Relationship Marketing and its Application: The Case of Zara
Relationship marketing, with its focus on fostering the relationship between the firms and the customers, assures mutual benefits for both firms and customers. Currently, there is no commonly accepted definition regarding relationship marketing in marketing literature. However, most agree that relationship marketing manages the relationship with customers, their emotional or a rational response relating to a particular aspect of consumption such as product, service experience, etc. at a particular time (after purchase, after initial consumption, long-term experience, etc.) (Giese & Cote, 2002). One example of a company successfully implementing relationship marketing is Zara.
In this hub, I will explore various definitions of relationships marketing, its component, challenges in the global market and the adoption of relationship marketing by Zara.
2. Literature Review of Relationship marketing
Definitions of relationship marketing
The term relationship marketing was coined by Leonard Berry, who defined relationship marketing as the art of attracting, maintaining, and improving relationships with customers (Berry, 1983). Extending Berry’s work, Morgan and Hunt (1994) proposed that relationship marketing denotes all marketing activities intended to form, advance and sustain successful and long lasting relational exchanges, and Gummesson (2008) added on to the definition that relationship marketing is based on interactions within the intricate systems of business and customers’ relationships. The quality of the interactions becomes increasingly important and eventually will dominate the outcome of the company’s operation (Gummesson, 2008). In order to measure the success of a company’s relationship marketing campaign, there are some criteria the company’s executives can evaluate including customer satisfaction, customer’s propensity to stay, consent, financial performance, and competitive advantages (Hunt & Arnett, 2003). Relationship marketing is dynamic because relationships evolve over time according to the relationship cycle; therefore, relationship marketing activities and their associated attributes alter across the cycle (Palmatie, 2008).
Definition of relationship marketing
The art of attracting, maintaining, and improving relationships with customers
Morgan and Hunt
All marketing activities intended to form, advance and sustain successful and long lasting relational exchanges
Interactions within the intricate systems of business and customers’ relationships
The Rise of Relationship Marketing
Relationship marketing emerged and gained popularity since the late 1980s due to several reasons. First, the energy crisis and economic stagflation in the 1980s led to a surplus of goods, high material costs and deepened global competition. Moreover, buyers became more demanding and less open to the traditional forms of marketing- especially blatant adverts. Within this context, customer satisfaction, customer retention, and the one-to-one relationship became an important factor helping companies to compete and preserve its customer base (Peppers & Rogers, 1996). Second, this period also witnessed a proliferation of research in the fields of business and marketing with more and more scholars investigating the roles of relationships in businesses. In addition, as businesses applied the new business strategy of total management quality and shifted their focus from transactions to relationships among key stakeholders, relationship marketing undoubtedly rose to its prominence as a valuable marketing paradigm (Hunt & Arnett, 2006).
The Context of Relationship Marketing
Payne (1993) developed the six-market framework to help point out the bigger setting of relationship marketing and indicate elements that a company should monitor to keep the customers satisfied. The six markets include:
- Internal market: Before a firm can meet its consumers’ demands, it should meet its own employee’s needs because the employees are the one who build the relationship with its customers. Also, the firm needs to ensure that employees can cooperate and work in a way that aligns with the company’s vision and mission.
- Influence market: This market can involve government body, regulators, lobbyists, capital ventures. This market can influence the environment that the company is operating in and can potentially swerve the company’s business in a certain way.
- Recruitment market: The company also needs to pay attention to this market in order to recruit, build and keep the most professional staff who are able to create sustainable relationships with clients and other business partners.
- Supplier market: Relationship marketing is different from traditional marketing in that while the latter tries to exploit suppliers for the firm’s advantage, the former focuses on creating a long-term relationship in a win-win approach. A stable supply chain is expected to benefit firms in the long run.
- Referral markets: Referral market includes existing customers, connectors, intermediaries, etc. The people can direct business to the company and increase the company’s profitability.
- Customer markets: This is obviously the most important market for firms to monitor. Relationship marketing emphasizes the quality of the relationship, not just the number of relationships with a view to maintaining valuable long-term relationships.
To sum it up, relationship marketing improves a company’s revenue and profitability not by extending its customer base but by deepening the current customers’ relationships. By retaining customers, encouraging them to engage with the company’s activities and eliciting their positive words-of-mouth, the company can be likely to earn stable sales. Furthermore, relationship marketing does not restrict to boosting customers’ loyalty; it enhances the company’s relationships with other stakeholders including employees, suppliers, influencers, etc. This helps to build up the company’s reputation and reduce operating costs.
3. Key Issues of Relationship Marketing
Various factors can influence the success of relationship marketing; among them, trust and commitment are particularly important. Trust is established and developed through interactions and interpersonal exchanges which reflect each party’s underlying values, presuppositions, and principles (Brower, Schoormanb, & Tan, 2000). Because relationship marketing is based on building and nurturing long-term collaboration and partnership rather than short-term gain, for this long-term cooperation to last, a company’s capability to develop trust with its customers and other stakeholders – suppliers, market intermediaries, employees, and the public – is vital (Ravald & Gronroos, 1996). Trust helps to sustain any long-term relationship, improving cooperation among people and leading to more successful relationships (Kramer & Tyler, 1995). Spekman et al. (2000) underscored the irreplaceable role of trust and commitment in building powerful alliances, which in turn led to more efficient communication and better cooperation, and allowed partners to effectively join their resources and streamline the process. Hence, to successfully execute relationship marketing, a company should recognize traits of successful relational exchanges such as trust, commitment, collaboration, keeping words and common values.
Furthermore, other goals of relationship marketing are to retain customers and to make them loyal to the company. Customer loyalty is gained when customers’ perceived gain exceeds their expectations; or in other words, customers who feel loyal towards the company exhibit more positive intended behaviors than customers who feel obligated (Kleinaltenkamp, Plinke, & Geiger, 2015). Customer loyalty is beneficial to a company since it can help to lower the switching rate and increase customers’ willingness to accept a mistake made by the company. In the article “The Impact of Customer Relationship Marketing on Customer Satisfaction of the Arab Bank Services”, Al-Hersh, Aburoub and Saaty (2014) scrutinized the effects of relationship marketing on business outcome, customer loyalty and satisfaction. The study findings demonstrate significant impacts of some customer relationship marketing dimensions (trust, commitment, interaction, empathy, social ties and keeping promises) on customer satisfaction which in turn leads to greater customer retention and profitability. Employing the correlational research method based on survey data of 358 customers of Ghavamin Bank in Iran, Nauroozi and Moghadam (2015) also confirmed a positive and significant relationship between the relationship marketing dimensions and customer loyalty, demonstrating by positive correlations between retention rates and relational marketing.
Moreover, while one of the aims of relationship marketing is to strengthen customers’ brand loyalty, globalization makes it more difficult to achieve that goal, demanding that relationship marketers adjust their strategies and procedures. Customer loyalty is defined as customers’ propensity to stick to a particular brand in fast-changing market conditions. As customer loyalty increases, the probability of customers switching to a competitors’ brand or succumbing to competitors’ temptation diminishes (Rob & Hunt, 1994). In the global village, in order to gain customer loyalty, relationship marketing has to take into account the behaviors of an increasing number of competitors, identifying an appropriate communication channel to reach the global market, and building and analyzing a more extensive consumers’ database to provide the most effective customer services and unique selling points (Aggarwal & Arora, 2013).
4. International Challenges of Relationship Marketing
In this era, business relationships have become increasingly internationalized. Within this context, companies are faced with increased competition with trade barriers being as low as ever. With the playing field being leveled, more and more suppliers and buyers enter the game, vying for the same consumer base and scarce resources. With the popularization of free trade agreements and the widespread of technology, most firms have seemingly equal opportunities to access new markets, and consumers have many more choices available at their disposal and become keenly aware of their purchasing power (Kleinaltenkamp, Plinke, & Geiger, 2015). Hence, to gain a competitive edge over their competitors, many companies turn to relationship marketing as a way to differentiate their brands.
Within the globalized context, country factors can have an enormous influence on the practice of relationship marketing, which needs to adapt depending on the country. First, culture differences will require businesses to modify their marketing strategy and expectations. For example, despite the lucrativeness of the Chinese market, the executive managers of European and North American businesses find it extremely challenging to build and sustain business relationships with China firms inside and outside China’s border (Kleinaltenkamp, Plinke, & Geiger, 2015). Unlike in Western culture, business behaviors in China are dictated by Confucianism and personal relationships; i.e., people are more likely to do businesses with those they know and trust, and relationships are even more important than any kind of contracts or legal agreements. On the other end of the spectrum, Western businesses are more rational and profit-oriented. Hence, when doing business together, Chinese and Western entrepreneurs might encounter misunderstanding, trust issues and behavioral differences (Casrnir, 1999). Hence, to thrive in China, Western firms’ relationship marketing strategy should focus on establishing trust, emotional affection ties and harmony with their corresponding partners. Besides, language barriers can also constitute an obstacle where relationship marketing is concerned. Miscommunicating and misinterpreting language can negatively affect a company’s message and its ability to connect with its consumers on a deeper level (Benouakrim & Kandoussi, 2013).
Furthermore, technological advances are also predicted to greatly influence the use of relationship marketing. Sheth (2002) argued that Internet and information technology would have the biggest effect on relationship marketing since they would completely change a company’s customer relationship management system and the way companies, customers, suppliers and other stakeholders interact. With the rise of integrated systems as well as new tools such as big data, data mining, digital customer base, etc., digital technology would favor marketers who can grasp and utilize it and threaten marketers who are unable to transform into a new platform. For example, with data mining techniques, businesses can categorize potential customers, anticipate their future behaviors, and design a well-informed business strategy (Rygielski, Wang, & Yen, 2002).
In addition, with an ever-expanding base of customers, adopters of relationship marketing can also benefit from economies of scale. There are four factors of economies of scale that marketers can take advantage of: the specialization of labor, value chain components, reduced risks and uncertainties, and cost-effective administration (Arndt & Simon, 1983).
5. Application: A Case Study of Zara
Zara is a clothing and accessories retailer originating in Arteixo, Galicia in Spain. The company was established in 1975, and it is the main brand of the Inditex group, one of the world's largest clothing merchants. Zara’s products include clothing for men, women, juniors and children. According to the company’s financial report in 2015, there are 2,162 Zara stores located across 88 markets, and in 2015 alone, it opened 77 physical stores and 27 new online stores. Its total sales were 13,628 million euro. The company is well-known for producing “fast fashion,” meaning that the company can develop products, manufacture, and distribute them in stores within two weeks, a significantly higher rate than the average rate of six months for the fashion industry.
In the world of fashion retailing, internationalization and market saturation have made the market become more fiercely competitive, requiring firms to change its strategies to focus instead on retaining their current customers, especially in low-growth markets. In order to do so, fashion retailers must utilize relationship marketing to create stable relationships between the companies and their clients (Marzo‐Navarro, Pedraja‐Iglesias, & Rivera‐Torres, 2004). Zara is a successful story of using customer relationship marketing to enhance its brand and keep updated with its customers. In its relationship marketing strategy, Zara adopts both standardization and adaptation of its marketing mix to achieve the most effective outcomes. Although standardization is argued to bring great benefits including high sales volumes, lower costs and more integrated images, in the global market, it is almost impossible to standardizes all parts of its marketing mix, and a company needs to adapt to some extent (Aggarwal & Arora, 2013). For example, on one hand, Zara always tries to deliver one consistent message that in its business strategy, customer is the focal point, i.e. the company concentrates all of its efforts on serving and satisfying customers. In fact, the company has a policy of spending a minimal amount on advertising, discounts and gimmicks, and diverting its budget in buying storefronts and managing its customer base (Thompson, 2012). In choosing their distribution location, in all countries across the globe, Zara unfailingly has flagship stores at some of the most expensive real estates and locations such as Fifth Avenue in New York, Calle Serrano in Madrid, Oxford Street in London, Shibuya and Ginza in Tokyo, etc.
On the other hand, Zara also adapts its strategy to serve different customer target segments differently. Since the ultimate goal of all business activities is to maximize profit, relationship marketing is likely to remain selective and target certain groups of customers or types of businesses (Sheth, 2002). Not all customers bring in profit for the company, and in fact, some customers prove to be even more costly to keep. Hence, there is no one-size-fit-all approach of relationship marketing that guarantees success for all practitioners.
Zara has created long lasting and mutually beneficial relationships with its customers. The company efficiently compiles information about its customers based on their purchase and other demographic characteristics, determines their customers’ likes and dislike, and predicts their future behaviors. After gathering the customers’ preferences, Zara works with its designers and production teams to quickly design and produce the desired items and deliver them to stores with the “speed of lightning," long before its competitors are able to do so. Zara also makes its clothing in limited quantities with many limited editions and seasonal specials to give the products an exclusive appearance. This technique actually makes customers become more loyal and visit the stores more often. These customers are also very effective in spreading the good words and vibes about the company by posting on their social network sites, which in effect advertises for the company. Thus, the company gains favorable word-of-mouth, trust, and popularity among their fans.
Do you think Zara successfully applying relationship marketing?
Relational marketing tactics have a statistically significant impact on customer satisfaction and customer trust. They also lead to higher customer loyalty towards a specific business (Rizan, Warokka & Listyawati, 2013). Relationship marketing improves the communication and interaction between the company and its customers; therefore, it also creates and reinforces customers’ positive feelings towards the brand. Hence, in order to compete in the highly competitive market of retailing, strong customer relationship is the key to success, and companies like Zara should set improving customer satisfaction and customer loyalty as their priority to convert first-time and normal customers into loyal customers. In this sense, Zara has achieved some success as evidenced by its strong sales and positive brand reputation.
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