Scientific Essay, 2011
53 Pages, Grade: A
1 Social Media Marketing
1.2 Shifts in consumer power, influence and behaviour
1.3 Towards a relationship-oriented approach in marketing
1.3.1 The 4Cs in the adapted customer-centric marketing mix
1.3.2 The driving forces of customer relations
1.3.3 The importance of customer loyalty and advocacy in the digital age
1.4 Customer relationship management
1.4.1 Customer acquisition
1.4.2 Customer retention and extension
This paper aims to present a critical and evaluative analysis on the emergence of social media marketing and its true potential to enhance an organisation's marketing efforts. In particular, it outlines the shift in consumer power, influence and behaviour over the last few decades, the development and contemporary notions of relationship-oriented marketing and the contribution of social media in all these processes. Furthermore, the paper deals with the concept of customer relationship management, applicable online marketing techniques and the way social media can be integrated in an organisation’s marketing activities in terms of customer acquisition, retention and extension. Notions of the potential of social media marketing in the hotel industry are set in context with online marketing best practice and theoretical assumptions to identify possible contradictions and knowledge gaps.
There is no doubt that the internet has acted as a major catalyst of change that has had a marked influence on individuals, businesses and whole industries. In particular, the wide-spread use of the internet and social media has had a profound impact on customers’ power, influence and behaviour as well as their needs and expectations. It is arguable that over the course of the 20th century and the early 21st century, there has been a shift in consumer power and buyer-seller relationships that was predominantly facilitated by the ongoing development and adoption of social media. Essentially, this shift has followed a u-shaped curve as is depicted in figure 1.1.
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Figure 1.1: Shift from Push-Marketing towards Relationship Development.
In the past consumers tended to buy goods in local stores which were situated near to their homes. Their choice of where to buy was not only constrained by the lack of mobility but also by the limited number of alternatives. Store owners usually served a small customer base and thus placed much emphasis on the development of mutually beneficial and more informal relationships with customers. This, without doubt, was vital for the stores’ survival given that news about unethical behaviour or low quality easily spread among the local population. At that time buyer-seller relationships were mainly based on mutual understanding, trust and respect as well as direct communication, where customers had more power and influence over individual stores. However, due to the increasing mobility of customers, the ongoing development and growth of businesses and industries, customers lost most of their power and influence. Buyer-seller relationships had become less personal with the sellers’ primary goal to push products into markets. Sellers served an ever greater customer base and hence were inclined to regard customers as mere numbers, rather than human beings that could be turned into loyalists (Hougaard et al., 2003; Vaynerchuk, 2011).
In effect, if a hotel failed to meet the needs and expectations of a customer, it had nothing to lose but this one customer and perhaps a few of his or her friends and relatives. As such, the dissatisfaction and grievance of one customer did not necessarily spread beyond his or her social contacts and did therefore not adversely affect a hotel’s profitability to a great extent. Well-established hotels that possessed high cash levels could reap the benefits of costly signaling in order to shape their brand image and influence the attitude of customers towards the brand (Anderson, 2010). Traditional media such as print, TV and radio could be used to communicate brand messages to a wide audience to support a hotel’s push-marketing strategy. By utilising traditional media hotels were in full control of their brand messages as they could decide the type and style of a message as well as where and when it is communicated. In times of social media, however, control has shifted towards the customer (Buhalis et al., 2008).
Alongside the push-marketing approach businesses also emphasised a push approach in terms of innovation and new product development. The concept of technology push in innovation management holds that ideas for new products or ideas for potential improvements for existing products result from internal research and development efforts. The argument which supports this approach rests in the assumption that customers are generally incapable of envisioning the future and realising needs that go beyond their own knowledge, experiences and imagination (Trott, 2002). This view is best exemplified by one of Henry Ford’s most famous quotes, as cited by Graves (2010, p. 167):
“If I had asked my customers what they wanted they would have said a faster horse.”
The relationship between buyers and sellers was thus confined to the simple exchange transaction. With the emergence of the internet the buyer-seller relationship has fundamentally changed as the internet enabled customers to regain their power and influence over organisations and play a more important role in the business ecosystem. According to Senge et al. (2001) customers are now not only enabled, but are also willing to actively share ideas, information and feedback via the internet. Alvist Toffler, a well-known American author and futurist, termed this phenomenon “prosumerism” back in the 1980s, which is particularly prevalent in today’s digital age (Toffler, 1980). Similarly, Prahalad et al. (2000, p. 80) pointed out that “the market has become a forum”, where communication has shifted from monologue to dialogue.
The shift from passive to active customers has primarily been triggered by the ongoing development of interactive company websites and social media. Due the fact that information is accessible by almost anyone around the world, “word of mouth is now both global and immediate, which presents a major challenge for anyone working anywhere in hospitality” (Nand, 2010).
In fact, the internet has markedly limited the benefits and influence of costly signaling. In effect, costly signaling has become a less important factor in shaping brand image and attitude given the significance of popularity-based signaling in the digital age (Anderson, 2010). As potential customers increasingly search the web for information to support the travel purchase decision, especially third-party websites, blogs and social media platforms, hotels lose much of the control and power they were used to possess in the past. In terms of popularity-based signaling, content is mainly created by third-parties and the customers themselves, whereas the image and value perception of a brand is determined by its relative popularity in the market (Anderson, 2010). Anderson’s argument is confirmed by research conducted by Cox et al. (2008) which revealed that 73% of the respondents trust user generated content more than advertising or official hotel descriptions. Success is therefore not only dependent on a hotel’s advertising budget or communication efforts, but rather on its ability to provide excellent customer experiences that arouse positive emotions and maintain mutually beneficial relationships with their guests, which should persuade them to communicate positive experiences both offline and online (Anderson, 2010; Vaynerchuk, 2011). The internet has thus also reduced the barriers of entry, as was stressed by Porter (2008), since advertising and financial resources are not the only critical factors in attracting potential customers and gaining market share.
Given the fact that companies increasingly depend on the goodwill of their customers, Vaynerchuk (2011) emphasises the contemporary shift towards the “thank you economy” where the goodwill of organisations lays the foundation of mutually beneficial buyer-seller relationships. Failure to do so can lead to dramatic results as is evidenced by TripAdvisor’s list of the dirtiest hotels (TripAdvisor, 2011), which is evidence that some hoteliers underestimate the power of customers in the digital age. As the world’s biggest travel-related social media platform, TripAdvisor plays a key role in popularity-based signaling. One of the problems entailed by popularity-based signaling, however, is the credibility of user-generated content. There is evidence that hotel reviews are faked to influence customers’ quality expectations (ZDF, 2011). Hoteliers who attempt to overcome the negative effect of the latter by faking positive reviews, targeting segments that are less likely to read online reviews or lowering prices only relieve the symptoms in the short-term (Anderson, 2010). Peter Senge, a highly regarded author on organisational learning, has continued to stress that without tackling the root cause of problems organisations are doomed to go out of business in the long run (Senge, 2006).
It is worth noting that the increased transparency and ubiquity of customer feedback can also provide valuable inputs for innovation and new product development, which enables hotels to adapt to changing customer needs and keep up with customer expectations faster than competitors. It is widely accepted that in today’s digital age a technology push approach towards innovation and new product development alone still fails to tap the collective wisdom of customers. Therefore it has become common practice to combine both technology push and market pull approaches in an effort to actively involve customers in the innovation and product development process (Trott, 2002; Tidd et al., 2009).
Traditional approaches to gather customer feedback and ideas, such as customer surveys or focus groups, can now be complemented by information gathered online via company-owned or third-party websites and social media platforms. The involvement of customers in the innovation process is also referred to as “open innovation” or “crowdsourcing”, where organisations can gain significant benefits through tapping “collective intelligence, or crowd wisdom” (Sloane, 2011, p. 18). A well-known known example in the hospitality industry is Starbuck’s “MyStarbucksIdea” platform where customers are enabled to share feedback or ideas and make suggestions on existing or new products (Chaffey, 2009).
It is arguable that due to the ubiquity of more powerful and influential customers and the increased transparency of an organisation’s activities through the internet, conventional marketing strategies that emphasised a strict push-marketing approach have proved to be dysfunctional. In effect, the notion of the widely adopted marketing mix has been challenged by new forces that have the potential to influence the economic viability of any organisation and necessitate the adoption of an enlightened approach towards dealing with customers. In recent decades the buyer-seller relationship has evolved from a simple exchange relationship towards integrative and interactive relationships that more actively involve customers in the whole process (Hougaard et al., 2003). Figure 1.2 illustrates the elements of relationships between buyers and sellers.
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Figure 1.2: Elements of Relationships adapted from Hougaard et al. (2003, p. 33).
In fact, the traditional marketing concept was mainly one-way without deliberate efforts to involve and engage with customers or establish long-term mutually beneficial buyer-seller relationships. Traditional definitions of marketing therefore emphasised the push-marketing approach and the simple exchange relationship in particular. For example, the American Marketing Association, as cited by Fyall et al. (2005, p. 27), defined marketing as
“a process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange and satisfy individual and organisational goals.”
This definition, like many other organisation-centric and process-oriented definitions, clearly neglects the power and influence that customers possess and the benefits organisations could gain. The dot-com bust of the early 2000s, which entailed numerous online start-up bankruptcies, was mainly caused by organisations overemphasising customer acquisition and neglecting the importance of the development of sustainable and profitable customer relationships (Chaffey, 2009).
By adopting a relationship-oriented approach Hougaard et al. (2003, p. 27) defined marketing as
“the art of building and maintaining profitable relationships, turning prospects into customers and customers into friends.”
The definition of Hougaard et al. (2003) implies that the ultimate goal of marketing activities should be concerned with more than merely excelling at the exchange relationship. Nowadays, putting the customer at the core of marketing decision-making is an imperative for the development of long-term mutually beneficial relationships. As Peter Drucker (1973, p. 61), a great management thinker put it: “It is the customer alone whose willingness to pay for a good or service converts into wealth.”
In essence, what distinguishes the relationship-oriented view from the exchange-oriented view is the emphasis on value creation and the involvement of the customer in business processes (Figure 1.3).
Shajahan (2006, p. 9) argues that with the adoption of a more relationship-oriented view in marketing the view of organisations shifts from “crushing competition to value addition.” He further contends that when organisations are capable of creating better value for customers than competitors they are also enabled to achieve competitive edge and establish a sustainable strategic position in their markets.
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Figure 1.3: The shift towards Relationship Marketing adapted from Shajahan (2006, p. 10).
It is arguable that the traditional notion of the marketing mix is misleading in the sense that it neglects the important role customers tend to play. Essentially, the adoption of the principles of the traditional marketing mix may have the potential to inhibit the development of long-term relationships where the outcome is a gain for all parties involved. According to Shajahan (2006, p. 9) “the firm’s strategic efforts, thoughts, insights, and actions should be spent on figuring out strategies to win the customers.”
Kotler et al. (2010b) argue that the traditional marketing mix should be adapted and viewed from a more customer-centric perspective. They proposed the four “Cs” framework which highlights the central role of customers when it comes to the traditional marketing mix framework of product, price, place, promotion (Figure 1.4). In effect, the combination of the four Ps and four Cs framework takes account of the fact that long-term mutually beneficial relationships are fostered and supported by the consideration of the needs and expectations of each party involved.
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Figure 1.4: 4Cs Framework adapted from Kotler et al. (2010b, p. 77).
Kotler et al. (2010b, p. 77) contend that „customers see themselves as buying value or solutions to their problem.” Hence, the focus of organisations increasingly lies on meeting customer needs. The importance of customer needs in innovation and new product development has been exemplified by the shift from a technology push approach in the innovation process to a combination of the technology push and market pull approach, where customers make a contribution to the development of products and services in addition to internal R&D efforts. This enlightened approach towards innovation and new product development has shown to be vital in today’s dynamic and fast-changing business environment where customer needs and expectations are subject to continuous change. In some instances organisations adopt a market pull approach by tapping the collective wisdom of customers through open innovation and crowdsourcing via social media, as was mentioned earlier. Another concept that has been increasingly adopted in recent years is mass customisation, which aims to enable customers to individualise products and services according to their needs and preferences (Chaffey, 2009). More recently, the British hotel chain English Lakes has adopted this concept for its Waterhead boutique hotel (Springwise, 2011).
The customisation service is described by the hotel as follows:
“Tailor your room to reflect your own individual style and taste, choose from quirky teapots to contemporary art, your favourite sweets and even the pillows on your bed add to the mix specially selected rooms with beautiful views of the lake” (English Lakes, 2011).
Instead of setting prices using conventional methods such as cost-plus pricing or target pricing, the cost to customer view of the price charged for products and services stresses the importance of taking account of the cost/value ratio (Shajahan, 2006; Kotler et al., 2010a). Given the availability of detailed information on products and services as well as prices via the internet and social media platforms and the fact that customers increasingly seek value for money, organisations need to rethink their approach towards pricing in order to remain competitive, turn prospects into customers and encourage repeat purchase. Considering the cost/value relationship figure 1.5 illustrates pricing strategies that are favourable (green), neutral (white), less favourable (yellow) and unfavourable (red).
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Figure 1.5: Price/Quality Matrix adapted from Brassington et al. (2006, p. 474).
The traditional view of distribution aims to determine appropriate ways of making products and services available for customers, either via intermediaries such as wholesalers and retailers or company-owned outlets (Jobber, 2010; Solomon et al., 2010). The internet has entailed new opportunities for selling both products and services and enhancing the whole purchase process, making the purchasing experience more convenient for customers. Through the deployment of online booking systems, for instance, hotels can not only overcome the dependence on intermediaries, but can also enable potential customers to check the availability of rooms, compare different room rates or select packages and special offers. Payment through secure online services such as PayPal should also improve the payment process and make the purchase process even more convenient. In effect, through information communication technologies (ICT) both organisations and customers benefit from reduced transaction costs and increased convenience (Chaffey, 2009). Bookassist, a hospitality ICT provider, offers hotels a sophisticated system which enables automated and personalised bookings with an integrated corporate and loyalty functionality to foster and facilitate re-purchase (Bookassist, 2011).
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