Saren, 1997, p. 111). They provided an alternative conceptualization of the unique ways customers

Figure 3 The relationship management chain

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can contribute to the creation of value through the value chain of the customer (see Figure 4). According to the value chain of the customer, primary activities include the activities performed by the customer during the total consumption process. These extend from the awareness, search and evaluation activities of the product to its operational/functional use and its symbolic consumption. Support activities include activities used by customers to support their primary conduct in the market place. They condition customers’ activities in the market place by providing the inputs for performing the act of consumption. Support activities are distinguished into customers’ relationships and technology, which includes activities related to human technologies such as culture and those related to material technologies such as products. Culture is the technology that supports the symbolic appropriation of the product by the customer and material technologies contribute the context in which the customer perceives the use of the product. The value chain of the customer and the idea of co-production move the discussion knowledge into the experiential space of the customer. Technologies, relationships and the total consumption process provide additional answers to “what” kind of knowledge is required in RM. Overall, the three processes discussed above delineate the whole spectrum of the kind of knowledge required. This ranges from issues related to the relationship stakeholders of the firm (i.e. six market model), the organizational processes of the firm that can identify and deliver the value required by customers (i.e. the relationship management chain) and unique processes through which customers contribute to the co-creation of value (i.e. value chain of the customer).

number of such technologies have been suggested in relationship marketing. However, most of them have been presented as tools for customer retention without an explicit appreciation of the knowledge aspects they require from their users and the value of the information and knowledge they can provide for decision makers. Such technologies range from loyalty schemes (Gilbert, 1996; Macintosh and Lockshin, 1997; Sharp and Sharp, 1997) to data mining and information technologies (Petrison and Wang, 1993), relationship portfolio analysis (Bensaou, 1999), the lifetime value of the customer (Reichheld, 1993), the strategic, behavioral and economic dimensions of relationship value (Wilson and Jantrania, 1994) and relationship marketing software (Hammond, 1999). Currently, these technologies are in the forefront of research in relationship marketing although researchers from other disciplines such as information technology, accounting and finance have made considerable contributions to our understanding of “how” these technologies should be utilized. From a relationship marketing perspective these technologies allow the firm to gain access to the behavior of individual customers and in turn approach them with customized messages. In addition, tools such the lifetime of the customers enhances relationship marketing’s financial accountability since the cost of serving individual accounts can be identified and contrasted to the business volume expected from these accounts. Furthermore, tools such as relationship marketing software contribute to the embodiment of tacit knowledge, which is created by means of the direct contact between the firm and its customers.

Technologies of relationship marketing As stated earlier, technologies represent the tools and techniques that allow managers to perform the actionable content of the theory. Over the years, a Figure 4 The value chain of the customers

A framework for knowledge generation and dialogue in RM The discussion above has highlighted how the scope, processes and technologies of relationship marketing create a required knowledge pool. This provides clear directions for managers about where to look for knowledge, what to look for and how. In addition to the above we suggest that the scope, processes and technologies of RM facilitate the process of knowledge construction, embodiment, dissemination and use. Our discussion here is structured around a conceptual framework, which is presented in the following Figure 5. This framework resembles a house for knowledge in RM. The foundations of this framework are the concepts of trust and commitment, which in turn are fundamental concepts of RM (Morgan and Hunt, 1994). Trust

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Figure 5 The house of knowledge in relationship marketing

among members of a team, be it cross-functional or inter-organizational is critical because the withholding of information owing to a lack of trust can be especially harmful to the processes of knowledge articulation, internalization and reflection. Furthermore, relationship marketing is extremely well suited for cases of high risk where the unforeseen future is continuously defined and redefined by the combined efforts of those engaged in the relationship (Saren and Tzokas, 1998). In such high-risk cases (e.g. development of products new to the world) trust and commitment become imperatives for knowledge creation, dissemination and utilization. More specifically, trust drives joint effort since it reinforces the belief that the parties are competent to handle complex and as-yetundetermined challenges that might appear (Madhavan and Grover, 1998). By the same token, commitment ensures clarity and commonality of objectives. Both joint effort and common goals are key ingredients in the arduous process of knowledge development. At the centre of this framework lie the processes of interaction and dialogue in RM. According to Madhavan and Grover, (1998, p. 6) “rich personal interaction directly affects the efficiency and effectiveness with which embedded knowledge is converted to embodied knowledge”. They postulated that interactive conversations enable participants to formulate messages that are tightly linked to the immediate knowledge and

perspectives of the individual participants, because it affords the participants moment-to-moment information on one another’s understandings. Interaction and dialogue create unique interexperiences (Laing et al., 1966) with unique knowledge content. It is the uniqueness of this knowledge that can provide new bases for competitive advantage. In terms of dialogue Hazen (1994, p. 398) suggests that “to name one’s experience in dialogue and to be heard and responded to by the other is to reflect on that experience and, doing so, actively change the context in which it occurs”. She approaches dialogue as a “method of inquiry and a process of change” Hazen (1994, p. 396) and postulates that dialogue occurs “when people speak with and listen to one another in mutuality, reciprocity and co-inquiry, thus changing their shared reality” Hazen (1994, p. 398). Dialogue allows participants in a relationship to reach a shared mental model, which assists not only the embodiment of shared knowledge but also its actual utilization. Schein (1993, p. 40) views dialogue as offering “a way of building a basis for mutual understanding and trust by uncovering the basic cognitive processes that underlie individual and group assumptions”. Dialogue brings a continuous interrogation of cognitive processes and subjective organizational experiences, thus allowing for dissent and creative abrasion (Leonard-Barton, 1995), which are necessary for

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maintaining long term creativity and appreciation of opportunities out of serendipity. Interaction and dialogue takes place among the firm and its relationship stakeholders, thus assisting further the bricolage of knowledge elements residing in different knowledge pools. In our framework the knowledge produced by means of interaction and dialogue feeds back to the participants thus giving rise to a new cycle of knowledge creation, dissemination and use. Finally, this framework suggests that the effective and efficient practice of knowledge creation, dissemination and use require a relationship climate and culture. This brings into the picture the organizational arrangements required both within the firm and the relationship as such. While a number of authors have suggested flat, organic structures and close communication links among participants in a relationship, little is known about what strategies and policies are required to bring about such changes in the organizational climate and culture. According to Lorenzoni and Lipparini (1999) past work on networks and strategic alliances has approached networks as given contexts rather than as a structure, which can be deliberately designed. The same authors have presented evidence from longitudinal research, which postulates that the organizational ability to develop and nurture interfirm relationships, can become an organizational capability and lead to clear competitive advantages.

The scope of RM and knowledge (1) Strategic research directions: . We need to know more about the strategic management of different knowledge pools residing in different stakeholders of the firm’s relationships. This can proceed through the development of portfolios of relationship knowledge pools. . We need to know more about the potential contribution of each stakeholder based knowledge pool to the strategic investments, plots and projections undertaken by the firm. This can proceed through the development of multidimensional maps linking knowledge requirements and knowledge pools, thus creating a knowledge space in which the strategic issues of the firm and its stakeholders can be positioned and their distances assessed. As such knowledge space and associated distances can be used as navigational instruments for knowledge utilization. (2) Operational research directions: . We need to know more about how to summon the different stakeholders and the firm in an interaction mode that is characterized by genuine dialogue. This raises a number of issues about the mode of communication links to be employed, forums for discussion and incentives to be provided for doing so. . We need to know more about directions of knowledge, that is, to and from stakeholders, and also, what are the most appropriate tools for embodiment of such knowledge.

Directions for further research and practical implications In the above discussion we presented a number of ideas, which integrate conceptually the discourse about competitive advantage, knowledge and relationship marketing. Owing to the vast amount of research in all three areas we utilized an eclectic mode of discussion based on an analytical tool (i.e. the scope, processes and technologies or RM). This discussion and the ensuing conceptual framework suggest that the integration of competitive advantage, knowledge and relationship marketing is a fruitful area for empirical research. The following selective directions for research are provided with the aim of enhancing forthcoming research in this field. To do so, we use again the scope, processes and technologies of RM. We classify the research directions according to their strategic or operational character and put forward suggestions that would allow firms to apply our ideas.

Processes of RM and knowledge (1) Strategic research directions: . We need to know more about knowledge strategies for relationships at different stages of the relationship life cycle. Indeed, relationships at different stages present unique requirements for skills and opportunities for new knowledge creation. As such, a knowledge strategy for one stage may not be the most appropriate for another. Research in this direction can progress if process issues (e.g. degree of openness, formalization of channels and so) related to knowledge creation and use are investigated at different stages of the relationship. Appreciation of the different requirements at different stages of the relationship would allow firms to plan and focus better their relationship building efforts.

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.

We need to know more about how the value creation capabilities of customers can be integrated in the strategic thinking of the firm. From a practical point of view, appreciation of the customers’ value creation capabilities opens up new opportunities for competitive advantage.

(2) Operational research directions: . We need to know more about what processes are required in order to move up in the loyalty ladder different segments of customers as well as other stakeholders. This is process knowledge and requires longitudinal studies. The implication for firms is that such knowledge would allow them to develop loyalty building campaigns, which are well focused to the needs of their customers who are at different stages of the loyalty ladder. . We need to know more about the value determination process and its specific characteristics. Relationship marketing points to a democratic, participative process and its effectiveness and efficiency should be assessed under different contextual variables.

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identification and recollection of how this memory, story or ritual was created in the first place. We need to know more about the processes required for these technologies to gain support from all parties concerned. As these technologies shift knowledge domains from a tacit to an explicit level, they can create power conflicts and resistance to their use.

Finally, we would recommend research on the relationship climate and culture conducive to knowledge creation, dissemination and use within relationship schemata. Insights from organizational development and organizational change can provide the first steps for pursuing this research direction. From a practical point of view firms should acknowledge that the trip to dialogue building and knowledge creation through relationships with customers resembles an Odyssey, which requires good preparation but also a climate and culture that allows continuous learning throughout the trip.

References Technologies of RM and knowledge (1) Strategic research directions: . We need to know more about the dialogue potential of the different technologies of relationship marketing. RM predicates the importance of interaction, but some of its technologies create distances among the firm and its customers. Research towards reconciling this paradox is needed. From a practical point of view, such knowledge would allow firms to employ the right portfolio of technologies. In our view such a portfolio would be characterized by a balanced use of technologies that enhance efficiency of operations, and technologies that: allow customers to “voice” their concerns; enable the firm to learn from the voice of the customer; and provide the opportunity to the customers to appreciate the direct value of their dialogue with the firm. (2) Operational research directions: . We need to know more about how value dialogues can be embodied in specific technologies of relationship marketing. This can progress through attention to developments in the field of organizational memory but should also allow for

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Woodruff, R.B. (1997), “Marketing in the 21st century. Customer value: the next source for competitive advantage”, Journal of the Academy of Marketing Science, Vol. 25 No. 3, p. 256.

Further reading Campbell, A.J. (2003), “Creating customer knowledge competence: managing customer relationship

management programs strategically”, Industrial Marketing Management, Vol. 32 No. 5, pp. 375-83. Leek, S., Naude, P. and Turnbull, P. (2003), “Interactions, relationships and networks in a changing world”, Industrial Marketing Management, Vol. 32 No. 2, pp. 87-90. Ulaga, W. and Chacour, S. (2001), “Measuring customer perceived value in business markets: a prerequisite for marketing strategy development and implementation”, Industrial Marketing Management, Vol. 30 No. 6, pp. 525-40.

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An executive summary for managers and executive readers can be found at the end of this issue.

Return on relationships (ROR): the value of relationship marketing and CRM in business-to-business contexts

Sorting out basic concepts and definitions Most indicators of return on relationships (ROR) are limited to the relationship between a customer and a supplier. But relationship marketing, in a broadened sense, embraces markets, society and internal organization as networks of relationships, within which interaction takes place. It is essential to consider relationship aspects not only in the marketing plan but also in the corporate business plan, thus requiring accounting to rethink its role of mainly furnishing historical financial data to focus more on data for the future. In approaching relationship metrics, it is imperative to clarify certain concepts and their domains. I define relationship marketing in the following way (Gummesson, 2002a, p. 3):

Evert Gummesson

The author Evert Gummesson is Professor of Management and Marketing at Stockholm University, Stockholm, Sweden.

Keywords Relationship marketing, Customer relations, Intellectual capital, Balanced scorecard, Business-to-business marketing

Abstract This article is about ongoing efforts to come to grips with the question: Does relationship marketing pay? The question is discussed under the umbrella concept return on relationships. Much of what is being done in relationship marketing and customer relationship management has a bearing on both business-to-business and business-to-consumer marketing, and on manufacturing as well as services. Although there is a shortage of empirical research and proven practice, the article aims to show current efforts to generate knowledge of return on relationships, with particular emphasis on business-to-business environments. The article ends with action strategies to improve return on relationships, and a summary of conclusions.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · pp. 136-148 q Emerald Group Publishing Limited · ISSN 0885-8624 DOI 10.1108/08858620410524016

Relationship marketing is marketing based on interaction within networks of relationships.

Most relationship marketing definitions stress the need to develop long-term relationships with customers and sometimes other stakeholders (Ballantyne, 1994; Gro¨nroos, 2000). Jackson published an insightful book and article on business-to-business marketing (B2B) in 1985 (Jackson, 1985) where she defined relationship marketing by contrasting it with transaction marketing. From her comprehensive research she drew the general conclusion that building long term relationships through relationship marketing should sometimes be the preferred strategy for the industrial seller, but sometimes transaction marketing, the one-shot deal with a short term perspective, should be preferred. She argued that it all depends on the situation. Coviello et al. (1997) identified four types of marketing in their research. One is transaction marketing, but the others have a relational content: database marketing (information exchange with the help of IT); interaction marketing (face-to-face or ear-to-ear interaction); and network marketing, as essentially (but not solely) a B2B phenomenon where networks of relationships are built with a large number of stakeholders. To conceptually incorporate transaction marketing in relationship marketing, transaction marketing can be defined as the zero point on a relationship scale. At the other end of the scale buyers and sellers (or other parties) are in unity. The zero relationship of marketing can further be defined as the price relationship, when price (usually the lowest price) is the only factor that

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links buyer and seller. The zero relationship is presented as the general case in microeconomics and traditional marketing management, thus making these theories invalid as general theory, but still valid in special cases. Relationship marketing became a widespread term in the 1990s but has a long history under many different names. In its wake, one-to-one marketing surfaced in the mid-1990s. CRM (Customer Relationship Management) emerged as the no. 1 business buzzword at the turn of the millennium (Storbacka and Lehtinen, 2000). Oneto-one marketing and CRM are the same, although there may be some differences in emphasis and procedures; these and a host of other names are used by consultants to brand their offerings. Today, CRM is the dominant and generally used designation, but in 1998 it was only one in a continuous flow of acronyms soliciting for attention. My CRM definition follows from relationship marketing (Gummesson, 2002a, p. 3):

the risk is that they conquer the minds of executives and make them build technologycentric systems, neglecting the human aspect of supplier personnel, customers and others. There is need for a balance between eCRM and hCRM, where “h” stands for “human” (Gummesson, 2001); it is the idea of high tech-high touch transferred to CRM. Furthermore, the eCRM approach is at risk of becoming a technique rather than profiting from the synergy between strategic aspects and operative systems. Both marketing strategy and the technicalities of selecting adequate CRM software are essential.

CRM is the values and strategies of relationship marketing – with particular emphasis on customer relationships – turned into practical application.

The implementation steps used in one-to-one marketing summarize well what is needed to practice relationship marketing: identify individual customers and establish how to reach them; differentiate the customers with regard to values and needs; interact with the customers efficiently and effectively; customize your offerings; and, finally, in the process of doing this, build learning relationships with your customers through dialogue (Peppers and Rogers, 1999; Feurst, 2000; Newell, 2000). The relationship marketing and CRM definitions require comments to pave the road for an analysis of ROR measurement. Therefore, the next sections will deal with the role of information technology, IT; the validity of business-toconsumer (B2C) marketing theory for B2B; relationship marketing limited to the customersupplier dyad or broadened to a network context; and the value and limits of quantitative performance indicators in marketing.

Is IT everything? Some present IT as a key element, even the core of CRM. They claim that the Internet and other ITtools enable relationship marketing. This is particularly stressed by the term eCRM, where data-warehousing and data mining offer new opportunities to store and integrate customer and other information and use it to innovate in marketing strategies (Eggert and Fassot, 2001). Although IT resources are often essential today,

B2B and B2C relationship marketing: similar or divergent? Almost all companies are a blend of B2B and B2C. These categories are not two concrete bins in which you can dump your customers for continuous recycling. Instead, the categories are vehicles for thought, providing a cognitive map and a perspective. If we consider the supply chain – or, in alignment with the definition of relationship marketing, the supply network – there can be several B2B stages or nodes and subcategories, for example for food products: raw material purchasing, manufacturing, wholesaling, retailing. It is only at the retail point of sale – a store or a restaurant – that the food reaches a household. Even households are organizations, and it is often not the same person who orders, buys, pays and consumes the food. Retailers also sell to other companies. For example, IKEA stores sell both home and office furniture and Dell’s mail order service is used by consumers as well as by businesses. The one-to-one implementation steps although primarily based on B2C experience are clearly pertinent to B2B as well. While there are similarities between B2B and B2C, there are also differences: “When a CRM strategy is 100 per cent implemented, the individual will be in focus in both cases...[but the] hardware and software will vary greatly depending on the size of the market,...the number of customers, the amount of customer information, and the availability of this information..” (PricewaterhouseCoopers, 1999, p. 13). As the eCRM application will vary, so will that of hCRM. The focus of CRM is most often consumer mass markets, where there is the need to handle millions of customers efficiently and where each customer is small. The seminal difference between traditional marketing management and relationship marketing is that formerly consumers were approached as grey masses, while today they are approached as individuals. As 80, perhaps 90 percent of all e-business is expected to be B2B, eCRM will be highly pertinent to industrial goods

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and services. In the year 2000, the US B2B e-business was $250 billion and is estimated to be $1,300 billion in 2004. At the beginning of the new millennium, one third of ABB’s products – ABB being primarily in high-tech B2B equipment and increasingly in business services – were available on the Internet, but the plan is that all their 50,000 standard products should be available electronically. B2B CRM also consists of routinized ongoing business where customer computers buy from supplier computers and where electronic agents – artificial customers – have taken over day-to-day trading and information search from human beings. According to Gatarski and Lundkvist (1998), the time is ripe to include machines as customers and suppliers – M-to-M interaction – in marketing theory. The notion of Key Account Management (KAM), has become more important than formerly to secure individual treatment in the retention and development of large and global business customers (McDonald et al., 1997). Apart from Jackson, mentioned earlier, among those who have most directly addressed B2B as relationships and networks are the academic researchers known as IMP, Industrial and International Marketing and Purchasing Group. IMP began in Sweden in the 1970s but since then has become international. Both Jackson and IMP find B2B to be interaction in networks of relationships. Neither deals at any length or empirical specificity with the financial consequences of relationships although there are conceptual discussions, which we will revert to later (Ha˚kansson and Snehota, 1995). Based on entirely different empirical data, service research (that also took off in the 1970s) found the same phenomena – relationships, networks, and interaction – to be in the core of both consumer and business services marketing. With its initial focus on services, The Nordic School – an informal group of concerned and dedicated scholars – successively found a need for a paradigm shift, departing from the traditional and pseudo-general marketing management, which primarily has a consumer goods base. By combining services marketing, traditional B2C marketing management, the network approach to B2B, and developments in other management disciplines, Nordic School researchers have broadened their range of vision from marketing management to the more general concepts of marketing-oriented management – where every employee is either a full-time or part-time marketer – and to relationship marketing (Gummesson et al., 1997).

Although marketers are not much of historians – and should not be, as their job is to be here now and for the future – some academic reflection of the past might bring concepts and events down-toearth. One reflection is that the behavior of the classic industrial salesman in many successful companies was the same as is today advocated in relationship marketing, CRM and KAM. In the sales of advanced equipment, he (it was always a male) was usually an engineer who knew the products technically; knew the individual “heads” of the “many-headed customers” constituting the complex setting of technologically advanced large companies like telecom operators; worked long term with stamina, seeing each large customer as strategic, such that they could not be evaluated in terms of profit in a year, five years or even in ten years time; not driven by individual short term commissions but rather by opportunity for more challenging tasks and promotion; aiming for “share of customer” and not market share, for example, telecoms often had two or more suppliers and there was usually just one telecom in each country. This may partially explain why Ericsson has been less triumphant in selling mobile phones to consumers than Nokia, who has a tradition in consumer goods design and promotion. In the 1960s, IBM selling mainframe computer hardware and systems to companies and the government sector, had a business with a faster pace than telecom, and operated with long-term salesmen goals and customer retention, but also with short-term commissions. Both Ericsson and IBM were global and had implemented a KAM strategy. Marketing management theory has only addressed this marginally and the approach became that of sales management and how to become a better salesperson, unfortunately insulated from engineering, purchasing, manufacturing, installation and top management, and measured and remunerated by number of orders and the revenue they generated. Although there existed specialized literature that dealt with industrial sales as consultative selling, team selling and negotiations, sales in textbooks tended to become just a tool under the third P of the 4P marketing-mix, promotion, rather than a long term interactive strategy. There is also a difference in opinion as to whether a salesperson needs to understand a product or service in depth, or if a skilled salesperson can sell anything; the skills of selling outranking the product and manufacturing knowledge. It could well be that a revival of the interest in the salesperson will follow in the next phase of CRM.

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The customer-supplier dyad or the network view? In a narrow CRM sense, the supplier is focused solely on the customer relationship. Both CRM and one-to-one marketing leave out the network dimension – which is known to be so important in B2B – whereas my relationship marketing definition includes it, and thus the customersupplier dyad is woven into an increasingly dense fabric of relationships. A major stumbling block of a narrow CRM definition is that the customersupplier dyad is treated as an isolated island without context, and thus the introduction of CRM in organizations will easily end in frustration. In the broadest sense of relationship marketing, all management, the whole society, and even life itself, form networks of relationships. Within these we interact both mentally and physically in our roles of business executives, employees, consumers, citizens and human beings. Based on the definition of CRM as applied relationship marketing, it becomes essential to describe my relationship marketing framework as an antecedent to new marketing theory and CRM. My approach identifies 30 relationships, the 30Rs, as opposed to the four Ps of product, price, promotion and place (sometimes with the addition of a fifth P, people) that are found in marketing textbooks (Gummesson, 2002a). In a similar vein, Christopher et al. (1991) propose six markets; Morgan and Hunt (1994) ten partnerships; and Reichheld (1996) concludes that a customer retention strategy can only be pursued if long term relationships are upheld with employees and investors, too. The 30Rs concern the involved parties as well as properties of relationships. They appear as market relationships existing in the market proper, embracing relationships between a company and its customers, own suppliers, intermediaries and competitors. They also appear as two types of non-market relationships – mega and nano relationships – neither being directly visible in the traditional marketing management sense, but being necessary for success in marketing. Mega relationships are found on a top management and societal level, exerting impact on marketing but going beyond the market, such as relationships to governments, politicians and civil servants through lobbying, and personal, social networks. Nano relationships are the internal relationships that form an organization based on the view that corporations can better be approached as networks of relationships than as the traditional well-defined hierarchy. Although relationships are often just seen as a tie between two or more parties, the 30Rs also embrace properties of relationships that

characterize or sometimes dominate the relationships. Among these are close versus distant relationships, the increasingly more important e-relationship, and the green relationship where ecological and health aspects are in focus. Quality has become a key variable in development of a company during the past two decades. One B2B property that embraces the whole company and has market, mega and nano content is ISO certification, which in many markets today is a mandatory requirement for being considered for a contract and a long-term relationship. In his treatise of the network society, Castells (1996, p. 168) claims “networks are the fundamental stuff of which new organizations are and will be made”. He is inspired by the networks and social changes made possible through the Internet and telecom revolution of the 1990s. In a similar vein, but prior to the advent of the Internet, Wieck (1979) stressed that organizations are networks, and Badaracco (1991) saw a transition from the closed and well defined corporation, the citadel, to a market and mega network. From this it follows that companies do not compete with companies, but networks compete with networks, a situation which economic theory has failed to recognize so far. I find it an unnecessary, self-imposed limitation by CRM advocates to focus solely on the customer-supplier relationships, thus leaving out the network dimension offered in the 30R and other broad relationship marketing approaches. The network context has also been promoted by IMP researchers for long, but has not gained as much attention as the more simplistic customersupplier dyad and its narrow view of relationship marketing and CRM. However, when relationship marketing, CRM, and services marketing are combined with a network view they become drivers of a paradigm shift in marketing and the creation of new marketing theory (Gummesson, 2002b). IMP researchers (not all, however) seem to cocoon their research by marginalizing those broader streams in relationship marketing and CRM that are aiming toward a more general marketing theory above the level of B2C and B2B marketing (Ford et al., 2002). The Internet and email establish a new information network infrastructure that can be much more interactive than the long existing telecom infrastructure, especially with the gradual merger of text, voice, image, data and mobility. By exploiting this infrastructure, the core organization of a company may be small and yet the company could be a market leader in its industry. Amazon.com is a large but not huge retailer if we count the number of employees (less than one percent of the employees of Wal-Mart) or books

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and other products in stock, but it became the largest and most global Internet bookstore in just a few years. Although it still mainly sells books (a choice, by the way, which was accidental), it is not product-based but network-based. Its capital is its network of relationships, particularly its customer base, but also its relationships to authors, publishers, distributors, investors and the media. This capital is dead, however, unless it is used to produce interaction and dialogue with stakeholders, thus generating knowledge for continuous improvement.

There have been many efforts to measure marketing costs and the value that is created by marketing in the form of revenue and profit. The best known is PIMS – Profit Impact of Market Strategy – which started in the early 1960s and has studied over 3,000 profit centers longitudinally. Great hopes were attached to the measurement of cause and effect (in reality, mainly co-variation) of marketing strategies such as quality, market share, or advertising on profitability. Although it probably sorted out a series of factors and their links in marketing, it did not create the hoped for rigor and clarity. In my experience, attempting to measure quantitatively the myriad factors and influences in marketing is a dead end. The high claims of operations research and management (or marketing) information systems, MIS, promoted around 1970 under the slogan “eventually management is turned into science” became little more than a red herring. Today, micro econometricians are trying similar conjecture with cross-sectional and time-series data about individuals, households and firms. Marketing accountability is a current term for more general efforts to measure marketing’s effect on profitability. In one research program it is named “the new discipline”. Whether it is new or not, it is addressing the new economic conditions, where the Internet, globalization with larger groups of companies, and new rules of competition within the EU or NAFTA, are new realities. The program is asking questions such as: “How can value be created by marketing and be defined and measured? How can management processes be aligned, with the aim of driving marketing value creation higher and higher? How can traditional financial and purchasing controls be reengineered, to support marketing value creation? How can employee feedback and learning be improved, to motivate and reward them to maximize marketing value creation? How can IT be applied to measure marketing value and support daily decisionmaking?” (Shaw and McDonald, 2000). These questions are general and can no doubt be used to investigate issues in B2B relationships. In a similar vein, the Marketing Science Institute (MSI, 2002) has set the assessment of marketing productivity, return on marketing and marketing metrics as its top research priority for the years 2002-2004. The interest in measuring the value of relationships and networks has grown parallel to the rise of relationship marketing and CRM. With the above discussion as a general frame, the next section will deal with ongoing efforts to develop marketing metrics and accounting systems to better mirror the realities of the present-day economy. My stance is that indicators are useful to a degree, but they are supplementary to other

Marketing metrics: generating true or illusory knowledge? It may be unnerving to learn that the word “measurement” (derived from Sanskrit “maya”) means witchcraft, illusion, or image. Numbers are often used both as witchcraft and illusion, being pretentious and claiming that they represent – or even are – hard facts. Obsession with measurement can mean handing over the future of a company to an “accounting tribe”, abolishing vision and leadership. Many executives never become leaders, just grossly overpaid accountants. It is easier to quantify short-term profits than to quantify profits lost because of mismanagement of long-term relationships. We have to avoid reification; the indicator is not the phenomenon as such, but should offer the validity of a fair image of the phenomenon we are trying to understand. When indicators image certain phenomena with reasonable accuracy and validity, there is no problem. But when they do not, management will make flawed decisions and employees might go for the indicators that promote their careers and not for the real thing. Measurement becomes selfdeception even if the full-color, three dimensional and animated PowerPoint images look persuasive. Certain phenomena can and should be measured in terms of money; others should never be allowed to come near a number. Feargal Quinn, philosophical founder and president of Superquinn, the prosperous Irish supermarket chain, says that most businesses focus on maximizing the profit from current sales; they want repeat business but treat that as a bonus and not as the main pay-off (Quinn, 1990). He found it difficult to prove long term profit effects to his accounting tribe; confidence in his own judgment and gut feeling was necessary. Leadership is risk taking, action and vision; it is consciousness about the situation, common sense and intuition. Numbers and accounting can assist leadership but cannot replace it. A risk-free and predictable business in a market economy, created by to-thepoint metrics cannot exist; it is an oxymoron.

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types of knowledge. I do not subscribe to the idea that we will eventually generate the universal measurement cure; it is a search for a phantom and will remain science fiction.

exchange, buyers pay for the intangible, “soft” assets of goodwill, brand equity, loyal customers and perceived future earnings. Accounting systems do not capture the value of customer relationships although building relationships is clearly an investment. The traditional balance sheet is not particularly informative about service companies and knowledge-intensive companies, a condition that impairs its efficacy as a management tool in B2B. As all companies – including manufacturing operations – to an increasing extent comprise services and knowledge, the issue is of general concern. The balanced scorecard registers indicators of capital other than just financial capital, among them the customer base and the value of long-term relationships. The original balanced scorecard contains indicators in four groups of capital: financial, customer, internal business process, and learning and growth (Kaplan and Norton, 1996). It has long been popular for executives to say “the human being is our most valuable resource”. The statement alludes to employees, but customer, investors, and vendors are also human and provide resources. In the spirit of relationship marketing, each and everyone who has an impact on the success of a company should be included, meaning each party in a network of relationships, not least the customers. Within the balanced scorecard, intellectual capital is challenging the supremacy of short-term financial capital (Edvinsson and Malone, 1997; Sveiby, 1997; Olve et al., 2000; Edvinsson, 2002). Financial capital must of course exist in every organization and in the balanced scorecard financial capital is assessed together with intellectual capital. If capital is defined as “anything of value” – a resource – we realize that money and other hard assets are not the only capital. Based on literature and practice, the following definition of intellectual capital is suggested: Intellectual capital is the total value of a company – the price of its shares – minus its book value. Or simply: All resources except net financial assets. But how does intellectual capital relate to profits and the perceived value of a company? A company is primarily measured by its ability to generate shareholder value. This value is a composite of historical financial results, growth and stock price, as well as of psychologically driven expectations and rumors of the future, and of manipulation of stock prices. Intellectual capital is an antecedent to financial capital, sustainable profits and growth. Thus intellectual capital and the balanced scorecard are applied to generate future-oriented knowledge whereas traditional accounting is

Return on relationships (ROR) Managers who consider a relationship marketing and CRM strategy must ask the question: Does relationship marketing and CRM pay? We can broaden the question: Is it possible to gauge return on relationships just like we gauge return on investment? Here is my definition (Gummesson, 2002a, p. 228): Return on relationships (ROR) is the long-term net financial outcome caused by the establishment and maintenance of an organization’s network of relationships. This definition includes not only the return on each individual customer relationship but puts the return in a network context. The current focus of CRM indicators is, however, limited to the customer-supplier dyad. The limitation is currently a practical necessity; it is easier to measure the outcome of a buy and sell relationship with a consumer than the outcome of the more complex industrial networks. It is also a cognitive issue because we have great difficulty in thinking systemically and to comprehend a larger context. Therefore the results and the indicators that have emerged so far are found mainly in the area of consumer retention and loyalty. To comply with this reality, a narrower definition of ROR will better reflect the reality: ROR in a narrow sense is the long-term net financial outcome caused by the establishment and maintenance of individual customer relationships. Even if this has to be accepted for the time being, it should be the target for research and practice to expand to other relationships. Efforts to respond to ROR demands are in progress but are not so easy to make operational in a B2B setting. Nevertheless, they can be structured within the concept of the balanced scorecard and its links to intellectual capital. These concepts will be treated in the next section. Balanced scorecard and intellectual capital: generating knowledge for the future A traditional balance sheet consists of the tangible, “hard”, assets of money, inventory, machines, and buildings. In the jargon of the balance sheet, the loyal customer in the data warehouse cannot be brought to account, while the goods in the physical warehouse have a value because they are perceived to represent “real capital”. However, when a company is sold or its stock is traded on an

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history-oriented. The issue is to recognize the long-term importance of intellectual capital for the generation of financial capital, and to convert intellectual capital into financial capital. Accounting is thus raised to a higher level of abstraction: from a rear-view mirror measurement of financial data to generating knowledge that guides a company into the future. Intellectual capital is divided into two major types: human (individual) capital and structural capital. Human capital consists of employees and their qualities. It includes the individuals’ knowledge, behavior and motivation but also their networks of relationships. These networks consist of personal relationships, which may have been cultivated over a long period and the trust, and confidence that an employee has established among customers and others. The power and prestige of individual capital is evident for an advertising agency, a CPA firm, or a partnership of lawyers who thrive on their personal interaction and dialogue with clients. There is also capital built into an employee who can quickly gain a customer’s confidence, a quality that has always been essential in a salesperson. If an employee leaves a company, the individual capital vanishes. You cannot own human beings – that would be slavery. A company borrows a guy from nine to five, one day at a time. Today, knowledge exchange is presented as a prime reason for alliances. Migratory knowledge can be transported, but embedded knowledge is inseparable from its environment (Badaracco, 1991). Embedded knowledge is part of the structural capital. It does not disappear when an employee leaves. In a relationship marketing sense, structural capital consists of relationships that have been established with a company as such and are tied to culture, systems, contracts, brand identity, and the network to which a company belongs. The more successfully a company ties relationships to its structure, the less dependent it is on individual employees, and the higher the value of its structural capital. Current accounting systems are obviously not adequate for relationship marketing and CRM needs. They are not geared to assessing ROR and they are only one of several information systems existing in large companies. Among the others are marketing information systems that furnish data on customers, competitors, relationships, and competitive advantage. In CRM, data warehousing and data mining strive to store and integrate information throughout the enterprise and its environment to be able to use it in novel combinations as a basis for marketing strategy. As all companies and marketing situations are unique in some respects, applications must be adapted to each specific situation. For many years, the Swedish and global financial group Skandia

experimented with its own variant of the balanced scorecard and intellectual capital indicators, the Skandia Navigator (Skandia, 1994-1999). The group worked actively to enhance the value of its customer base, which consists both of consumers and organizations. Skandia developed a list of 111 indicators and a reserve of another 55. This is certainly no short-list and it should scare off any executive as being too complicated and too costly to report, let alone act on. It takes time and effort to make these indicators operational and practical, to select a manageable few that uncover useful information, and to establish time-series and trends. Of the total number of indicators, 20 have a financial focus and the others an intellectual capital focus. The following indicators have apparent relevance to relationship marketing (Edvinsson and Malone, 1997, pp. 151-158): . with focus on the customer: annual sales/ customers, customers lost, average duration of customer relationships, rate of repeat customers, average customer purchases/year, average contacts by customer/year, points of sale, customer visits to company, days spent visiting customers, and a satisfied customer index; . with focus on employees, but with consequences for customer relationships: motivation index, empowerment index, employee turnover, and average years of service with company; and . with particular focus on customers and electronic relationship: IT investment/ customer, IT investment/service and support level, number of internal IT customers, number of external IT customers, and IT literacy of customers. Another case shows how a successful and fastgrowing Swedish company, TurnIT (2000), has customized the scorecard and intellectual capital to its needs. TurnIT offers IT support to businesses in supplies, software, communication, consulting and outsourcing. Its sales in the year 2000 were $160 million (in 1996: 5 million) and the number of employees was 1,300 (in 1996: 16 million). The scorecard includes four types of intellectual capital: business formula, human capital, organization-based structural capital, and relationship-based structural capital. Within the last category there are three subcategories: network (the strengths of relationships to partners, suppliers, intermediaries, and others), brand (brand equity in various target groups), and customers (size and breadth of customer base, loyalty, potential, and so forth). Assessments of the indicators are made on scales through internal and external interviews and accounted for in the

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annual report together with financial data. The assessments are made in three dimensions to grasp the dynamics of the present and the future rather than history: current position, efforts to improve, and risks of deteriorating. We will now look at some conceptual approaches that consider relationships, networks and interaction and apply them to B2B environments. The first concerns the interdependence between quality, productivity and profitability; the second, lifetime value (LTV) and customer equity; and the third the network approach.

a metaphorical sense as they are reflections of the same basic genes, and even if they can look somewhat different as triplets can do, they are close and are not happy when separated. Quality is primarily revenue-centric, whereas productivity is cost-centric, and profitability is revenue minus cost, the bottom line. As quality is treated in marketing, the right quality in relation to the customer needs (not the highest quality in technical terms) is a means to increase revenue. Productivity is the ratio between output and input, which is usually interpreted as a basis for costreduction, while in fact it means that costs can remain the same if output is increased, or costs can be increased to help boost revenue. The combined triplet effect is difficult to handle which has been shown in efforts to study them (Vuorinen et al., 1998; Lovelock, 2000). It is also proven over and over that companies eventually lose out focusing too heavily on downsizing to reduce costs (such as those controlled solely by short term financial indicators) or when focusing too heavily on growth to enhance revenue and stock price (such as dotcom startups), without finding an optimal trade-off between the triplets. Figure 1 shows the triplets at play. Both goods and services are included because they exhibit a symbiotic relationship – all providers combine momentary activities (services) with things (goods) – and this applies to both B2B and B2C. As always, its application has to be adjusted to the specifics of each situation, so my comments below

Quality, productivity and profitability in relationship marketing ROR can be enhanced by changing the balance between quality, productivity and profitability – here called “the triplets” – and thus changing the effects on revenue, cost and capital employed. A company can downsize and cost and capital employed can be slashed and profits might go up. But cost and capital employed can also be increased to boost revenue even more. A revenue reduction – for example, eliminating unprofitable customers – can reduce cost but a more constructive strategy might be to turn unprofitable customers into profitable ones. By myopic concentration on cost, the attractiveness of a company is reduced, customer relationships are jeopardized and intellectual capital is thrown away. The interconnection between quality, productivity and profitability – the “triplets at play” – is shown in Figure 1. I call them triplets in

Figure 1 The triplets – quality, productivity and profitability – at play

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should be interpreted in the light of relationship marketing and B2B. The figure starts with quality, defined as: . offering products and services that fulfill the function needed and wanted by the individual customer; . being reliable and doing it right the first time, that is, from the beginning and in each step of the engineering and manufacturing or service production and delivery process; and . good relationships with customers and others in our network, known as relationship quality.

and productivity. With increased importance of ebusiness in B2B, this should be stressed even more. The Internet is claimed to be an interactive network medium, where contributions to the outcome can come from all actors in the networks of relationships, and these are decisive for the triplets.

If quality in these senses improves, it can have a positive impact on revenue (left section of the figure), cost (middle section), and capital employed (right section). Improved productivity becomes an antecedent to profitability and some factors directly affect profitability through enhanced revenue. The figure does not show an automatic process but rather the opportunities to enhance profitability, if properly managed. When function, reliability and relationships improve, this can be used to boost image, customer retention, share of customer, and market share. Brand identity and brand equity go up. These changes stimulate more sales, differentiate the provider from the competition, making the provider less dependent on price competition, and open up for possible premium pricing. Service costs for machinery go down, and so do the costs of inspection, testing, rework, scrap, complaints, and warranties. The capital employed is reduced as less stock needs to be kept; accounts receivable go down because payment comes earlier and less payment is delayed because of complaints. ABB implemented a long-term “customer in focus” program during the 1990s. To make it tangible and operational, time reduction was chosen as the focal point. By reducing processing time, fewer resources were required and productivity went up. Customer waiting time went down which added a competitive edge. Some of the results are: the time to process an order that used to take three hours via telephone or fax, was reduced to two minutes; the time and cost for an order of a special axis for electrical motors that took four weeks and cost $205, was reduced to two days and $31; and an electric transformer plant can now be designed by the customer in ten minutes and a tender can be sent in 24 hours, whereas the process used to take seven weeks. As cash flow becomes faster, money can be used elsewhere and capital costs are slashed. In summary, the figure has highlighted a series of interdependent elements, all eventually affecting the bottom line. What does not show in the figure, and what rarely comes out in any discussions, is the interactivity aspect of quality

Lifetime value and customer equity The old concept of lifetime value, LTV, has been revived by CRM. It usually refers to the net value of an individual consumer’s purchases over his or her lifetime, sometimes widened to the whole family, even to both private and professional consumption. In defining customer equity, as “the total of the discounted lifetime values of all its customers”, Rust et al. (2000, pp. 4-8) also broaden LTV. Customer equity is the combined outcome of value equity (defined as relatively cognitive, objective, and rational customer perceptions of quality, price and convenience), brand equity (customer perceptions of a supplier that are relatively emotional, subjective and irrational), and retention equity (repeat purchases). According to the authors (Rust et al., 2000, p. 12) “Customer equity is the key to the long-term profitability of any firm, and analyzing the keydrivers of customer equity provides an overall framework for effectively focusing strategic resources”. The LTV concept may stand out as fairly clear cut for consumers, although one has to consider that certain offerings, such as diapers and babyfood are only of interest during a limited (but highly varying period) period in a family’s lifetime. It is harder to define LTV for organizational buyers: what is the lifecycle and lifetime of a company? It is obvious that the literature so far mainly has consumers in mind although there may be applications to B2B marketing. Network approaches to ROR Ha˚kansson and Snehota (1995, pp. 382-397) summarize three levels of cost and revenue effects in B2B networks. First, business relationships generate revenue from customers and the costs are incurred by suppliers; these revenues and costs are traceable. Second, other costs and benefits of relationships are less obvious and less measurable. These are the costs/revenues of maintaining networks and the quality/productivity emerging from operating in networks. Third, there are the costs and revenue effects that will only become apparent in the future. Although the current benefits of a network are essential, the potential benefits of securing survival and perhaps growth may be more important. The authors stress the network dependency (Ha˚kansson and Snehota,

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1995, p. 396): “...every business enterprise is a product of its context as much as a force shaping the context”. The context is both spatial, that is, which relationships and interactions are part of our network; and dynamic, that is, how should the measurement be linked to the past, the present and the future. According to the traditional value chain, value is added sequentially through a series of stages, supported by internal services. Marketing then becomes distribution of value to the customer, “the value destroyer”. According to the concept of the value constellation (Wikstro¨m and Normann, 1994), which is well aligned to relationship marketing, various functions inside an organization, outsourced functions and the customer, form complex constellations of both sequential and concurrent productionconsumption activities. Value is created in the constellation. Making a product is one type of value creation, consuming it for a purpose is another or maybe the most important value creation. Translated into relationship marketing jargon, the value constellation says that business is a network of relationships, which keeps changing. If both the customer and the supplier are part of the same value-creating process, the role of price is altered (Wikstro¨m and Normann, 1994, p. 62): “This means that both profits and losses... should be shared between supplier and customer. Instead of price setting, it becomes a question of remuneration for participation in the creation of value. This kind of remuneration must be discussed in very open-minded negotiations between the two parties”. Although this quotation was not directed to B2B, such types of pricing strategies have long existed in B2B based on continuous long term relationships.

mean that relationship marketing is absent. It means that bits and pieces of relationship marketing are embedded in traditional marketing and management, but are not clearly discernable and are called by other names. In fact, companies are doing a lot of relationship marketing but for lack of concepts, models, common language, and marketing planning and monitoring tradition, the relationship activities are not openly acknowledged and put to use in a systematic and conscious manner. It is particularly important to take a fresh look at marketing planning because relationship marketing offers new conditions. We need to go beyond the marketing plan, as marketing in the light of relationships, networks and interaction becomes marketing-oriented management. Therefore, the marketing plan must be an integral part of the company’s overall business plan. There is little research available on marketing planning in networks of relationships. One of the exceptions is Benndorf (1987) who studied relationships and networks in B2B marketing and their meaning for the marketing planning process. He notes that companies in a network become dependent on one another’s plans and therefore their resources and activities should ideally be coplanned. Such co-planning is not easy to practice, however; it requires a lengthy and sustaining learning process. We know too little about how relationship marketing should best be integrated into the planning of a company. The only way to find out is through trial-and-error in companies, supplemented by research. It seems reasonable to start by adding relationship marketing dimensions to the marketing plan in use, initially retaining its basic format. A marketing plan, which is focused on the opportunities offered by relationship marketing and CRM can initially include the relationships to customers and later parts of whole networks that need to be built, maintained or abandoned. Knowledge about customers and prospects and novel ways of approaching them, supported by CRM, become increasingly important. Data warehousing and data mining for more and better use of customer data, call centers for keeping up relationships, email and the Web, offer a better platform for up-selling and cross-selling. Activity planning is a normal part of a marketing plan, and activities and interactions in relationships should also be included. Traditional goals of the marketing plan, such as revenue, sales volume and market share, must be supplemented by ROR goals, such as customer retention and share of customer, all within the spirit of the balanced scorecard and its intellectual capital indicators.

The role of marketing planning and business planning In order to develop ROR it is essential to get marketing and accounting working in the same direction. Numbers and reports from marketing and other specialist departments do not get priority attention from the CEO and the board of directors; numbers and reports from accounting do. As numbers from accounting exert a significant influence on decisions and practices, supportive accounting is an antecedent to sound CRM. Marketers all too often find accounting rigid, traditional and bound by legal restrictions, seldom giving support to essential marketing strategies. If we ask companies today how they practice relationship marketing and CRM, only very few are able to give adequate answers. This does not

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Activities in marketing are usually described as a marketing mix – the four or more Ps – including product, price, promotion, place (supply chain management) and others such as people. These are not replaced by the 30Rs (Gummesson, 2000a) but the way relationship marketing has been presented here, relationship thinking is the vantage point and the Ps and other activities can be supportive to the relationships. The relationships broaden the interplay between marketing and other functions such as manufacturing, accounting and internal services. Instead of starting with mixing Ps, a company needs to define and review its relationship portfolio. I have chosen the word portfolio rather than mix to accentuate a novel perspective and novel values, a paradigm shift. A portfolio is a collection of components and their total benefits should be greater than the sum of its parts; there should be synergy effects. The term financial portfolio is used on a combination of investments that fulfils chosen goals such as balanced risk, maximum short-term yield, or maximum long-term growth. In strategic management, portfolio is used for the choice of products to offer on the market (product portfolio) and the choice of customers to target (customer portfolio). The relationship portfolio is a combination of relationship marketing activities to be performed during the planning period. In summary, the following tasks should be included in the marketing plan and a company’s overall business plan: (1) Select a relationship portfolio. Analyze the currently interesting relationships and networks and assess your ability to interact in these. Do this as an active part of the marketing planning and business planning processes. The 30 mega and nano market relationships, the 30Rs, can be used as a checklist. Each relationship must be defined to fit a specific company and its specific situation. Select relationships of particular import, which are currently not handled well enough but are gauged to have a development potential. Pose the sometimes provoking and unpleasant question: How well are we actually handling our networks of relationships? Do customers and other parties feel the same way as we do about the relationships, or are there gaps between our perceptions? Apply the opportunities offered by CRM. (2) Set goals for ROR. Goals are an important part of the marketing plan, not only quantitative, short-term goals but also qualitative, long term and strategic goals. Apply the framework provided by the balanced scorecard and intellectual capital. Measure what impacts on ROR – if it is measurable. Do not fall into the

trap of thinking the non-measurable – such as culture, leadership and vision – is unimportant just because it is not easy to replicate in numbers. Numbers must be linked to common sense, sound judgment, vision, and endurance. (3) Monitor implementation and outcome. The implementation processes must be monitored and the outcome compared with the goals. Implementation is often the more demanding activity together with changed course of action that new knowledge and feedback may give rise to. (4) Assess relationship marketing consequences for organization, processes, systems, and procedures. Relationship marketing puts new demands on the organization and its processes, methods, and procedures. Implementing a CRM system requires changes throughout the company or it will become yet another costly system with little positive effect on performance.

Action strategies and considerations for improved ROR A series of approaches to ROR have been presented so far. They help us put elements of relationship marketing and CRM in context but are far from a complete and quickly implementable solution to ROR assessment. This section presents recommendations based on the ROR approaches but also general conclusions that have emerged in research and practice of relationship marketing and CRM.

Customer-supplier relationships Most of the efforts to measure ROR are centered on the supplier-customer dyad. Consider the following: . Marketing costs go down when customer retention goes up, as you do not have to recruit as many new customers as before. New customers are frequently low users as they buy from many sources but if relationships work out well, they are likely to favor a single supplier and share of customer increases. Suppliers and customers become better partners, co-producers and co-developers when they are in continuous dialogue. The odds for quality, productivity and profitability to go up grow as outlined in Figure 1. There will be less hassle if delays and defective delivery should occur. Agree on the supplier role and the customer role in a relationship; that is, who should do what and what should be done in interaction.

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Watch out for unprofitable customers who hide among the profitable ones. When customers are unprofitable they may just be bad customers, but it may also be that the supplier is offering the wrong product or service at the wrong price. It may be that senile accounting systems and indicators are used. Therefore, establish a sound basis for estimates, making sure that relationships are properly evaluated, for example by considering LTV profitability links between different products, services, and customers. Whenever possible, make sure that relationships become part of structural capital as human capital is transient and less manageable. However, caring for the human capital is also imperative. Increasingly computers can take over continuous and routine buying and selling in B2B but also actively search for new information; M-to-M interaction gives rise to a new type of marketing yet to be developed and learnt. KAM is often a sound organizational requirement for implementing relationship marketing in B2B. CRM can assist with data warehouses and data mining and help suppliers become more sensitive to customer needs and wants, and to target the offerings better with favorable effects on revenue. Successful relationships make customers valuable part-time marketers who give referrals and spread positive word-of-mouth, adding marketing muscle without burdening marketing and sales budgets. Loyal customers become less price sensitive – within limits – as they also value relationship dimensions such as trust, commitment, and convenience. However, customers have to be continuously encouraged to remain loyal. Satisfaction indicators must be interpreted. Satisfied customers and high customer perceived quality is not enough to secure long term relationships. Customers may just be the “happy slaves” of a close to monopoly situation where in practice they have no options; therefore dissatisfied customers do not necessarily defect.

Competitor and other market relationships . Even if we primarily think of the relationship to our immediate buyer, customer-supplier relationships also include intermediaries, endusers, and our own suppliers. Furthermore, market relationships include relationships to competitors and their many faces, being first and foremost rivals, but often being customers, suppliers, and collaborating partners as well.

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Competitors get a tougher time when retention and loyalty increase – they are not served new customers on a plate. By collaborating with competitors on one level, both suppliers and customers can get advantages through cost reduction and joint development of products, services and systems. By collaborating in an industry, competitors can help one another to improve conditions for the industry as a whole.

Non-market relationships . Return on non-market relationships – the mega relationships (beyond the market) and the nano relationships (inside the company) – may not be so obvious, especially in the short term. They are antecedents to successful market relationships. Mega relationships are often strategic and structural necessities; without them the supplier will be out of business. Nano relationships offer internal and necessary conditions for external market relationships. . Return on mega relationships is obvious when, for example, a lobbying campaign is successful or an alliance brings valuable knowledge to a product development project. . Nano relationships are partly internal market relationships, such as the supplier-customer relationship between profit centers, and the return can be measured in similar ways as on external market relationships. Others are more difficult to assess such as the value of cooperation between operations management and marketing required for quality enhancement.

Conclusion: generating viable knowledge in relationship marketing and CRM requires new accounting Establishing and maintaining relationships is not a new fundamentalist religion confronting the old fundamentalism of microeconomic theory (all is price), traditional marketing management (marketing mix, consumer goods), and traditional accounting (historical financial data). However, research and marketing practice during the past 25 years point to the significance of the three key concepts of relationships, networks and interaction. Although these concepts are central to relationship marketing and CRM, ROR should ideally help a company to determine whether it should act at the zero relationship end of the scale (the occasional transaction based solely on a price and customer convenience relationship or move

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along the scale toward closer and more enduring relationships. Moving along the scale calls for more comprehensive ROR indicators, thus raising accounting from historical, financial measurement to broader forms of future-oriented, knowledge generation. Thus, relationship marketing and CRM require a paradigm shift in marketing management in a world where long term relationships constitute the standard and more general case, and the one-shot deal is seen as a special case.

Gummesson, E., Lehtinen, U. and Gro¨nroos, C. (1997), “Comment on Nordic perspectives on relationship marketing”, European Journal of Marketing, Vol. 31 No. 1-2, pp. 10-16. Ha˚kansson, H. and Snehota, I. (1995), Developing Relationships in Business Networks, Routledge, London. Jackson, B.B. (1985), “Building customer relationships that last”, Harvard Business Review, November-December, pp. 120-8. Kaplan, R.S. and Norton, D.P. (1996), The Balanced Scorecard, Harvard Business School Press, Boston, MA. Lovelock, C. (2000), Services Marketing: People, Technology, Strategy, 4th ed., Prentice-Hall, Upper Saddle River, NJ. MSI (2002), The 2002-2004 Research Priorities, Marketing Science Institute, Cambridge, MA. McDonald, M., Millman, T. and Rogers, B. (1997), “Key account management: theory, practice and challenges”, Journal of Marketing Management, No. 13, pp. 737-57. Morgan, R.M. and Hunt, S.D. (1994), “The commitment-trust theory of relationship marketing”, Journal of Marketing, Vol. 58, July, pp. 20-38. Newell, F. (2000), loyalty.com, Free Press, New York, NY. Olve, N-G., Roy, J. and Wetter, M. (2000), Performance Drivers: A Practical Guide to Using the Balanced Scorecard, Wiley, Chichester. Peppers, D. and Rogers, M. (1999), The One to One Manager, Currency-Doubleday, New York, NY. PricewaterhouseCoopers (1999), The CRM Handbook, PricewaterhouseCoopers, Hellerup. Quinn, F. (1990), Crowning the Customer, O’Brien Press, Dublin. Reichheld, F.F. (1996), The Loyalty Effect, Harvard Business School Press, Boston, MA. Rust, R.T., Zeithaml, V.A. and Lemon, K.N. (2000), Driving Customer Equity, Free Press, New York, NY. Shaw, R. and McDonald, M. (2000), Marketing Accountability: The New Discipline, Cranfield School of Management, Cranfield. Skandia (1994), Annual Reports and Supplements, Skandia, Stockholm. Storbacka, K. and Lehtinen, J. (2000), CRM, Liber, Malmo¨. Sveiby, K.E. (1997), The New Organizational Wealth, BerretKoehler, San Francisco, CA. TurnIT (2000), TurnIT Annual Report, TurnIT, Stockholm. Vuorinen, I., Ja¨rvinen, R. and Lehtinen, U. (1998), “Content and measurement of productivity in the service sector: a conceptual analysis with an illustrative case from the insurance business”, International Journal of Service Industry Management, Vol. 9 No. 4, pp. 377-96. Wieck, K.E. (1979), The Social Psychology of Organizing, Addison-Wesley, Reading, MA. Wikstro¨m, S. and Normann, R. (1994), Knowledge and Value, Routledge, London.

References Badaracco, J.L. Jr (1991), The Knowledge Link: How Firms Compete through Strategic Alliances, Harvard Business School Press, Boston, MA. Ballantyne, D. (1994), “Marketing at the crossroads”, Australasian Marketing Journal (previously Asia-Australia Marketing Journal), Vol. 2 No. 1, pp. 1-9, special issue on relationship marketing. Benndorf, H. (1987), Marknadsfo¨ringsplanering och samordning mellan fo¨retag i industriella system, MTC/EFI, Stockholm. Castells, M. (1996), The Rise of the Network Society, Blackwell, Oxford. Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing: Bringing Quality, Customer Service and Marketing Together, Butterworth-Heinemann, Oxford. Coviello, N.E., Brodie, R.J. and Munro, H.J. (1997), “Understanding contemporary marketing: development of a classification scheme”, Journal of Marketing Management, Vol. 13 No. 6, pp. 501-22. Edvinsson, L. (2002), Corporate Longitude: Navigating the Knowledge Economy, Bookhouse, Stockholm. Edvinsson, L. and Malone, M.S. (1997), Intellectual Capital, Harper-Collins, New York, NY. Eggert, A. and Fassot, G. Eds. (2001), eCRM: Electrontic Customer Relationship Management, Scha¨ffer-Poeschel, Stuttgart. Feurst, O. (2000), One-to-One Marketing, Liber, Malmo¨. Ford, D., Berthon, P., Brown, S., Gadde, L.-E., Naude´, P., Ritter, T., Snehota, I. and Ha˚kansson, H. (2002), The Business Marketing Course, Wiley, Chichester. Gatarski, R. and Lundkvist, A. (1998), “Interactive media face artificial consumers and must re-think”, Journal of Marketing Communications, Vol. 4, pp. 45-59. Gro¨nroos, C. (2000), Service Management and Marketing, 2nd ed., Wiley, Chichester. Gummesson, E. (2001), “eCRM and hCRM: martial rivalry or marital bliss?”, in Eggert, A. and Fassott, G. (Eds), eCRM: Electronic Customer Relationship Management, Scha¨fferPoeschel, Stuttgart, pp. 109-27. Gummesson, E. (2002a), Total Relationship Marketing, 2nd ed., Butterworth-Heinemann/Chartered Institute of Marketing, Oxford. Gummesson, E. (2002b), “Practical value of adequate marketing management theory”, European Journal of Marketing, Vol. 36 No. 3, pp. 325-49.

Further reading Gummesson, E. (1998), “Productivity, quality and relationship marketing in service operations”, in Bruhn, M. and Meffert, H. (Eds), Handbuch Dienstleistungsmanagement, Gabler, Wiesbaden, pp. 843-64.

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Future directions in marketing knowledge: a panoramic perspective from Hollywood A. “Bruce” Smithee and Tommy Lee The authors A. “Bruce” Smithee was previously a Visiting Professor in the Department of Marketing Philosophy at the University of the Great Divide, Australia. Tommy Lee is a Senior Researcher at the Academy of the Motion Picture Industry, California, USA.

Keywords Marketing philosophy, Knowledge management, Metaphors, Relationship marketing, Interpersonal relations

Abstract An unconventional article based on an unfinished manuscript from the late Alan Smithee (“one of the great Hollywood directors”) and completed by his successor in Hollywood, Tommy Lee. Offers some perspectives on what the future of marketing may hold based on past metamorphic successes and makes some critical suggestions for review. Considers a range of metaphors and associated (rather humorous) terminologies. Notes some key questions for marketing theorists, such as: what are the appropriate relationships between business disciplines and their philosophies; and how can marketing academia develop better relationships with practitioners to the mutual benefit of both parties? Points out that unless marketing academics address some of these key questions “significant contributions to knowledge” will continue to be viewed by practitioners as shifts in language rather than substance.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0885-8624.htm

An executive summary for managers and executive readers can be found at the end of this issue.

Co-author Tommy Lee’s explanatory note The late Alan Smithee was an emergent scholar and one of the great Hollywood directors. His untimely and highly suspicious death has robbed us of one of the real characters in the communication industry. With over 40 years experience in the motion picture industry and more than 20 movies to his credit, this unassuming giant even had a tribute movie made in his honor (http://magasinet.startsiden.no/article/articleview/ 1087/1/3). However, towards the end, it was clear that he had become disenchanted with Hollywood, and he turned his attention to pursuing an alternative career as a marketing academic. Smithee acquired doctoral degrees for “life experience” from various West Coast colleges to supplement his Bachelor in Media Studies from the University of Okoboji in Iowa. His early scholarly contributions were much acclaimed and led to a string of invitations from Universities around the world. In his final years he was a visiting professor at Alloa Metropolitan University (UK), Ogawalla Aquifers University (USA), Right State (USA) and the University of the Great Divide (Australia). This paper is based on an unfinished manuscript found among his possessions. As his successor in Hollywood, my contribution is deliberately limited to footnoting where I think further explanation is warranted, and to rewriting the final sections from his planning notes. I claim absolutely no right to the intellectual property. I have merely annotated the original text and sought to amplify some of the points he was trying to make. He was my mentor, and we spent many happy hours together discussing the future of Marketing. I miss him greatly.

In want of an abstract[1] This is the way marketing ends This is the way marketing ends This is the way marketing ends Not with a bang but an olufsen Not with a break but a kit-kat Not with a coke but a smile.

Introduction Journal of Business & Industrial Marketing Volume 19 · Number 2 · 2004 · pp. 149-154 q Emerald Group Publishing Limited · ISSN 0885-8624 DOI 10.1108/08858620410524025

The history, evolution and philosophy of marketing have been adequately addressed in the extant literature (Hunt, 1976, 1984, 1990, 1991,

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1992, 1993, 1994)[2]. However, since the mid 1980s there has been a paradigm shift underway in marketing thought – from the transactional to the relational view (see among many, Gummesson, 1987; Christopher et al., 1991; Gronroos, 1994). In this perspective, marketing ideas permeate the organization and are pivotal in developing relationships with suppliers, channel partners and other constituents, including the customer. Fundamental to the development of marketing relationships are the twin concepts of commitment and trust (Morgan and Hunt, 1994)[3]. These ideas draw something from the social psychology literature, in particular, the field of interpersonal relationships. Marketing has always adopted and adapted (or liberated) concepts from other discipline areas. For example, life cycle theories demonstrate the influence of economics, and many models of buyer behavior and customer satisfaction have their antecedence in psychology and sociology. The discipline has freely borrowed military metaphors (strategy and tactics, targeting customers, and even marketing “warfare”). Paradoxically, marketing has fallen in love with customer “intimacy” (Wiersema, 1997). It has also dallied with post-modernism, presenting concepts that are difficult to understand and comprehend in ways that are difficult to comprehend and understand (Brown, 1995a, 1998). It has even explored theological and eschatological themes (Brown et al., 1996, 1997). As the marketing discipline enters its second century it is apposite to consider the role of metaphor in the degeneration of marketing knowledge[4]. This article, therefore, seeks to offer some perspectives on what the future of marketing might bring, based on past metaphoric successes and offers some critical suggestions for review. Given the many successful outcomes of past interdisciplinary sorties in search of metaphor, much may be gained from focusing on virgin territories. Marketing has been slow to grasp the manifold opportunities that exist in fields as diverse as the medical sciences, the physical sciences and information sciences, to name just a few. Such exploration will lead to new classifications, concepts, frameworks, paradigms (including a few shifts and shafts), terms, theories, taxonomies and typologies. These will undoubtedly enrich the discipline, once it has recovered from its mid-life crisis (Brown, 1995b) and realized that life begins at 100. In the interests of facilitating this process, this article outlines ideas that have been gathered in discussions with eminent marketing academics and colleagues around the world. It should clearly be regarded as exploratory research, an unfinished

opus in anticipation of a forthcoming oeuvre (Smithee, in prep)[5]. Before extending marketing’s reach into new disciplinary areas, it is worth examining current marketing metaphors to see if they might be further exploited. Clearly, in the age of “relationships”, marketing as warfare is passe´. However, if marketing academics wish to build on such analogies, then it is only right and proper that they should use latest terms. By way of example, several new marketing terms are proposed. First – collateral marketing strategies.These occur when a firm’s segmentation strategies accidentally hit the wrong target market. Second – promotion under friendly fire.This is where the finance director or the board slashes a firm’s promotional budget. We turn now to the “relationship” metaphor[6]. Notwithstanding Brown’s (1997) exhortations on the need to “romance the market”, much of the terminology used by marketing academics is coy and chaste like a Barbara Cartland novel. Well, I say it’s time to get down and dirty. In this context, we must address concerns that many existing marketing terms are male dominated (for example, penetration pricing, entry strategies, etc.), as is the marketing discipline as a whole (Caterall et al., 1996). A number of terms could be adopted here, such as marketus-interuptus,where marketing plans are not fully consummated, post-coital marketing dissonance, where one of the partners is clearly dissatisfied with the outcomes of the relationship, and so on[7]. Let us now turn our attention to virgin disciplinary territories. Given that marketing is a science, or espoused as such, an appropriate place to begin our quest is in the “hard” sciences. We will begin with the medical sciences, which offer unrivalled opportunities. The notion of noninvasive communication strategies is appealing, given the amount of “noise” customers are currently subjected to. Similarly, an in-vitro pricing strategy might be used to define any cost-plus pricing which does not have any (formal) input from the marketplace. In future, anti-emetic advertising campaigns will be widely used to prevent viewers from throwing up and open-heart pricing policies might be employed to persuade customers that we really do care. Rather than run through the whole gamut of medical terms, Table I and the accompanying guidelines are offered to allow readers to creatively develop their own customized lexicon. The growing practice of promoting branded prescription drugs directly to patients also has exciting possibilities. I was going to suggest product viagraqisation to describe expansion or extension strategies (or perhaps as a remedy to turn “dogs” into “stars”, although 7-upq might be

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Table I The marketing science and medical science interface Item A

Item B

Antibiotic/pro-biotic Ante-natal/post-natal Anti-inflammatory Ectopic Embolism Endemic

Marketing Pricing Communications Promotion Channels Buyers/consumers/ customers Sponsorship Point-of-purchase Products Brands Market/ing research Services Any of the 8 “S”s Other ( please specify) Other ( please specify) Other ( please specify)

Free radical Keyhole/endoscopic Nil-by-mouth Open-heart Palliative Pre/post-operative Triple bypass Other ( please specify) Other ( please specify) Other ( please specify)

Table II The marketing science+physical science interface

Definition (DIY)a

Item A Big-bang Black hole Chaos theory of Half-life Inertia Interstellar Osmosis Symbiosis Strange-attractor Unified field theory of

Other ( please specify)

Note: aDIY guidelines: Select a word or phrase from column A and one from column B, and then formulate your own definition (e.g. Nil-by-mouth+promotion). Please feel free to add your own terms to either column

a better brand name), but my lawyers advised that the company might cut off my supplies. Similarly, Xenicalqisation would make a nice euphemism for “down-sizing”, which is itself a rather coy term for sacking people. Of course, the current buzz term BPR (business process re-engineering) has its advocates but it also has the same outcome of freeing up the career opportunities of employees (come after me if you like, but just remember I’m in the super-heavyweight division, and I’ve reached my target weight. A.S.). A similar exercise could be fruitfully conducted in the physical sciences (try your skills on Table II). For example the notion of a promotional black hole is promising (“You’ve spent all the budget and you can’t tell me how it will impact on the bottom line?”). So is marketing by osmosis, which might capture more complexity than marketing by matrix (McDonald, 1995). Also, the concept of a product half-life is well worth exploring. One area that marketing academics are cautiously eyeing off is Chaos Theory. Personally, I’m pretty certain there is a chaos theory of firm internationalization. If only I was smart enough to figure out the details. Arguably, chaos theory avoidance behavior has been perpetuated by positivist fundamentalism within the discipline. It would be hard to develop a linear model of chaos. Nevertheless, the notion that a Condor’s wing beating in darkest Peru might lead to a tsunami in New Zealand (it need not always be butterfly wings in Brazil) may have intuitive appeal to “network” and “relationship” marketers.

Item B Marketing Pricing Communications Promotion Channels Buyers/consumers/ customers Sponsorship Point-of-purchase Products Brands Market/ing research Services Any of the 8 “S”s Other ( please specify)

Definition (DIY)a

Note: aD.I.Y. guidelines: Select a word or phrase from column A and one from column B, and then formulate your own definition. (e.g. marketing+inertia). Please feel free to add your own additional terms to either column

A third source of ideas for new marketing conceptualizations is the information sciences and the new “knowledge-based” technologies. Given the potential impact of IT, the WWW and electronic commerce on future marketing theory and practice, this whole area is really quite important to the future of the discipline. Regrettably, it also tends to be male dominated (Cringley, 1992). Many terms in current usage (input devices, data entry, hard discs, RAMs, etc.) have unfortunate masculine overtones. Interestingly, power, capacity and capability – i.e. the “brains”- of a microcomputer are contained in the motherboard, which is only fair and just. It would perhaps be advisable to wait until the information scientists get their PC connectivity act together before interfacing metaphorically with this particular field. However, this has not stopped a great many marketing academics from embracing e-marketing and getting into datamining without looking back (I would personally support the campaign for a world-wide ban on mines, including data-mines). On the other hand, biotechnology and genetics offer interesting prospects. A genetically modified marketing concept would represent a real step forward, though it might turn out to be an even greater monster than the present organically evolved marketing concept. It might also be possible to develop cloned marketing strategies, particularly when extending operations to new sectors or markets, and indeed, this whole article is based on the potential of marketing transgenics to enrich and revitalize the discipline.

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This short round up of possibilities has only scratched the surface of opportunity for creating new knowledge. Consider the liberal arts, the humanities, foreign languages (e.g. machomarketing), the performing arts, law, and sports (see for example, Cantona et al., in press)[8]. So on, and so on. For example, some of the terms used in the movie industry could be usefully adopted. Clapperboard marketing might involve as many retakes as it takes to get the strategy right, and casting couch value exchanges could reflect the practice of exploiting staff while at the same time promising to reward them for good service. SFX (special effects) promotions could reflect illusionary claims and promises that attempt to persuade customers to purchase offerings they do not need or cannot afford. Other terms that are worth considering include best boy and leading lady niches,which might be a basis for further segmenting the gay and lesbian markets. Finally, Smithee branding could be widely adopted by companies wishing to avoid being associated with an increasing number of marketing out-takes caused by defective strategies and flawed campaigns. By way of a summary and in the interests of pedagogy, Table III shows where the greatest potential for new marketing concept labels might be found, and at the same time demonstrates marketing’s pivotal role as Master of the Universe (Wooliscroft, 2003). I put it to you, if we were to take maximum advantage of these crossdisciplinary opportunities we will reach marketing nirvana and the marketing philosophy would surely become universally accepted.

Return of the Jedi? Or is it just a case of “frankly my dear (we) don’t give a damn”, so just “show (us) the money”? Clearly, marketing academics can continue to delude themselves that the marketing philosophy is “the one true faith”. A tendency among many marketing academics towards fundamentalism and philosophical imperialism is dangerous. Indeed, the emergence and vitality of Total Quality Management (TQM) in the 1980s with its measurable cross functional process objectives and end user based outcomes, so often absent in marketing, might in retrospect be seen as an early warning signal to marketers to practice what they preach. Readers with a penchant for military metaphors and a rudimentary knowledge of history (even if this was acquired from my revisionist Hollywood war movies), will know that the decline of many great empires often occurred because they sought to advance on too many fronts and exposed their weakened flanks. Thus, while the discipline continues to metaphorically encroach on many other areas, rather than collaborate with other areas, it may be ignoring many dangers at home. Crucial questions for marketing theorists include: What are the appropriate relationships between business disciplines and their philosophies? How can we learn from them without stealing their metaphors? How can the marketing philosophy co-exist with others that have equal merit? Of course, . . . [9] Of course, there is growing evidence of a bifurcation between marketing theorists and practitioners. While academics continue to develop even more esoteric and diverse research interests, puzzling as to whether marketing is an art or a science or introspectively agonize over which methodologies meet acceptable standards of rigor, practitioners are embracing new technologies, and adopting hybrid research methodologies like action research,which is based on knowledge discovery and learning within an undifferentiated context of

Discussion Is marketing Apocalypse Now? Have we Gone with the Wind? Are we becoming the Best Little Whorehouse in Texas? Will we ever witness the Table III Marketing as “master of the universe” Disciplinary area Foreign languages Humanities Information sciences Liberal arts Law Medical sciences Performing arts Physical science Religion Sports

Degree of opportunity Low Medium High X X X X X X X X X X

Comment Insufficiently exploited since Law took over Latin No, marketing is a science Good opportunities but often much too “macho” No, marketing is a science Be careful, they might sue Outstanding opportunities, QED Some scope in relationship marketing Very good, but too chaotic for any sustainable long- term advantage Eschatologists and tele-evangelists got there first but please send a donation anyway Les seagulls en trouve´z le trawler mon petit marketing ami

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action and inquiry. Indeed, it may be argued that much of what is innovative and useful in the marketing area emanates from reflective practitioners and is in advance of any academic contributions. The key question is: How can marketing academics develop better relationships with practitioners to the mutual benefit of both parties? The interminable wrangling among academics over competing philosophical positions and methodological approaches is divisive and serves very little useful purpose. Indeed, many leading marketing commentators have observed that marketing scholarship has achieved little of lasting value in the last 50 years (see for example, Brown et al., 1997). At the same time, these preoccupations deflect energies away from investigating real issues that affect the implementation of marketing in practice. A case in point is the whole area of business-to-business (B2B) marketing that has received relatively little research attention in relation to its importance. The question is: Can the positivist wing of the discipline and the more interpretive “relationship” scholars learn from one another, and develop more inclusive research networks that pluralistic and multiple methodologies might allow? Another danger relates to ignoring the impact of new technologies on the discipline. In particular, relationships between marketing and information technology need to be carefully considered. Many extant frameworks and theories will require radical re-conceptualization in the still emergent new economy. In addition, new and hybrid theories will be required in order to address important developments such as disintermediation and dislocation. In terms of relationships, much greater emphasis will need to be placed on the interaction between humans and technology in areas such as trusting in the integrity of on-line transactions. The question is: Can marketing adapt to the coming changes or will it be subsumed as a sub area of management information sciences? If it’s the latter, the discipline will finally become a science, but it won’t be called marketing science! Finally, customers may be losing their trust in marketing, given evidence in current practice of an arrogant assumption that the pursuit of shareholder value will benefit most other stakeholders, most of the time? Standard definitions of marketing focus on the need to anticipate, and identify, and satisfy customer needs and wants at a profit. However, there is an alternative definition of “profit” that does not relate exclusively to bottom-line financial gains, but rather leads to a “shared benefit” or a “shared good”. Thus, while financial profitability is undoubtedly important to the survival and growth

of commercial organizations that contribute to economic growth and prosperity, it should not be pursued at the expense of ethical and societal considerations. Unfortunately, there is growing community skepticism.

Managerial implications Conventionally, many academic contributions conclude with a discussion of managerial implications. However, this is clearly not a conventional article. Indeed the main thrust is directed at marketing academia. The need for rapprochement between marketing academics and practitioners is manifest and it is clearly both necessary and desirable. We would argue that the marketing scholars must initiate the process by fundamentally reconsidering the nature, direction and scope of academic research, and by seriously questioning how it really adds value for practitioners. Otherwise, “significant contributions to knowledge” will continue to be viewed by practitioners as shifts in language, rather than substance. Also, it is time to consider how closely current marketing practice reflects marketing philosophy. Additionally, it is time to consider how much of marketing theory is conducive to developing relationships with customers, employees, shareholders, and society at large.

Notes

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1 Anon. Smithee left no abstract and, although one has been provided by the publisher, I have used this prose poem in lieu of his own, I found the poem attached to Smithee’s drafts for this article. He obviously meant to use it in some important way. He told me that it came from a fellow he once met on a snorkelling holiday in darkest Peru. That is all I know. I could not find it referenced in any of the “recognised” marketing texts. 2 Of course, this adulation of Shelby Hunt is pure “Smithee”. Many others have made seminal contributions to the development of the discipline (for example, Converse, 1945; Alderson and Cox, 1948; Bartels, 1951; Buzell, 1963; Levitt, 1960; Kotler and Levy, 1969; Kotler, 1972; Sheth et al., 1988; and Smithee, 1997). 3 What Smithee could not know is that recent research into the nature of relationships in marketing has lead to one of the the key discussion points in this journal issue – the processes of dialogue and knowledge. He would have been delighted to be part of this fertile field of inquiry. 4 I believe this rather ambitious statement of intent reveals Smithee’s frustration at the 40+year academic debate on “Marketing: Art or Science?” While marketing academics have been theorising, marketing practitioners have become disenfranchised, leading to a widening “gap” between “theory” and “practice”. One of Smithee’s favourite lines from his movies was “show me the

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money”. In our many discussions on marketing metaphor, he frequently asked in his Socratic way, “How exactly does marketing add value and how much value does it add?” Unfortunately, this will not now be forthcoming owing to his demise. Although Smithee was greatly enthused by the relationship marketing paradigm, he did have some concerns at the typical portrayal of “relationships” as cosy, nurturing, long-term affairs. He frequently argued that, in practice, relationships did not have to be particularly loving nor especially lengthy to be successful. Moreover, he thought that the current focus on strategies for developing and mantaining long-term relationships needed to be modified to include the business equivalents of “quickie divorces”, marriages of conveniences”, and other short term arrangements. It might therefore be argued that in an era of rapid and discontinuous change, these types of relationships will become increasingly prevalent and important. An occasional slip of good taste is vintage Smithee, and I believe the explanation is to be found in his prior movieworld training, and his upbringing as a child of the 1960s. I have not politically corrected the text, as he is no longer present to protest. Currently filming on location in Bollywood, a major motion picture starring Hugh Grant, Leonardo di Caprio as David Beckham, Catherine Zeta Jones as “Posh Spice”, Sean Connery as Sir Alec, Eric Cantona as himself, with Vinnie Jones, OBE, holding a small part, MUFC/BSkyB Productions, producer Alan Smithee. A.S. Unfortunately, Smithee’s original manuscript ends abruptly at this point and all I had to work on were some rough hand written notes. I have sought to interpret these as best I can to complete the subsequent sections (T.L)

References Alderson, W. and Cox, R. (1948), “Towards a theory of marketing”, Journal of Marketing, Vol. 13, October, pp. 137-52. Bartels, R. (1951), “Can marketing be a science”, Journal of Marketing, Vol. 16, January, pp. 319-28. Brown, S. (1995a), Postmodern Marketing, Routledge, London. Brown, S. (1995b), “Life begins at forty? Further thoughts on marketing’s mid-life crisis”, Marketing Intelligence & Planning, Vol. 13 No. 1, pp. 4-17. Brown, S. (1997), “Keynote address”, paper presented at the UK Marketing Academy, Sheffield Hallam University, July 8. Brown, S. (1998), Postmodern Marketing Two: Telling Tales, International Thomson Business Press, London. Brown, S., Bell, J. and Carson, D. (Eds) (1996), Marketing Apocalypse: Eschatology, Escapology and the Illusion of the End, Routledge, London. Brown, S., Bell, J. and Smithee, A. (Eds) (1997), “From Genesis to Revelation – introduction to the special issue”, European Journal of Marketing, Vol. 31 No. 9/10, pp. 632-8. Buzell, R. (1963), “Is marketing a science?”, Harvard Business Review, Vol. 41 No. 1, pp. 32-40 and 166-170. Cantona, E., Giggs, R., Beckham, D. and Ferguson, Sir A. (Eds) (forthcoming), Three Trophies and a Knighthood: An Annotated Bibliography of Soccer Sponsorship 1998-2001, Simply Re(a)d Publications, Manchester. Catterall, M., Maclaran, P. and Stevens, L. (1996), “The pathetic phallusies of Thomas Aquinas and why marketing should give Eve a break”, in Brown, S., Bell, J. and Carson, D.

a.k.a.“The three witches of Ulster” (Eds), Marketing Apocalypse: Eschatology, Escapology and the Illusion of the End, Routledge, London, pp. 223-36. Christopher, M., Payne, A. and Ballantyne, D. (1991), Relationship Marketing: Bringing Quality, Customer Service and Marketing Together, Butterworth-Heinemann, Oxford. Converse, P.D. (1945), “The development of the science of marketing – an exploratory survey”, Journal of Marketing, Vol. 10, July, pp. 14-23. Cringley, R.X. (1992), Accidental Empires: How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition and Still Can’t Get a Date, Viking Publishers, London. Fay, M., Morris, A. and Smithee, A. (1997), “I spy with my little eye something beginning with P”, Business Vision Videos, Vol. 3, p. 20. Gronroos, C. (1994), “From marketing mix to relationship marketing”, Asia-Australia Marketing Journal, Vol. 2 No. 1, pp. 9-29. Gummesson, E. (1987), “The new marketing: developing long term interactive relationships”, Long Range Planning, Vol. 20 No. 4, pp. 10-20. Hunt, S.D. (1976), Journal of Marketing. Kotler, P. (1972), “A generic concept of marketing”, Journal of Marketing, Vol. 36, April, pp. 46-54. Kotler, P. and Levy, S. (1969), “Broadening the concept of marketing”, Journal of Marketing, Vol. 31, January, pp. 10-15. Levitt, T. (1960), “Marketing myopia”, Harvard Business Review, Vol. 38, July-August, pp. 45-56. McDonald, M. (1995), Strategic Marketing Plans, ButterworthHeinemann, Oxford. Morgan, R.M. and Hunt, S.D. (1994), “The commitment-trust theory of relationship marketing”, Journal of Marketing, Vol. 58 No. 3, pp. 20-38. Sheth, J.N., Gardner, D.M. and Garrett, D.E. (1988), Marketing Theory: Evolution and Evaluation, John Wiley, Chichester. Smithee, A. (1997), “Kotler is dead!”, European Journal of Marketing, Vol. 31 No. 2/3, pp. 315-25. Wiersema, F. (1997), Customer Intimacy: Pick Your Partners, Shape your Culture, Win Together, Harper Collins, London. Wooliscroft, B. (2003), We Thought of it First: A Treatise on the Influence of Marketing Theory on Western Philosophy, unfinished PhD dissertation.

Further reading Anon (1997), “Alan Smithee, virgin researcher”, AM Newsletter, No. 1, pp. 22-3. Fahy, J. and Smithee, A. (1999), “Strategic marketing and the resource based theory of the firm”, Academy of Marketing Science Review, No. 10, available at: www.amsreview.org/ articles/fahy10-1999.pdf Lakoff, G. and Johnson, M. (1980), Metaphors We Live By, University of Chicago Press, Chicago, IL. Lorenz, K. (1965), Evolution and Modification of Behavior, Chicago University Press, Chicago, IL. Smithee, A. (1998), “Review of “postmodern marketing two: telling tales” by S. Brown”, AM Newsletter, No. 3, pp. 18-19. Smithee, A. (nd), A Lexicon of Future Marketing Terms, in preparation. Vahkov, G.N. (nd), The Radical Thoughts of Alan Smithee, Little Red Book Publications, Moscow, forthcoming.

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Executive summary and implications for managers and executives This summary has been provided to allow managers and executives a rapid appreciation of the content of this issue. Those with a particular interest in the topics covered may then read the articles in toto to take advantage of the more comprehensive description of the research undertaken and the results to get the full benefit of the material present

The relationship-marketing process: communication, interaction, dialogue, value Relationship marketing is based on the idea that the existence of a relationship between customer and supplier creates value for both parties in addition to the value of the products or services provided. Relationship marketing is a process that moves from identifying potential customers to establishing a relationship with them, and then to maintaining the relationship and enhancing it so that more business as well as good references and favourable word of mouth are generated. Even the process of ending a relationship or allowing it to fade away is part of relationship marketing. Gro¨nroos argues that three areas are vital for the successful execution of a relationship strategy: an interaction process as the core of relationship marketing; a planned communication process supporting the development and enhancement of relationships; and a value process as the output of relationship marketing. The interaction process involves the supplier of goods or services interacting with the customer in a business relationship. The term “supplier” is here taken in a broad sense of including the company’s employees, technology, systems and know-how. The “customer” may be anything from a single consumer to a group of buyers, users or decision makers. Planned communication includes advertising, sales calls, internet banners and the like.

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Companies increasingly try to integrate their advertising, direct marketing, sales promotions and public relations and to develop two-way marketing communications. An important aspect of relationship marketing occurs when customers respond to the company’s integrated marketing communications. The firm should adapt to fit what the customers are saying, and the cycle can begin all over again. This kind of dialogue not only enables the marketer to tap into existing knowledge from the customer, but also helps the marketer and customer together to create new knowledge that, among other things, may lead to the development of better solutions for the customer than would otherwise have been possible. Although communication efforts such as sales negotiations and personally addressed letters may look relational, simply planning and managing marketing communication through distinct communications media, even as a two-way process, is not relationship marketing. Only the integration of the planned communication and the interaction processes into one strategy that is systematically implemented creates relationship marketing. When the supplier or service provider successfully aligns its product, service and competencies with its customer’s internal processes, it enables customer-perceived value to be created. If this creation of value is supported by marketing communication before and during the interaction process of the relationship, a value process is established. The value process is needed to demonstrate how the customer indeed perceives the creation of value over time. The value process also has another aspect. The marketer must not only understand the needs of customers, but also know how they strive to achieve the results required to fulfil these needs. This is the customer’s value-generating process. Moreover, the marketer must know the value systems that guide the customer. These could be, for example, an interest in preserving the rain forests or in minimizing stocks. If the marketer does not understand these aspects of the customer’s value systems and value-generating process, products, services, information and other elements of the interaction process cannot be developed satisfactorily and value for the customer cannot be created successfully. According to Gro¨nroos, if the interaction and planned communication processes are successfully integrated and geared towards customers’ value processes, a relationship dialogue may emerge.

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Dialogue and its role in the development of relationship-specific knowledge Ballantyne advances the view that dialogue – which he defines as an interactive process of learning together – offers a largely untravelled pathway to new business knowledge. The process is often spontaneous and unruly but bounded by a serious intent to reach mutual understanding by listening and learning. This understanding may lead to a common agreement on a particular issue, or perhaps various interpretations will remain in play. Ballantyne argues that “dialogical interaction” – becoming more aware of one’s routine but hidden thought patterns – helps trust to develop between participants. This facilitates learning and the generation of new business knowledge, within the firm and between firms, in the form of creative solutions to marketing and supply problems. In this way, mutual value in buyer-supplier exchanges is enhanced. The author introduces the concept of relationship-specific knowledge to explain how trust between business counterparts develops through dialogue in iterative cycles of learning. Relationship-specific knowledge is coping knowledge about how to deal with each other in a business relationship. It is the kind of tacit knowledge that might have positive use in dealing with current dilemmas and determining future expectations. While this knowledge is based on the ebb and flow of experience, it is co-created and constantly updated in interaction by new experiences. Relationship-specific knowledge might bring counterparts closer together over time, or it could lead to separation. Some relationship-specific knowledge will be common between counterparts, based on their mutual understandings, but there will be interpretive diversity as well. What is brought to consciousness at any time includes traces of past experience but interpreted in the present, through the eyes, ears and feelings of each party in dialogical interaction. If parties in dialogical interaction are to maintain trust in each other they must, from time to time, explicitly review and share these otherwise-hidden assumptions and judgements about each other. Without relationship-specific knowledge to mediate the exchanges between members of an interdepartmental team or inter-firm project group, only the most perfunctory business knowledge will be widely shared. As relationshipspecific knowledge grows through iterations of the dialogical process, mutual trust might develop. More creative outputs in dialogical interaction then become possible.

Ballantyne believes that dialogical interaction has broad application within the firm as part of a strategy for internal marketing and organizationwide renewal. It is particularly apt when there are conflicting knowledge claims across interfunctional organizational boundaries, or when some broadening of the scale and scope of newproduct development is needed, or in the redesign of service systems where there are no fixed or formulaic answers, or in efforts to achieve market orientation where there is none. In external relations, dialogue helps in facing up to critical stakeholders, developing sales-management teams and key account relationships, collaborating across borders in supply-chain management, and contributing creatively to buyer-seller projects and partnerships.

Competitive advantage, knowledge and relationship marketing: where, what and how? Tzokas and Saren espouse the view that knowledge is critical for the development of competitive advantage and that relationships help to create unique, difficult-to-imitate knowledge for firms. The authors seek to understand how advances in relationship marketing enhance understanding of the knowledge required for competitive success, and how advances in relationship marketing help the processes of knowledge construction, embodiment, dissemination and use, which are at the heart of knowledge management. Managers need to know where to look for knowledge, what to look for and how to look for it, if they are to be persuaded to invest financial and human resources in creating and managing knowledge. Different theories of competitive advantage direct to different knowledge pools or domains. For example, organizational economics suggest that competitive advantage is attributed, among other things, to competitive structures in the industry, barriers to entry and technological trajectories. It therefore directs attention to knowledge about industry structures, how to erect barriers to entry, how to safeguard patents, how to use technological trajectories and how to appreciate and use first-mover advantages. The market-orientation philosophy outlines knowledge about customers and competitors, while the stakeholder theory points to the various responsibilities of the firm and requires knowledge about different constituencies. Moreover, the actualization of each of these theories requires specific processes that, to a large extent, are unique to each mode. The market-orientation philosophy, for example, is firmly based on market research.

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Finally, the actionable content of each of the theories is practised through the use of specific technologies, tools and techniques, such as the balanced scorecard or input-output analysis. Based on this, Tzokas and Saren suggest that to draw a picture of knowledge and knowledge management in relationship marketing, we need to address knowledge in relation to the scope, processes and technologies of relationship marketing. The scope of relationship marketing enhances the notion that the market effectiveness of the firm is directly affected by its external and internal constituencies and their interrelationships. Previous researchers have identified six markets – the internal, customer, referral, supplier, influencer and employee-recruitment markets – and placed customer markets at the core of relationship marketing. Consideration of the scope of relationship marketing therefore helps us to discover where to look for information and knowledge. It also provides an answer to the question of how to look, by outlining the significance of the inter-relational character of the firm’s constituencies and therefore the knowledge or information residing in each of these interrelationships. At least three processes of relationship marketing – the relationship lifecycle and loyalty ladder, the relationship-management chain and the value chain of the customer – provide useful suggestions for managerial action. The relationship lifecycle suggests that relationships develop over time and different stages in the cycle present unique requirements and opportunities for those involved in the relationship. Specific knowledge requirements are presented to the firm at each stage of the cycle. The relationship-management chain delineates the various managerial processes that need to be undertaken by the firm to define the value proposition, identify appropriate customer-value segments, design value-delivery systems and evaluate its performance. Each of these processes advances our understanding of what kind of knowledge is needed for successful relationship marketing. One aspect of relationship marketing is that it acknowledges the significant role of the customer in the value-creation process. The value chain of the customer conceptualizes the ways in which customers can contribute to the creation of value. Primary activities include those performed by the customer during the total consumption process. These extend from the awareness, search and evaluation activities of the product to its operational and functional use and its symbolic consumption. Support activities condition

customers’ activities in the marketplace by providing the inputs for performing the act of consumption. These primary and support activities provide additional answers to what kind of knowledge is needed in relationship management. The technologies of relationship marketing represent the tools and techniques that enable managers to perform the actionable content of the theory. They include, for example, loyalty schemes, data mining, relationship-portfolio analysis, the lifetime value of the customer, the strategic, behavioural and economic dimensions of relationship value, and relationship-marketing software. These technologies enable the firm to gain access to the behaviour of individual customers and approach them with customized messages.

Return on relationships: the value of relationship marketing and CRM in business-to-business contexts Gummesson explains that relationship marketing is marketing based on interaction within networks of relationships. It ranges much more widely than the relationship between customer and supplier, to include even society at large. Customer relationship management (CRM) is the values and strategies of relationship marketing – with particular emphasis on customer relationships – turned into practical application. The implementation steps used in one-to-one marketing summarize well what is needed to practise relationship marketing: identify individual customers and establish how to reach them; differentiate the customers with regard to values and needs; interact with the customers efficiently and effectively; customize offerings; and in the process of doing this, build learning relationships with customers through dialogue. Transaction marketing, the one-shot deal with a short-term perspective, could be defined as the zero point on a relationship scale. At the other end of the scale, buyers and sellers (or other parties) are in unity. Return on relationships (ROR) – the long-term net financial outcome caused by the establishment and maintenance of an organization’s network of relationships – should ideally help a company to determine whether it should act at the zero end of the scale or move toward closer and more enduring relationships. Gummesson identifies 30 market and nonmarket relationships. The market relationships embrace the relationships between a company and its customers, own suppliers, intermediaries and competitors. The non-market relationships

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include “mega” and “nano” relationships. The former exert an impact on marketing but go beyond the market. They include, for example, relationships with governments, politicians and civil servants through lobbying, and personal, social networks. Nano relationships are the internal relationships that form an organization. The relationships will vary greatly. Some, for example, will be close and others more distant, some will focus on health or ecological matters while others will emphasise quality, some will be over the telephone or internet while others will be face-to-face. The author believes that economic theory has so far failed to recognize that the emphasis is shifting from companies competing with companies, to networks competing with networks. Current accounting systems are not adequate for relationship marketing and CRM needs. A traditional balance sheet focuses on such tangible assets as money, stock, machines and buildings, and provides an historical view. Accounting needs to place more emphasis on intangibles, such as the long-term value of a customer to an organization, and generate knowledge that can guide a company into the future. Return on investment can be enhanced by altering the balance between quality, productivity and profitability and thus changing the effects on revenue, cost and capital employed. For example, a company can downsize, cost and capital employed can be slashed and profits might rise. But cost and capital employed can also be increased to boost revenue even more. A revenue reduction – for example, eliminating unprofitable customers – can reduce cost but a more constructive strategy might be to turn unprofitable customers into profitable ones. By myopic concentration on cost, the attractiveness of the company is reduced, customer relationships are jeopardized and intellectual capital is thrown away. The company’s marketing plan needs to become an integral part of its overall business plan. Traditional goals of the marketing plan – such as revenue, sales volume and market share – must be supplemented by ROR goals such as customer retention. The following tasks should be included in the marketing plan and overall business plan: select a relationship portfolio – the combination of relationship marketing activities to be performed during the planning period; set goals for ROR – not only quantitative, short-term goals, but also qualitative, long-term and strategic goals; monitor implementation and outcome; and assess relationship marketing consequences for the organization and its processes, methods and procedures.

Future directions in marketing knowledge: a panoramic perspective from Hollywood The final article in this special issue is a unique piece by the late Alan Smithee, a former Hollywood movie director who later became a marketing academic. The manuscript was found, unfinished, among his personal effects. Tommy Lee, a senior researcher at the Academy of the Motion Picture Industry, Hollywood, added footnotes to the article where further explanation was needed, and wrote the final sections from Smithee’s planning notes. The article notes that marketing has always adopted concepts from other disciplines. For example, lifecycle theories demonstrate the influence of economics, and many models of buyer behaviour and customer satisfaction arise from psychology and sociology. Marketing has also freely borrowed military metaphors, such as strategy and tactics, “targeting” customers and even marketing “warfare”. Smithee argues, however, that marketing has been slow to adopt metaphors from areas such as the medical, physical and information sciences. He suggests, from the medical sciences, that the notion of “non-invasive communication strategies” may be appealing, given the amount of “noise” to which customers are currently subjected; that “in-vitro pricing strategy” might be used to define any cost-plus pricing that does not have any formal input from the marketplace; and that “open-heart pricing” policies may help to persuade customers that marketers really do care. From the physical sciences, concepts such as a “promotional black hole”, “marketing by osmosis” and “product half-life” may have possibilities. And from biotechnology and genetics, there may be a future for a “genetically modified marketing concept” and “cloned” marketing strategies. Lee highlights evidence of a growing gap between marketing theorists and practitioners. Academics are developing more and more esoteric and diverse research interests, and wrangling among themselves over competing philosophical positions and methodological approaches. Against this background, much of what is new and useful in marketing comes from reflective practitioners. The whole area of business-to-business marketing, for example, has received relatively little research attention in relation to its importance. Another danger, says Lee, is ignoring the impact of new technologies on the discipline. In particular, relationships between marketing and information technology need to be carefully considered. If marketing cannot adapt to coming

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changes, it may become simply a sub-area of management-information sciences. Finally, Lee warns that customers may be losing their trust in marketing. While financial profitability is undoubtedly important to the survival and growth of commercial organizations that contribute to economic growth and prosperity, it should not be pursued at the expense of ethical and social considerations. Lee concludes that, unless marketing scholars reconsider the nature, direction and scope of their

research and seriously question how it adds value for practitioners, “significant contributions to knowledge” will continue to be viewed by practitioners as shifts in language, rather than substance. Also, it is time to consider how closely current marketing practice reflects marketing philosophy. Additionally, consideration needs to be given to the amount of marketing theory that is conducive to developing relationships with customers, employees, shareholders and society at large.

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About the authors David Ballantyne David Ballantyne is senior fellow at Melbourne Business School, The University of Melbourne, Australia, and a visiting research fellow at Cranfield University, UK. He is co-author with Martin Christopher and Adrian Payne of Relationship Marketing (1991), now in second edition (2002). David is also the founder of the International Colloquia in Relationship Marketing (ICRM), a conference series held each year since 1993 at a different university setting. [email: [email protected]]

Evert Gummesson Dr. Evert Gummesson is Professor of Marketing at Stockholm University, Sweden. His research interests embrace relationship marketing, CRM and quality management. In 2000 he received the American Marketing Association’s Award for Leadership in Services Marketing and his book Total Relationship Marketing has won two prizes for excellence. He has authored numerous articles in refereed journals, such as European Journal of Marketing, Journal of the Academy of Marketing Science, Marketing Management, Management Decisionand Service Industry Management. He is a member of editorial and review boards of, among others, Journal of the Academy of Marketing Science, Journal of Marketing Management, Journal of Service Research and Marketing Theory. He has also worked in business for 25 years. [email: [email protected]]

Christian Gro¨nroos Christian Gro¨nroos is professor of service and relationship marketing at Hanken Swedish School of Economics, in Helsinki, Finland. He is also responsible for a centre of excellence at the University that specializes in services, relationship marketing and management research. His most recent book is Service Management and Marketing: A Customer Relationship Management Approach (2000). He is also a leading member of the so called “Nordic School” of researchers. In 1999, he was honored by the American Marketing Association for his scholarly contribution to the services discipline. [email address: [email protected]]

Tommy Lee Tommy Lee is a media studies graduate from Okoboji University, and first came to prominence as Alan Smithee’s senior research assistant in the late 1990”s. The latter mentored him through his early Hollywood career. More recently, Lee has assumed Smithee’s mantle in the motion picture industry and has had a number of movies attributed to him. A member of the Academy of Motion Pictures, and now a rising star in Hollywood, he is not related to Bruce Lee of Kung Fu fame, Tommy Lee Jones or Miss P. Anderson. [email: [email protected]] Michael Saren Michael Saren is Professor in Marketing and Research Director in the Department of Marketing at the University of Strathclyde, Scotland. His research interests include marketing theory, relationship marketing and new product development. His publications include articles in journals such as the International Journal of Research in Marketing, Industrial Marketing Management and Journal of Marketing Management, among others. [email: [email protected]] A. “Bruce” Smithee Alan Smithee was a legendary Hollywood director with more than 20 motion pictures to his credit. Alan graduated Bachelor with a BA in Media Studies from the University of Okoboji in Iowa (1983), obtained an MBA from Pacific Coast University, California (1985), and acquired a PhD in Production Management from De Salle University, California (1987). Later, he pursued a career as a marketing academic and was a visiting professor at Alloa Metropolitan University (UK), Ogawalla Aquifers University (USA), Right State (USA), and the University of the Great Divide (Australia). His scholarly publications include contributions to the European Journal of Marketing and Academy of Marketing Sciences Review. His untimely death deprives us of one of academia’s seminal post-modern marketing thinkers. [email: [email protected]] Nikolaos Tzokas Nikolaos Tzokas is Professor in Marketing and Research Director at the University of East Anglia, UK. He is the leader of the Special Interest Group in Relationship Marketing of the British Academy of Marketing. His research interests include relationship marketing, new product development and sales management, where he has published extensively. [email: [email protected]]

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