Extending the life event cycle to relationship marketing: new implications for products and services.

• Author: Siems, Florian
• Position: Postbank - Report

1. DYNAMIC CUSTOMER RELATIONSHIPS AS A SPECIAL CHALLENGE IN CUSTOMER RELATION MANAGEMENT

   Recent years have seen both research and everyday business come to the conclusion that for many branches, the long-term relationship of a company to its customers represents a central factor for success. Landmark empirical studies on this concept were done by Reichheld/Sasser (1990; 1993; also see Bruhn 2003, 5; Gummesson 2002, 232; Siems 2009a, 135). The studies by Reichheld/Sasser (1990; 1993) in particular show that the longer a customer relationship lasts ...

   * ... the lower the transaction costs can be for a company. An example of this is seen in how the expense incurred for a company having to describe one of its specific business processes decreases with each transaction. Another example is how existing knowledge of a current customer allows for a more efficient processing of this customer with further transactions.

   * ... the better the possibility to take advantage of cross-selling and/or up- selling potentials. This means that over time, assuming a solid customer relationship where the customer is happy with the seller, the customer will buy additional ("cross") and/or more expensive ("up") services. Over the course of the customer relationship in some branches, the customer's willingness to pay will increase, making possible the opportunity to charge higher prices.

   * ... the more often customer recommendations are made. This can also have positive effects for profit e.g. due to new customers.

   With this in mind, recent years have seen the development of a variety of approaches on the initiation, maintenance, and resumption of customer relationships which are discussed as relationship marketing (for an overview, see e.g. Bruhn 2003, and for the development of this realm, see e.g. Sheth/Parvatiyar 1995; Hennig-Thurau/Hansen 2000; Berry 2002).

   A particular challenge of this kind of relationship management is found in the dynamics of the customer relationship (see e.g. Fournier 1998, 346; Brill 2000, 335; Siems 2009a, 135). The long-term basis that is sought for a customer relationship particularly requires the changes in customer expectations and preferences that occur over the course of time to be kept in mind. So e.g. Javalgi/Dion (1999, 75) are right (in their case with the financial industry) when they state how it's important to remember both that and how the requirements and wants of customers change over the course of a customer's lifetime. Hennig-Thurau/Hansen (2000) are also correct when they state "Relationship marketing is dynamic, not static" (Hennig-Thurau/Hansen 2000, 11). And similarly, Bolton/Lemon (1999) place emphasis on the importance of the dynamic in relationship marketing, particularly as it applies to factors such as customer satisfaction and expectations.

   The following will present an approach that focuses on this dynamic perspective. This approach involves a particular form of the life cycle concept which internationally has received either no or only limited attention: the life event cycle. This limited attention comes in spite of the fact that this approach contains a multitude of opportunities for modern marketing management. For this reason, the following will aim to introduce, expand upon, and present to the international community the few approaches that do exist. The basis of the following paper is created in particular by current approaches from the German marketing community (particularly Siems 2009a), which in this form have until now only been partially (if at all) presented and discussed on the international level.

   For this, the general life cycle theory and its traditional application in marketing in the form of the product life cycle (the historical basis for the continued development discussed here) will be briefly explained. Following this, it will be shown what the various takes on the concept of relationship marketing are. Here, there will be a focus on the still highly unknown life event cycle. This will be comprehensively presented, and it will be shown which management implications can be derived from it for product and service policy as they concern relationship marketing. The paper closes with a conclusion and an outlook for future research.

2. LIFE CYCLE THEORIES AND RELATIONSHIP MARKETING

   In marketing, life cycle analyses are a traditional approach for the analysis and observation of changes that occur over time. These analyses show the development over time of certain variables that are important from a marketing perspective. Their aim is normally to obtain recommendations on the application of marketing instruments at different points in time (see e.g. Cole 1997, 39; Homburg/Kuester/Krohmer 2009, 25; Siems 2009a, 136).

   The most well-known of these models is the product life cycle, which observes economic values such as sales, turnover, or market share of a product over the course of time. In graphs, time is usually displayed on the X axis (coordinate), and the respective economic value being analyzed on the Y axis (ordinate) (see Figure 1; see e.g. Cox 1967, 377). Using an analogy of living creatures and plants, a temporal development of products within different phases is implied: introduction, growth, maturity, and decline. These kinds of models have been investigated for years in a diversity of branches among a wide variety of products (see e.g. Brockhoff 1976; Meenaghan/Turnbull 1981). However, the idealized, non-generalizable development of this life cycle, as well as its limitation to the "time" variable as its only explanatory value has been repeatedly criticized (for this life cycle, see e.g. Cox 1967; Crawford 1992; Kotler/Armstrong 2006, 290; Homburg/Kuester/Krohmer 2009, 25).

   Subject to the modifications mentioned, this "classic" product life cycle can also be applied to the goals of relationship marketing. For example, DeBruicker and Summe (1985) came to the conclusion (among other things) that suppliers can increase customer loyalty by including the experiences of customers in the product life cycle. Bennett and Rundle-Thiele (2005) arrive at a specialized conclusion regarding loyalty over the course of time: Using a model that has a development similar to the product life cycle, they discuss, following a developmental phase starting in 1870, if and to what extent a (cross-industry) "golden age" (1915-1929) and decline (starting in 1971) exists in terms of people's brand loyalty ("loyalty life cycle").

   Additional, specialized life cycle models were also created amidst the development of relationship marketing. An initial approach focused on the description of the relationship between customers and suppliers over the course of time ("customer relationship life cycle"). An older example of this is the theoretical model by Dwyer et al. (1987) that is based on Scanzoni (1979) that discerns the following phases of (1) awareness, (2) exploration, (3) expansion, (4) commitment, and (5) dissolution. Gronroos (1980) presented another model that deals with the developmental phase of relationship marketing. Here, the phases of (1) interest, (2) purchase und (3) repeat purchase are delineated. Following Fournier (1998, 346), one of the most adopted models is a five-phased model of initiation, growth, maintenance, deterioration, and dissolution (Levinger 1983). Similar models can also be found in practice today (see e.g. Hupp 2000, 659).

   [FIGURE 1 OMITTED]

   There are a number of additional approaches in theory and practice. For example, Fam/Waller (2008) distinguish between the phases of (1) inception, (2) development, (3) maintenance und (4) dissolution. Other researchers have developed similar approaches to describe customer relationships over the course of time which can also be understood as the "relationship life cycle." Behara/Fontenot/Gresham (2002) e.g. developed a "customer process model" containing the phases of (1) pre-sale contact, (2) contact during sale, (3) product/service in-use and (4) product/service maintenance. Zineldin (1996) similarly demonstrates his "partnership relationship life cycle" for corporate bank clients. He applies the phases of "early stage" (including among other things interest in a relationship and understanding of each other's needs and wants), "development stage" (including convincing), "long-term stage" (including trust) and the "final stage" (partnership).

   In addition to different phases, some new approaches have been developed by introducing a new focus of the kind of relationship: Fournier (1998) showed a brand relationship model and discussed especially the different curves which can be possible for different products and different customers.

   Overall, the customer relationship life cycle is often cited, particularly in the German language realm. Here, the division of phases over the course of time often simultaneously represents a possible structure of relationship marketing tasks (for related work, see e.g. Bruhn 2003, 46; as well as e.g. Stauss 2000): acquisition, retention and recovery. There is also in some cases an additional classification into further sub-phases (see Figure 2; see also Fournier 1998, 346). Authors such as Stone et al. (2003, 251) similarly show in a somewhat more sophisticated model how concrete measures (they speak of "value-generating actions") can be taken.

   The process in Figure 2 shows an ideal scenario. But in reality, changes can be expected. For example, within the retention phase, upward and downward movement with one or several customers is possible and probably likely ("danger phases," see e.g. Stauss 2000, 16).

   It should also be mentioned about the customer relationship life cycle that various models have been empirically tested and/or integrated as concepts into empirical studies (see e.g. Palmer/Bejou 1994; Bejou/Palmer 1998; Jap/Ganesan 2000; Fam/Waller 2008). But at the same time, this concept has also been criticized for its lack of universal validity. Hennig...