The changes which are occurring in the marketing practice
In the current era of intense competition and increasing customer skepticism and sophistication, the problems of customer retention and profitability have become paramount for the success of any business (Kristensen and Martensen, 1999). According to Porter (1985), the key to a firm’s success is developing a sustainable competitive advantage, and the key to developing a competitive advantage is to consistently create superior value for customers (Narver and Slater, 1992; Narver, Slater and Tietje, 1998).
In other words, the firm which would be most likely to prevail, in an intensively competitive business environment, is one which wholly develops and maintain mutually satisfying long-term relationships with customers (O’Malley and Tynan, 2000; Rowe and Barnes, 1998; Thurau and Hansen, 2001). This assertion is reinforced by Buttle (1996, p. 1) who contends that “enduring relationships with customers cannot be duplicated by competitors, and therefore provide a unique and sustained competitive advantage”.
In a similar vein, Peppers and Rogers (1993) posit that the traditional marketing function may witness a shift toward one-to-one marketing, in which the marketing function seeks to fulfill the needs and wants of each individual customer. Under these conditions, the analysis and management of the concept of one-to-one marketing becomes the salient objective in securing the long-term success and profitability of the company (Gurau and Ranchhod, 2002).
The purpose of this paper is to examine the evolution of one-to-one marketing as a marketing and business philosophy, as well as the technological implications associated with one-to-one marketing and individual customer value. The following section attempts to examine the shift in marketing’s orientation toward one-to-one marketing, and discuss why it should be regarded as the natural progression of marketing practice.
Subsequent sections will explicate the meaning of one-to-one marketing and its significant growth as a marketing practice. Prior to the paper’s conclusion, an assessment of how the Internet can both help and hinder the achievement of individual customer value will be presented. This paper will conclude with a discussion on the implications of one-to-one marketing in the future. Evolution of One-to-One Marketing: Shifts in Marketing’s Orientation Evidence of marketing practices can be traced back as far as 7000 B.
C. (Sheth and Parvatiyar, 1995). Nevertheless, Jones and Monieson (1990), in their study of the philosophic origins of marketing thought, argue that it was only in the latter part of the nineteenth century that marketing was acknowledged as a distinct discipline. The dawn of the twentieth century portrayed the discipline as primarily focused in the exchange process, in which two or more parties engaged in value transactions to satisfy their respective felt needs (Boone and Kurtz, 1977).
In other words, the primary focus of marketing function was purely on transactions and exchanges. Supporting this contention are Sheth, Sisodia and Sharma (2000) who recognised that the traditional marketing function had gradually shifted from mass marketing to segmented marketing in the twentieth century. Since then, research in marketing has, to a large extent, been focused on consumer marketing; studies in the field of consumer behaviour were conducted to enhance marketers’ understanding towards how consumer choices are constructed (e. g.
Allen, 2002; Bettmen, Luce and Payne, 1998; Holt, 1995; Wells, 1993). With an increasing emphasis on customers, studies on how to achieve and enhance customer focus through market segmentation were conducted (e. g. Firat and Shultz, 1997; Wedel, 2002). One of the earliest references to segmentation were from Smith (1956), who suggested a rational and more defined approach to market products or target consumers through segmentation, that is, the process of classifying customers into groups with different needs, characteristics or behaviour.
In the organisational context, marketing-thought gurus acknowledged the shift from a production orientation to a consumer orientation, and as a consequence, developed the concept of market orientation (Kohli and Jaworski, 1990; Narver and Slater, 1990). They suggested that to benefit from long-term profitability, organisations should focus on the markets they serve. However, Kahn (1998) contends that simply adopting a market orientation and focusing on fulfilling the needs of market segments may not be sufficient to guarantee an organisation’s long-term profitability and success, particularly in an intensively competitive global economy.
Rather, organisations have to realign their relationships with customers, and thus continually enhance product offerings to tailor to customer’s needs over time. The concept of establishing relationships with customers led to several changes in marketing thought and practice. New developments first appeared in the maturing service industries of the 1970s and 1980s. Marketers started to acknowledge the importance of involving and integrating consumers into a company’s developmental and marketing activities.
In other words, customers became an integral part of the marketing and delivery process which necessitates a close relationship between the service provider and the customer. The manifestation of this phenomenon gave birth to the concept of relationship marketing (Aijo, 1996; Bejou, 1997, Gronroos, 1997). Berry (1983) was among the first to introduce relationship marketing, followed by other authors such as Gronroos (1997), Gruen (1995), Gummesson (1997), and O’Malley and Tynan (2000), who in their field of study, broadened the dimensions of relationship marketing, to include the notion of marketing one customer at a time.
This perception is echoed by Firat and Shultz (1997) who stress that as competition intensified, marketers began defining smaller and smaller segments, including niche segments. Furthermore, the increasing heterogeneity of modern consumers (Kotler, 2000) infers that marketing approaches should be revised and designed to achieve customer’s needs better.
In other words, marketers are beginning to realise the benefits of focusing on specific small groups of customers – even if it means treating each customer as a unique segment – for whom they could tailor their marketing programs, and subsequently differentiate themselves successfully from the competitors. As prominent pioneers of the ‘one-to-one marketing’ tenet, Peppers and Rogers (1993) contend that through establishing business relationships one customer at a time, significant benefits can be harvested for both customers and marketers.
For instance, customers will be able to attain the exact product offerings that fit their needs ‘perfectly’, and marketers will be able to minimize the waste in marketing expenses associated with ‘unprofitable’ customers, consequently increasing marketing efficiency, customer value and profitability. Henceforth, Peppers and Rogers (1993) posit that the increasing heterogeneity of modern consumers propels one-to-one marketing as the future of marketing and business philosophy.
According to Peppers and Rogers (1993), one-to-one marketing, under the relationship marketing paradigm, is considered as an ‘individual marketing’ program that is tailored for an individual customer. Otherwise stated, one-to-one marketing is grounded in the idea of establishing a learning relationship with each customer, starting with the most profitable/valuable one. As a result, Peppers and Rogers (1993) propose that one-to-one marketing emphasizes a marketer’s effort on the share of customer, not just market share – the central proposition for any business in a one-to-one environment is share of customer.
Rogers and Peppers (1995) elucidate that a share of market approach entails selling as much of a firm’s products to as many customers as possible. Driving for share of customer, on the other hand, focuses on current customers and retains them through enhanced customer service, communication and continuous product differentiation. An illustration of both the share of market and share of customer approaches are depicted in Figure 1 and 2. The horizontal axis represents the number of customers the marketer tries to reach, and the vertical axis represents the number of product benefits or consumer needs the marketer tries to address.
As depicted in Figure 1, the marketer’s concern is to reach as vast a group of consumers as possible with its product offerings. However, one major drawback of this approach is that the product offerings are unable to tailor to individual preferences (Rogers and Peppers, 1995). This assertion is reinforced by Christopher, Payne and Ballantyne (2002) who emphasize that it is insufficient for organisations to just offer infinite choice these days; organisations have to be able to meet their customers’ precise requirements.
In a similar vein, Langdon and Bruce (1997) stresses that customers are becoming more sophisticated and multifaceted; thus it is imperative that marketers become aware of how value is generated for customers to be able to satisfy their needs and wants. On the contrary, the share of customer approach, as illustrated in Figure 2, aims at customizing a product offering that tailors to the customer’s preferences ‘perfectly’ (Rogers and Peppers, 1995). According to Christopher, Payne and Ballantyne (2002), the key to one-to-one marketing is to comprehend customers in terms of their economic importance (i. . estimating a customer’s lifetime spending potential), and then revising the marketing approach to reflect the existing and potential profitability of different customer groups. As opposed to the share of market approach, one-to-one marketing alludes to concentrating on one customer at a time, instead of one product at a time (Peppers and Rogers, 1997). The following definition, presented by Peppers and Rogers (1997), exemplifies the essence of one-to-one marketing: ‘The basis for one-to-one marketing is share of customer, not just market share.
Instead of selling as many products as possible over the next sales period to whoever will buy them, the goal of the one-to-one marketer is to sell one customer at a time as many products as possible, over the lifetime of that customer’s patronage. At its roots, one-to-one marketing is simply treating customers differently’ (p. 415). As defined, it is apparent that one-to-one marketing can be considered as ‘personalized’ marketing, which entails tracking an individual customer’s patronage over time (i. e. stimating how much potential business an individual customer is likely to generate – lifetime value of customer), managing a continuing series of interaction with the customer (i. e. initiating and enhancing relationships with potential and existing customers, predominantly the more profitable/valuable customers), and measuring the customer’s business across different products or groups of products. An independent florist who sent a birthday bouquet to a customer’s mother practices one-to-one marketing when the florist sends a reminder letter the following year, two weeks before the birthday.
The objective of the florist is to engage in a one-to-one communication with existing customers to acquire useful information such as birthdays and anniversaries, and subsequently getting more of the customers’ ‘share of wallet’. The florist accomplishes this by performing the above-mentioned service – reminding the customer of upcoming events or occasions – and making the flower shop indispensable, pleasurable and effortless to do business with.
Although the florist is undeniably concerned with acquiring new customers, the florist’s main focus is to sell one customer at a time as many products as possible, with the information acquired, over the lifetime of that customer’s patronage (Rogers and Peppers, 1995). Doing so, the florist increases customer value and amplifies profitability. In fact, the information acquired about an individual and the established relationship offer a competitive advantage over other florists. Furthermore, good service generates positive word-of-mouth publicity, which can lead to more referrals and contacts (Gurau and Ranchhod, 2002).
Today, more and more firms are beginning to practice one-to-one marketing. According to Buttle (1996), the impetus for the development of one-to-one marketing has been a growing awareness of the long-term financial benefits it can convey. Otherwise stated, the growth of one-to-one marketing is based on two economic arguments: 1) it is less expensive to retain an existing customer than it is to acquire a new customer (Rosenberg and Czepiel, 1984); 2) the longer the association between the organisation and the customer, the more profitable the relationship for the organisation (Christopher, Payne and Ballantyne, 1991).
Likewise, Peppers and Rogers (2000) assert that the availability of modern technology accelerated the growth in today’s one-to-one marketing practices. One of the most prominent forms of modern technology that companies are using today to fulfill one-to-one marketing practices is the Internet. This perception is echoed by Sannella (1999) who contends that the advent of the Internet has enhanced the ability of marketers to personalize communications and engender relationships with customers; by enabling the right content to reach the right customer at the right time, the World Wide Web can yield substantial dividends to he Web marketers and can enhance the quality of service to customers. In a similar vein, Dou and Ghose (2002) accentuates that the continuing growth of e-commerce activities on the Internet has significantly propelled one-to-one marketing practices on the Web. In other words, the Internet age provides marketers with the ultimate platform for true one-to-one marketing – the Internet assumes the role of a marketer that offers individualized attention to differing customer needs and customizes the product(s) according to individual preferences of the customer, albeit simultaneous customer patronage.