An executive summary for managers and

Return on relationships executive readers can be found at the end of

this issue.
(ROR): the value of
relationship marketing
and CRM in Sorting out basic concepts and definitions

business-to-business Most indicators of return on relationships (ROR)

are limited to the relationship between a customer
contexts and a supplier. But relationship marketing, in a
broadened sense, embraces markets, society and
internal organization as networks of relationships,
Evert Gummesson 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):
The author Relationship marketing is marketing based on
Evert Gummesson is Professor of Management and Marketing
interaction within networks of relationships.
at Stockholm University, Stockholm, Sweden. Most relationship marketing definitions stress the
need to develop long-term relationships with
Keywords customers and sometimes other stakeholders
Relationship marketing, Customer relations, Intellectual capital, (Ballantyne, 1994; Grönroos, 2000). Jackson
Balanced scorecard, Business-to-business marketing published an insightful book and article on
business-to-business marketing (B2B) in 1985
Abstract (Jackson, 1985) where she defined relationship
This article is about ongoing efforts to come to grips with the marketing by contrasting it with transaction
question: Does relationship marketing pay? The question is marketing. From her comprehensive research she
discussed under the umbrella concept return on relationships. drew the general conclusion that building long
Much of what is being done in relationship marketing and term relationships through relationship marketing
customer relationship management has a bearing on both should sometimes be the preferred strategy for the
business-to-business and business-to-consumer marketing, and industrial seller, but sometimes transaction
on manufacturing as well as services. Although there is a
marketing, the one-shot deal with a short term
shortage of empirical research and proven practice, the article
aims to show current efforts to generate knowledge of return on
perspective, should be preferred. She argued that it
relationships, with particular emphasis on business-to-business all depends on the situation. Coviello et al. (1997)
environments. The article ends with action strategies to improve identified four types of marketing in their research.
return on relationships, and a summary of conclusions. One is transaction marketing, but the others have a
relational content: database marketing
Electronic access (information exchange with the help of IT);
The Emerald Research Register for this journal is interaction marketing (face-to-face or ear-to-ear
available at interaction); and network marketing, as essentially
www.emeraldinsight.com/researchregister (but not solely) a B2B phenomenon where
networks of relationships are built with a large
The current issue and full text archive of this journal is
number of stakeholders.
available at
To conceptually incorporate transaction
www.emeraldinsight.com/0885-8624.htm
marketing in relationship marketing, transaction
marketing can be defined as the zero point on a
relationship scale. At the other end of the scale
Journal of Business & Industrial Marketing
buyers and sellers (or other parties) are in unity.
Volume 19 · Number 2 · 2004 · pp. 136-148 The zero relationship of marketing can further be
q Emerald Group Publishing Limited · ISSN 0885-8624 defined as the price relationship, when price
DOI 10.1108/08858620410524016 (usually the lowest price) is the only factor that
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links buyer and seller. The zero relationship is the risk is that they conquer the minds of
presented as the general case in microeconomics executives and make them build technology-
and traditional marketing management, thus centric systems, neglecting the human aspect of
making these theories invalid as general theory, but supplier personnel, customers and others. There is
still valid in special cases. need for a balance between eCRM and hCRM,
Relationship marketing became a widespread where “h” stands for “human” (Gummesson,
term in the 1990s but has a long history under 2001); it is the idea of high tech-high touch
many different names. In its wake, one-to-one transferred to CRM. Furthermore, the eCRM
marketing surfaced in the mid-1990s. CRM approach is at risk of becoming a technique rather
(Customer Relationship Management) emerged as than profiting from the synergy between strategic
the no. 1 business buzzword at the turn of the aspects and operative systems. Both marketing
millennium (Storbacka and Lehtinen, 2000). One- strategy and the technicalities of selecting
to-one marketing and CRM are the same, adequate CRM software are essential.
although there may be some differences in
emphasis and procedures; these and a host of other
names are used by consultants to brand their B2B and B2C relationship marketing: similar
offerings. Today, CRM is the dominant and or divergent?
generally used designation, but in 1998 it was only Almost all companies are a blend of B2B and B2C.
one in a continuous flow of acronyms soliciting for These categories are not two concrete bins in
attention. which you can dump your customers for
My CRM definition follows from relationship continuous recycling. Instead, the categories are
marketing (Gummesson, 2002a, p. 3): vehicles for thought, providing a cognitive map
and a perspective. If we consider the supply chain
CRM is the values and strategies of relationship – or, in alignment with the definition of
marketing – with particular emphasis on customer relationship marketing, the supply network – there
relationships – turned into practical application.
can be several B2B stages or nodes and sub-
The implementation steps used in one-to-one categories, for example for food products: raw
marketing summarize well what is needed to material purchasing, manufacturing, wholesaling,
practice relationship marketing: identify individual retailing. It is only at the retail point of sale – a
customers and establish how to reach them; store or a restaurant – that the food reaches a
differentiate the customers with regard to values household. Even households are organizations,
and needs; interact with the customers efficiently and it is often not the same person who orders,
and effectively; customize your offerings; and, buys, pays and consumes the food. Retailers also
finally, in the process of doing this, build learning sell to other companies. For example, IKEA stores
relationships with your customers through sell both home and office furniture and Dell’s mail
dialogue (Peppers and Rogers, 1999; Feurst, 2000; order service is used by consumers as well as by
Newell, 2000). businesses. The one-to-one implementation steps
The relationship marketing and CRM although primarily based on B2C experience are
definitions require comments to pave the road for clearly pertinent to B2B as well. While there are
an analysis of ROR measurement. Therefore, the similarities between B2B and B2C, there are also
next sections will deal with the role of information differences: “When a CRM strategy is 100 per cent
technology, IT; the validity of business-to- implemented, the individual will be in focus in
consumer (B2C) marketing theory for B2B; both cases...[but the] hardware and software will
relationship marketing limited to the customer- vary greatly depending on the size of the
supplier dyad or broadened to a network context; market,...the number of customers, the amount of
and the value and limits of quantitative customer information, and the availability of this
performance indicators in marketing. information..” (PricewaterhouseCoopers, 1999,
p. 13). As the eCRM application will vary, so will
that of hCRM.
Is IT everything? The focus of CRM is most often consumer mass
Some present IT as a key element, even the core of markets, where there is the need to handle millions
CRM. They claim that the Internet and other IT- of customers efficiently and where each customer
tools enable relationship marketing. This is is small. The seminal difference between
particularly stressed by the term eCRM, where traditional marketing management and
data-warehousing and data mining offer new relationship marketing is that formerly consumers
opportunities to store and integrate customer and were approached as grey masses, while today they
other information and use it to innovate in are approached as individuals. As 80, perhaps 90
marketing strategies (Eggert and Fassot, 2001). percent of all e-business is expected to be B2B,
Although IT resources are often essential today, eCRM will be highly pertinent to industrial goods
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and services. In the year 2000, the US B2B Although marketers are not much of historians
e-business was $250 billion and is estimated to be – and should not be, as their job is to be here now
$1,300 billion in 2004. At the beginning of the new and for the future – some academic reflection of
millennium, one third of ABB’s products – ABB the past might bring concepts and events down-to-
being primarily in high-tech B2B equipment and earth. One reflection is that the behavior of the
increasingly in business services – were available classic industrial salesman in many successful
on the Internet, but the plan is that all their 50,000 companies was the same as is today advocated in
standard products should be available relationship marketing, CRM and KAM. In the
electronically. sales of advanced equipment, he (it was always a
B2B CRM also consists of routinized ongoing male) was usually an engineer who knew the
business where customer computers buy from products technically; knew the individual “heads”
supplier computers and where electronic agents –
of the “many-headed customers” constituting the
artificial customers – have taken over day-to-day
complex setting of technologically advanced large
trading and information search from human
companies like telecom operators; worked long
beings. According to Gatarski and Lundkvist
term with stamina, seeing each large customer as
(1998), the time is ripe to include machines as
strategic, such that they could not be evaluated in
customers and suppliers – M-to-M interaction –
terms of profit in a year, five years or even in ten
in marketing theory. The notion of Key Account
Management (KAM), has become more years time; not driven by individual short term
important than formerly to secure individual commissions but rather by opportunity for more
treatment in the retention and development of challenging tasks and promotion; aiming for
large and global business customers (McDonald “share of customer” and not market share, for
et al., 1997). example, telecoms often had two or more suppliers
Apart from Jackson, mentioned earlier, among and there was usually just one telecom in each
those who have most directly addressed B2B as country. This may partially explain why Ericsson
relationships and networks are the academic has been less triumphant in selling mobile phones
researchers known as IMP, Industrial and to consumers than Nokia, who has a tradition in
International Marketing and Purchasing Group. consumer goods design and promotion.
IMP began in Sweden in the 1970s but since then In the 1960s, IBM selling mainframe computer
has become international. Both Jackson and IMP hardware and systems to companies and the
find B2B to be interaction in networks of government sector, had a business with a faster
relationships. Neither deals at any length or pace than telecom, and operated with long-term
empirical specificity with the financial salesmen goals and customer retention, but also
consequences of relationships although there are with short-term commissions. Both Ericsson and
conceptual discussions, which we will revert to IBM were global and had implemented a KAM
later (Håkansson and Snehota, 1995). Based on strategy. Marketing management theory has only
entirely different empirical data, service research addressed this marginally and the approach
(that also took off in the 1970s) found the same became that of sales management and how to
phenomena – relationships, networks, and become a better salesperson, unfortunately
interaction – to be in the core of both consumer insulated from engineering, purchasing,
and business services marketing. With its initial
manufacturing, installation and top management,
focus on services, The Nordic School – an
and measured and remunerated by number of
informal group of concerned and dedicated
orders and the revenue they generated. Although
scholars – successively found a need for a
there existed specialized literature that dealt with
paradigm shift, departing from the traditional and
industrial sales as consultative selling, team selling
pseudo-general marketing management, which
and negotiations, sales in textbooks tended to
primarily has a consumer goods base. By
combining services marketing, traditional B2C become just a tool under the third P of the 4P
marketing management, the network approach to marketing-mix, promotion, rather than a long
B2B, and developments in other management term interactive strategy. There is also a difference
disciplines, Nordic School researchers have in opinion as to whether a salesperson needs to
broadened their range of vision from marketing understand a product or service in depth, or if a
management to the more general concepts of skilled salesperson can sell anything; the skills of
marketing-oriented management – where every selling outranking the product and manufacturing
employee is either a full-time or part-time knowledge. It could well be that a revival of the
marketer – and to relationship marketing interest in the salesperson will follow in the next
(Gummesson et al., 1997). phase of CRM.
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The customer-supplier dyad or the network characterize or sometimes dominate the

view? relationships. Among these are close versus distant
In a narrow CRM sense, the supplier is focused relationships, the increasingly more important
solely on the customer relationship. Both CRM e-relationship, and the green relationship where
and one-to-one marketing leave out the network ecological and health aspects are in focus. Quality
dimension – which is known to be so important in has become a key variable in development of a
B2B – whereas my relationship marketing company during the past two decades. One B2B
definition includes it, and thus the customer- property that embraces the whole company and
supplier dyad is woven into an increasingly dense has market, mega and nano content is ISO
fabric of relationships. A major stumbling block of certification, which in many markets today is a
a narrow CRM definition is that the customer- mandatory requirement for being considered for a
supplier dyad is treated as an isolated island contract and a long-term relationship.
without context, and thus the introduction of In his treatise of the network society, Castells
CRM in organizations will easily end in (1996, p. 168) claims “networks are the
frustration. In the broadest sense of relationship fundamental stuff of which new organizations are
marketing, all management, the whole society, and and will be made”. He is inspired by the networks
even life itself, form networks of relationships. and social changes made possible through the
Within these we interact both mentally and Internet and telecom revolution of the 1990s. In a
physically in our roles of business executives, similar vein, but prior to the advent of the Internet,
employees, consumers, citizens and human beings. Wieck (1979) stressed that organizations are
Based on the definition of CRM as applied networks, and Badaracco (1991) saw a transition
relationship marketing, it becomes essential to from the closed and well defined corporation, the
describe my relationship marketing framework as citadel, to a market and mega network. From this it
an antecedent to new marketing theory and CRM. follows that companies do not compete with
My approach identifies 30 relationships, the 30Rs, companies, but networks compete with networks,
as opposed to the four Ps of product, price, a situation which economic theory has failed to
promotion and place (sometimes with the addition recognize so far.
of a fifth P, people) that are found in marketing I find it an unnecessary, self-imposed limitation
textbooks (Gummesson, 2002a). In a similar vein, by CRM advocates to focus solely on the
Christopher et al. (1991) propose six markets; customer-supplier relationships, thus leaving out
Morgan and Hunt (1994) ten partnerships; and the network dimension offered in the 30R and
Reichheld (1996) concludes that a customer other broad relationship marketing approaches.
retention strategy can only be pursued if long term The network context has also been promoted by
relationships are upheld with employees and IMP researchers for long, but has not gained as
investors, too. much attention as the more simplistic customer-
The 30Rs concern the involved parties as well as supplier dyad and its narrow view of relationship
properties of relationships. They appear as market marketing and CRM. However, when relationship
relationships existing in the market proper, marketing, CRM, and services marketing are
embracing relationships between a company and combined with a network view they become
its customers, own suppliers, intermediaries and drivers of a paradigm shift in marketing and the
competitors. They also appear as two types of creation of new marketing theory (Gummesson,
non-market relationships – mega and nano 2002b). IMP researchers (not all, however) seem
relationships – neither being directly visible in the to cocoon their research by marginalizing those
traditional marketing management sense, but broader streams in relationship marketing and
being necessary for success in marketing. Mega CRM that are aiming toward a more general
relationships are found on a top management and marketing theory above the level of B2C and B2B
societal level, exerting impact on marketing but marketing (Ford et al., 2002).
going beyond the market, such as relationships to The Internet and email establish a new
governments, politicians and civil servants through information network infrastructure that can be
lobbying, and personal, social networks. Nano much more interactive than the long existing
relationships are the internal relationships that form telecom infrastructure, especially with the gradual
an organization based on the view that merger of text, voice, image, data and mobility. By
corporations can better be approached as networks exploiting this infrastructure, the core organization
of relationships than as the traditional well-defined of a company may be small and yet the company
hierarchy. could be a market leader in its industry.
Although relationships are often just seen as a Amazon.com is a large but not huge retailer if we
tie between two or more parties, the 30Rs also count the number of employees (less than one
embrace properties of relationships that percent of the employees of Wal-Mart) or books
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and other products in stock, but it became the There have been many efforts to measure
largest and most global Internet bookstore in just a marketing costs and the value that is created by
few years. Although it still mainly sells books (a marketing in the form of revenue and profit. The
choice, by the way, which was accidental), it is not best known is PIMS – Profit Impact of Market
product-based but network-based. Its capital is its Strategy – which started in the early 1960s and has
network of relationships, particularly its customer studied over 3,000 profit centers longitudinally.
base, but also its relationships to authors, Great hopes were attached to the measurement of
publishers, distributors, investors and the media. cause and effect (in reality, mainly co-variation) of
This capital is dead, however, unless it is used to marketing strategies such as quality, market share,
produce interaction and dialogue with or advertising on profitability. Although it
stakeholders, thus generating knowledge for probably sorted out a series of factors and their
continuous improvement. links in marketing, it did not create the hoped for
rigor and clarity. In my experience, attempting to
measure quantitatively the myriad factors and
Marketing metrics: generating true or influences in marketing is a dead end. The high
illusory knowledge? claims of operations research and management (or
It may be unnerving to learn that the word marketing) information systems, MIS, promoted
“measurement” (derived from Sanskrit “maya”) around 1970 under the slogan “eventually
means witchcraft, illusion, or image. Numbers are management is turned into science” became little
often used both as witchcraft and illusion, being more than a red herring. Today, micro
pretentious and claiming that they represent – or econometricians are trying similar conjecture with
even are – hard facts. Obsession with cross-sectional and time-series data about
measurement can mean handing over the future of individuals, households and firms.
a company to an “accounting tribe”, abolishing Marketing accountability is a current term for
vision and leadership. Many executives never more general efforts to measure marketing’s effect
become leaders, just grossly overpaid accountants. on profitability. In one research program it is
It is easier to quantify short-term profits than to named “the new discipline”. Whether it is new or
quantify profits lost because of mismanagement of not, it is addressing the new economic conditions,
long-term relationships. We have to avoid where the Internet, globalization with larger
reification; the indicator is not the phenomenon as groups of companies, and new rules of competition
such, but should offer the validity of a fair image of within the EU or NAFTA, are new realities. The
the phenomenon we are trying to understand. program is asking questions such as: “How can
When indicators image certain phenomena with value be created by marketing and be defined and
reasonable accuracy and validity, there is no measured? How can management processes be
problem. But when they do not, management will aligned, with the aim of driving marketing value
make flawed decisions and employees might go for creation higher and higher? How can traditional
the indicators that promote their careers and not financial and purchasing controls be reengineered,
for the real thing. Measurement becomes self- to support marketing value creation? How can
deception even if the full-color, three dimensional employee feedback and learning be improved, to
and animated PowerPoint images look persuasive. motivate and reward them to maximize marketing
Certain phenomena can and should be value creation? How can IT be applied to measure
measured in terms of money; others should never marketing value and support daily decision-
be allowed to come near a number. Feargal Quinn, making?” (Shaw and McDonald, 2000). These
philosophical founder and president of questions are general and can no doubt be used to
Superquinn, the prosperous Irish supermarket investigate issues in B2B relationships. In a similar
chain, says that most businesses focus on vein, the Marketing Science Institute (MSI, 2002)
maximizing the profit from current sales; they want has set the assessment of marketing productivity,
repeat business but treat that as a bonus and not as return on marketing and marketing metrics as its
the main pay-off (Quinn, 1990). He found it top research priority for the years 2002-2004.
difficult to prove long term profit effects to his The interest in measuring the value of
accounting tribe; confidence in his own judgment relationships and networks has grown parallel to
and gut feeling was necessary. Leadership is risk the rise of relationship marketing and CRM. With
taking, action and vision; it is consciousness about the above discussion as a general frame, the next
the situation, common sense and intuition. section will deal with ongoing efforts to develop
Numbers and accounting can assist leadership but marketing metrics and accounting systems to
cannot replace it. A risk-free and predictable better mirror the realities of the present-day
business in a market economy, created by to-the- economy. My stance is that indicators are useful to
point metrics cannot exist; it is an oxymoron. a degree, but they are supplementary to other
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types of knowledge. I do not subscribe to the idea exchange, buyers pay for the intangible, “soft”
that we will eventually generate the universal assets of goodwill, brand equity, loyal customers
measurement cure; it is a search for a phantom and and perceived future earnings.
will remain science fiction. Accounting systems do not capture the value of
customer relationships although building
relationships is clearly an investment. The
traditional balance sheet is not particularly
Return on relationships (ROR) informative about service companies and
knowledge-intensive companies, a condition that
Managers who consider a relationship marketing
impairs its efficacy as a management tool in B2B.
and CRM strategy must ask the question: Does
As all companies – including manufacturing
relationship marketing and CRM pay? We can
broaden the question: Is it possible to gauge return operations – to an increasing extent comprise
on relationships just like we gauge return on services and knowledge, the issue is of general
investment? concern.
Here is my definition (Gummesson, 2002a, The balanced scorecard registers indicators of
p. 228): Return on relationships (ROR) is the capital other than just financial capital, among
long-term net financial outcome caused by the them the customer base and the value of long-term
establishment and maintenance of an relationships. The original balanced scorecard
organization’s network of relationships. contains indicators in four groups of capital:
This definition includes not only the return on financial, customer, internal business process, and
each individual customer relationship but puts the learning and growth (Kaplan and Norton, 1996).
return in a network context. The current focus of It has long been popular for executives to say
CRM indicators is, however, limited to the “the human being is our most valuable resource”.
customer-supplier dyad. The limitation is The statement alludes to employees, but customer,
currently a practical necessity; it is easier to investors, and vendors are also human and provide
measure the outcome of a buy and sell relationship resources. In the spirit of relationship marketing,
with a consumer than the outcome of the more each and everyone who has an impact on the
complex industrial networks. It is also a cognitive success of a company should be included, meaning
issue because we have great difficulty in thinking each party in a network of relationships, not least
systemically and to comprehend a larger context. the customers.
Therefore the results and the indicators that have Within the balanced scorecard, intellectual
emerged so far are found mainly in the area of capital is challenging the supremacy of short-term
consumer retention and loyalty. To comply with financial capital (Edvinsson and Malone, 1997;
this reality, a narrower definition of ROR will Sveiby, 1997; Olve et al., 2000; Edvinsson, 2002).
better reflect the reality: ROR in a narrow sense is Financial capital must of course exist in every
the long-term net financial outcome caused by the organization and in the balanced scorecard
establishment and maintenance of individual customer financial capital is assessed together with
relationships. intellectual capital. If capital is defined as
Even if this has to be accepted for the time “anything of value” – a resource – we realize that
being, it should be the target for research and money and other hard assets are not the only
practice to expand to other relationships. Efforts to capital.
respond to ROR demands are in progress but are Based on literature and practice, the following
not so easy to make operational in a B2B setting. definition of intellectual capital is suggested:
Nevertheless, they can be structured within the Intellectual capital is the total value of a company
concept of the balanced scorecard and its links to – the price of its shares – minus its book value. Or
intellectual capital. These concepts will be treated simply: All resources except net financial assets.
in the next section. But how does intellectual capital relate to profits
and the perceived value of a company? A company
Balanced scorecard and intellectual capital: is primarily measured by its ability to generate
generating knowledge for the future shareholder value. This value is a composite of
A traditional balance sheet consists of the tangible, historical financial results, growth and stock price,
“hard”, assets of money, inventory, machines, and as well as of psychologically driven expectations
buildings. In the jargon of the balance sheet, the and rumors of the future, and of manipulation of
loyal customer in the data warehouse cannot be stock prices. Intellectual capital is an antecedent to
brought to account, while the goods in the physical financial capital, sustainable profits and growth.
warehouse have a value because they are perceived Thus intellectual capital and the balanced
to represent “real capital”. However, when a scorecard are applied to generate future-oriented
company is sold or its stock is traded on an knowledge whereas traditional accounting is
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history-oriented. The issue is to recognize the experimented with its own variant of the balanced
long-term importance of intellectual capital for the scorecard and intellectual capital indicators, the
generation of financial capital, and to convert Skandia Navigator (Skandia, 1994-1999). The
intellectual capital into financial capital. group worked actively to enhance the value of its
Accounting is thus raised to a higher level of customer base, which consists both of consumers
abstraction: from a rear-view mirror measurement and organizations.
of financial data to generating knowledge that Skandia developed a list of 111 indicators and a
guides a company into the future. reserve of another 55. This is certainly no short-list
Intellectual capital is divided into two major and it should scare off any executive as being too
types: human (individual) capital and structural complicated and too costly to report, let alone act
capital. Human capital consists of employees and on. It takes time and effort to make these
their qualities. It includes the individuals’ indicators operational and practical, to select a
knowledge, behavior and motivation but also their manageable few that uncover useful information,
networks of relationships. These networks consist of and to establish time-series and trends. Of the total
personal relationships, which may have been number of indicators, 20 have a financial focus and
cultivated over a long period and the trust, and the others an intellectual capital focus. The
confidence that an employee has established among following indicators have apparent relevance to
customers and others. The power and prestige of relationship marketing (Edvinsson and Malone,
individual capital is evident for an advertising 1997, pp. 151-158):
agency, a CPA firm, or a partnership of lawyers who .
with focus on the customer: annual sales/
thrive on their personal interaction and dialogue customers, customers lost, average duration of
with clients. There is also capital built into an customer relationships, rate of repeat
employee who can quickly gain a customer’s customers, average customer purchases/year,
confidence, a quality that has always been essential average contacts by customer/year, points of
in a salesperson. If an employee leaves a company, sale, customer visits to company, days spent
the individual capital vanishes. You cannot own visiting customers, and a satisfied customer
human beings – that would be slavery. A company index;
borrows a guy from nine to five, one day at a time.
.
with focus on employees, but with
Today, knowledge exchange is presented as a consequences for customer relationships:
prime reason for alliances. Migratory knowledge can motivation index, empowerment index,
be transported, but embedded knowledge is employee turnover, and average years of
inseparable from its environment (Badaracco, 1991). service with company; and
Embedded knowledge is part of the structural capital.
.
with particular focus on customers and
It does not disappear when an employee leaves. In a electronic relationship: IT investment/
relationship marketing sense, structural capital customer, IT investment/service and support
consists of relationships that have been established level, number of internal IT customers,
with a company as such and are tied to culture, number of external IT customers, and IT
systems, contracts, brand identity, and the network literacy of customers.
to which a company belongs. The more successfully Another case shows how a successful and fast-
a company ties relationships to its structure, the less growing Swedish company, TurnIT (2000), has
dependent it is on individual employees, and the customized the scorecard and intellectual capital
higher the value of its structural capital. to its needs. TurnIT offers IT support to
Current accounting systems are obviously not businesses in supplies, software, communication,
adequate for relationship marketing and CRM consulting and outsourcing. Its sales in the year
needs. They are not geared to assessing ROR and 2000 were $160 million (in 1996: 5 million) and
they are only one of several information systems the number of employees was 1,300 (in 1996: 16
existing in large companies. Among the others are million). The scorecard includes four types of
marketing information systems that furnish data intellectual capital: business formula, human
on customers, competitors, relationships, and capital, organization-based structural capital, and
competitive advantage. In CRM, data relationship-based structural capital. Within the
warehousing and data mining strive to store and last category there are three subcategories:
integrate information throughout the enterprise network (the strengths of relationships to partners,
and its environment to be able to use it in novel suppliers, intermediaries, and others), brand
combinations as a basis for marketing strategy. (brand equity in various target groups), and
As all companies and marketing situations are customers (size and breadth of customer base,
unique in some respects, applications must be loyalty, potential, and so forth). Assessments of the
adapted to each specific situation. For many years, indicators are made on scales through internal and
the Swedish and global financial group Skandia external interviews and accounted for in the
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annual report together with financial data. The a metaphorical sense as they are reflections of the
assessments are made in three dimensions to grasp same basic genes, and even if they can look
the dynamics of the present and the future rather somewhat different as triplets can do, they are
than history: current position, efforts to improve, close and are not happy when separated. Quality is
and risks of deteriorating. primarily revenue-centric, whereas productivity is
We will now look at some conceptual approaches cost-centric, and profitability is revenue minus
that consider relationships, networks and cost, the bottom line. As quality is treated in
interaction and apply them to B2B environments. marketing, the right quality in relation to the
The first concerns the interdependence between
customer needs (not the highest quality in
quality, productivity and profitability; the second,
technical terms) is a means to increase revenue.
lifetime value (LTV) and customer equity; and the
Productivity is the ratio between output and input,
third the network approach.
which is usually interpreted as a basis for cost-
reduction, while in fact it means that costs can
Quality, productivity and profitability in remain the same if output is increased, or costs can
relationship marketing be increased to help boost revenue.
ROR can be enhanced by changing the balance The combined triplet effect is difficult to handle
between quality, productivity and profitability – which has been shown in efforts to study them
here called “the triplets” – and thus changing the (Vuorinen et al., 1998; Lovelock, 2000). It is also
effects on revenue, cost and capital employed. A proven over and over that companies eventually
company can downsize and cost and capital lose out focusing too heavily on downsizing to
employed can be slashed and profits might go up.
reduce costs (such as those controlled solely by
But cost and capital employed can also be
short term financial indicators) or when focusing
increased to boost revenue even more. A revenue
too heavily on growth to enhance revenue and
reduction – for example, eliminating unprofitable
stock price (such as dotcom startups), without
customers – can reduce cost but a more
constructive strategy might be to turn unprofitable finding an optimal trade-off between the triplets.
customers into profitable ones. By myopic Figure 1 shows the triplets at play. Both goods
concentration on cost, the attractiveness of a and services are included because they exhibit a
company is reduced, customer relationships are symbiotic relationship – all providers combine
jeopardized and intellectual capital is thrown away. momentary activities (services) with things
The interconnection between quality, (goods) – and this applies to both B2B and B2C.
productivity and profitability – the “triplets at As always, its application has to be adjusted to the
play” – is shown in Figure 1. I call them triplets in specifics of each situation, so my comments below

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

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should be interpreted in the light of relationship and productivity. With increased importance of e-
marketing and B2B. business in B2B, this should be stressed even
The figure starts with quality, defined as: more. The Internet is claimed to be an interactive
.
offering products and services that fulfill the network medium, where contributions to the
function needed and wanted by the individual outcome can come from all actors in the networks
customer; of relationships, and these are decisive for the
.
being reliable and doing it right the first time, triplets.
that is, from the beginning and in each step of
the engineering and manufacturing or service
Lifetime value and customer equity
production and delivery process; and The old concept of lifetime value, LTV, has been
.
good relationships with customers and others revived by CRM. It usually refers to the net value
in our network, known as relationship quality. of an individual consumer’s purchases over his or
If quality in these senses improves, it can have a her lifetime, sometimes widened to the whole
positive impact on revenue (left section of the family, even to both private and professional
figure), cost (middle section), and capital consumption. In defining customer equity, as “the
employed (right section). Improved productivity total of the discounted lifetime values of all its
becomes an antecedent to profitability and some customers”, Rust et al. (2000, pp. 4-8) also
factors directly affect profitability through broaden LTV. Customer equity is the combined
enhanced revenue. The figure does not show an outcome of value equity (defined as relatively
automatic process but rather the opportunities to cognitive, objective, and rational customer
enhance profitability, if properly managed. perceptions of quality, price and convenience),
When function, reliability and relationships brand equity (customer perceptions of a supplier
improve, this can be used to boost image, customer that are relatively emotional, subjective and
retention, share of customer, and market share. irrational), and retention equity (repeat purchases).
Brand identity and brand equity go up. These According to the authors (Rust et al., 2000, p. 12)
changes stimulate more sales, differentiate the “Customer equity is the key to the long-term
provider from the competition, making the profitability of any firm, and analyzing the key-
provider less dependent on price competition, and drivers of customer equity provides an overall
open up for possible premium pricing. framework for effectively focusing strategic
Service costs for machinery go down, and so do resources”.
the costs of inspection, testing, rework, scrap, The LTV concept may stand out as fairly clear
complaints, and warranties. The capital employed cut for consumers, although one has to consider
is reduced as less stock needs to be kept; accounts that certain offerings, such as diapers and baby-
receivable go down because payment comes earlier food are only of interest during a limited (but
and less payment is delayed because of complaints. highly varying period) period in a family’s lifetime.
ABB implemented a long-term “customer in It is harder to define LTV for organizational
focus” program during the 1990s. To make it buyers: what is the lifecycle and lifetime of a
tangible and operational, time reduction was company? It is obvious that the literature so far
chosen as the focal point. By reducing processing mainly has consumers in mind although there may
time, fewer resources were required and be applications to B2B marketing.
productivity went up. Customer waiting time went
down which added a competitive edge. Some of Network approaches to ROR
the results are: the time to process an order that Håkansson and Snehota (1995, pp. 382-397)
used to take three hours via telephone or fax, was summarize three levels of cost and revenue effects
reduced to two minutes; the time and cost for an in B2B networks. First, business relationships
order of a special axis for electrical motors that generate revenue from customers and the costs are
took four weeks and cost $205, was reduced to two incurred by suppliers; these revenues and costs are
days and $31; and an electric transformer plant traceable. Second, other costs and benefits of
can now be designed by the customer in ten relationships are less obvious and less measurable.
minutes and a tender can be sent in 24 hours, These are the costs/revenues of maintaining
whereas the process used to take seven weeks. As networks and the quality/productivity emerging
cash flow becomes faster, money can be used from operating in networks. Third, there are the
elsewhere and capital costs are slashed. costs and revenue effects that will only become
In summary, the figure has highlighted a series apparent in the future. Although the current
of interdependent elements, all eventually benefits of a network are essential, the potential
affecting the bottom line. What does not show in benefits of securing survival and perhaps growth
the figure, and what rarely comes out in any may be more important. The authors stress the
discussions, is the interactivity aspect of quality network dependency (Håkansson and Snehota,
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1995, p. 396): “...every business enterprise is a mean that relationship marketing is absent. It
product of its context as much as a force shaping means that bits and pieces of relationship
the context”. The context is both spatial, that is, marketing are embedded in traditional marketing
which relationships and interactions are part of our and management, but are not clearly discernable
network; and dynamic, that is, how should the and are called by other names. In fact, companies
measurement be linked to the past, the present and are doing a lot of relationship marketing but for
the future. lack of concepts, models, common language, and
According to the traditional value chain, value is marketing planning and monitoring tradition, the
added sequentially through a series of stages, relationship activities are not openly acknowledged
supported by internal services. Marketing then and put to use in a systematic and conscious
becomes distribution of value to the customer, manner.
“the value destroyer”. According to the concept of It is particularly important to take a fresh look at
the value constellation (Wikström and Normann, marketing planning because relationship
1994), which is well aligned to relationship marketing offers new conditions. We need to go
marketing, various functions inside an beyond the marketing plan, as marketing in the
organization, outsourced functions and the light of relationships, networks and interaction
customer, form complex constellations of both becomes marketing-oriented management.
sequential and concurrent production- Therefore, the marketing plan must be an integral
consumption activities. Value is created in the part of the company’s overall business plan.
constellation. Making a product is one type of There is little research available on marketing
value creation, consuming it for a purpose is planning in networks of relationships. One of the
another or maybe the most important value exceptions is Benndorf (1987) who studied
creation. Translated into relationship marketing relationships and networks in B2B marketing and
jargon, the value constellation says that business is their meaning for the marketing planning process.
a network of relationships, which keeps changing. He notes that companies in a network become
If both the customer and the supplier are part of dependent on one another’s plans and therefore
the same value-creating process, the role of price is their resources and activities should ideally be co-
altered (Wikström and Normann, 1994, p. 62): planned. Such co-planning is not easy to practice,
“This means that both profits and losses... should however; it requires a lengthy and sustaining
be shared between supplier and customer. Instead learning process.
of price setting, it becomes a question of We know too little about how relationship
remuneration for participation in the creation of marketing should best be integrated into the
value. This kind of remuneration must be
planning of a company. The only way to find out is
discussed in very open-minded negotiations
through trial-and-error in companies,
between the two parties”. Although this quotation
supplemented by research.
was not directed to B2B, such types of pricing
It seems reasonable to start by adding
strategies have long existed in B2B based on
relationship marketing dimensions to the
continuous long term relationships.
marketing plan in use, initially retaining its basic
format. A marketing plan, which is focused on the
opportunities offered by relationship marketing
The role of marketing planning and and CRM can initially include the relationships to
business planning customers and later parts of whole networks that
need to be built, maintained or abandoned.
In order to develop ROR it is essential to get Knowledge about customers and prospects and
marketing and accounting working in the same novel ways of approaching them, supported by
direction. Numbers and reports from marketing CRM, become increasingly important. Data
and other specialist departments do not get warehousing and data mining for more and better
priority attention from the CEO and the board of use of customer data, call centers for keeping up
directors; numbers and reports from accounting relationships, email and the Web, offer a better
do. As numbers from accounting exert a significant platform for up-selling and cross-selling. Activity
influence on decisions and practices, supportive planning is a normal part of a marketing plan, and
accounting is an antecedent to sound CRM. activities and interactions in relationships should
Marketers all too often find accounting rigid, also be included. Traditional goals of the
traditional and bound by legal restrictions, seldom marketing plan, such as revenue, sales volume and
giving support to essential marketing strategies. market share, must be supplemented by ROR
If we ask companies today how they practice goals, such as customer retention and share of
relationship marketing and CRM, only very few customer, all within the spirit of the balanced
are able to give adequate answers. This does not scorecard and its intellectual capital indicators.
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Activities in marketing are usually described as a trap of thinking the non-measurable – such as
marketing mix – the four or more Ps – including culture, leadership and vision – is
product, price, promotion, place (supply chain unimportant just because it is not easy to
management) and others such as people. These are replicate in numbers. Numbers must be linked
not replaced by the 30Rs (Gummesson, 2000a) to common sense, sound judgment, vision,
but the way relationship marketing has been and endurance.
presented here, relationship thinking is the vantage (3) Monitor implementation and outcome. The
point and the Ps and other activities can be implementation processes must be monitored
supportive to the relationships. The relationships and the outcome compared with the goals.
broaden the interplay between marketing and Implementation is often the more demanding
other functions such as manufacturing, accounting activity together with changed course of action
and internal services. that new knowledge and feedback may give
Instead of starting with mixing Ps, a company rise to.
needs to define and review its relationship portfolio. I (4) Assess relationship marketing consequences for
have chosen the word portfolio rather than mix to organization, processes, systems, and
accentuate a novel perspective and novel values, a procedures. Relationship marketing puts new
paradigm shift. A portfolio is a collection of demands on the organization and its
components and their total benefits should be processes, methods, and procedures.
greater than the sum of its parts; there should be Implementing a CRM system requires
synergy effects. The term financial portfolio is used changes throughout the company or it will
on a combination of investments that fulfils chosen become yet another costly system with little
goals such as balanced risk, maximum short-term positive effect on performance.
yield, or maximum long-term growth. In strategic
management, portfolio is used for the choice of
Action strategies and considerations for
products to offer on the market (product portfolio)
and the choice of customers to target (customer improved ROR
portfolio). The relationship portfolio is a
A series of approaches to ROR have been
combination of relationship marketing activities to
presented so far. They help us put elements of
be performed during the planning period.
relationship marketing and CRM in context but
In summary, the following tasks should be
are far from a complete and quickly implementable
included in the marketing plan and a company’s
solution to ROR assessment. This section presents
overall business plan:
recommendations based on the ROR approaches
(1) Select a relationship portfolio. Analyze the
but also general conclusions that have emerged in
currently interesting relationships and
research and practice of relationship marketing
networks and assess your ability to interact in and CRM.
these. Do this as an active part of the
marketing planning and business planning
processes. The 30 mega and nano market Customer-supplier relationships
relationships, the 30Rs, can be used as a Most of the efforts to measure ROR are centered
checklist. Each relationship must be defined on the supplier-customer dyad. Consider the
to fit a specific company and its specific following:
situation. Select relationships of particular .
Marketing costs go down when customer
import, which are currently not handled well retention goes up, as you do not have to recruit
enough but are gauged to have a development as many new customers as before. New
potential. Pose the sometimes provoking and customers are frequently low users as they buy
unpleasant question: How well are we actually from many sources but if relationships work
handling our networks of relationships? Do out well, they are likely to favor a single
customers and other parties feel the same way supplier and share of customer increases.
as we do about the relationships, or are there Suppliers and customers become better
gaps between our perceptions? Apply the partners, co-producers and co-developers
opportunities offered by CRM. when they are in continuous dialogue. The
(2) Set goals for ROR. Goals are an important part odds for quality, productivity and profitability
of the marketing plan, not only quantitative, to go up grow as outlined in Figure 1. There
short-term goals but also qualitative, long will be less hassle if delays and defective
term and strategic goals. Apply the framework delivery should occur. Agree on the supplier
provided by the balanced scorecard and role and the customer role in a relationship;
intellectual capital. Measure what impacts on that is, who should do what and what should
ROR – if it is measurable. Do not fall into the be done in interaction.
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.
Watch out for unprofitable customers who .
Competitors get a tougher time when
hide among the profitable ones. When retention and loyalty increase – they are not
customers are unprofitable they may just be served new customers on a plate.
bad customers, but it may also be that the .
By collaborating with competitors on one
supplier is offering the wrong product or level, both suppliers and customers can get
service at the wrong price. It may be that senile advantages through cost reduction and joint
accounting systems and indicators are used. development of products, services and
Therefore, establish a sound basis for systems.
estimates, making sure that relationships are .
By collaborating in an industry, competitors
properly evaluated, for example by can help one another to improve conditions
considering LTV profitability links between for the industry as a whole.
different products, services, and customers.
.
Whenever possible, make sure that Non-market relationships
relationships become part of structural capital
.
Return on non-market relationships – the
as human capital is transient and less mega relationships (beyond the market) and
manageable. However, caring for the human the nano relationships (inside the company) –
capital is also imperative. Increasingly may not be so obvious, especially in the short
computers can take over continuous and term. They are antecedents to successful
routine buying and selling in B2B but also market relationships. Mega relationships are
actively search for new information; M-to-M often strategic and structural necessities;
interaction gives rise to a new type of without them the supplier will be out of
marketing yet to be developed and learnt. business. Nano relationships offer internal
.
KAM is often a sound organizational and necessary conditions for external market
requirement for implementing relationship relationships.
marketing in B2B. CRM can assist with data
.
Return on mega relationships is obvious
warehouses and data mining and help when, for example, a lobbying campaign is
suppliers become more sensitive to customer successful or an alliance brings valuable
needs and wants, and to target the offerings knowledge to a product development project.
better with favorable effects on revenue.
.
Nano relationships are partly internal market
.
Successful relationships make customers relationships, such as the supplier-customer
valuable part-time marketers who give relationship between profit centers, and the
referrals and spread positive word-of-mouth, return can be measured in similar ways as on
adding marketing muscle without burdening external market relationships. Others are
marketing and sales budgets. more difficult to assess such as the value of
.
Loyal customers become less price sensitive – cooperation between operations management
within limits – as they also value relationship and marketing required for quality
dimensions such as trust, commitment, and enhancement.
convenience. However, customers have to be
continuously encouraged to remain loyal.
Conclusion: generating viable knowledge
.
Satisfaction indicators must be interpreted.
Satisfied customers and high customer
in relationship marketing and CRM
perceived quality is not enough to secure long requires new accounting
term relationships. Customers may just be the
“happy slaves” of a close to monopoly Establishing and maintaining relationships is not a
situation where in practice they have no new fundamentalist religion confronting the old
options; therefore dissatisfied customers do fundamentalism of microeconomic theory (all is
price), traditional marketing management
not necessarily defect.
(marketing mix, consumer goods), and traditional
accounting (historical financial data). However,
Competitor and other market relationships research and marketing practice during the past 25
.
Even if we primarily think of the relationship years point to the significance of the three key
to our immediate buyer, customer-supplier concepts of relationships, networks and
relationships also include intermediaries, end- interaction.
users, and our own suppliers. Furthermore, Although these concepts are central to
market relationships include relationships to relationship marketing and CRM, ROR should
competitors and their many faces, being first ideally help a company to determine whether it
and foremost rivals, but often being should act at the zero relationship end of the scale
customers, suppliers, and collaborating (the occasional transaction based solely on a price
partners as well. and customer convenience relationship or move
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along the scale toward closer and more enduring Gummesson, E., Lehtinen, U. and Grönroos, C. (1997),
relationships. Moving along the scale calls for “Comment on Nordic perspectives on relationship
more comprehensive ROR indicators, thus raising marketing”, European Journal of Marketing, Vol. 31
No. 1-2, pp. 10-16.
accounting from historical, financial measurement
Håkansson, H. and Snehota, I. (1995), Developing Relationships
to broader forms of future-oriented, knowledge in Business Networks, Routledge, London.
generation. Jackson, B.B. (1985), “Building customer relationships that last”,
Thus, relationship marketing and CRM require Harvard Business Review, November-December, pp. 120-8.
a paradigm shift in marketing management in a Kaplan, R.S. and Norton, D.P. (1996), The Balanced Scorecard,
world where long term relationships constitute the Harvard Business School Press, Boston, MA.
standard and more general case, and the one-shot Lovelock, C. (2000), Services Marketing: People, Technology,
deal is seen as a special case. 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
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