Culture First - Another excellent article by Tom Peters

Culture First

Why potential customers would buy from us?

This is a critical question that has to be answered by any company selling goods or services to assure its future existence.

A very interesting article, written by Everett Martin in "Sales and Marketing Management", even though of some years ago, explains more herein:

Title: KNOW WHY THEY BUY ,  By: Everett, Martin, Sales & Marketing Management, 01637517, Dec94, Vol. 146, Issue 15 Database: Business Source Premier

Section: Database Marketing: DO OR DIE KNOW WHY THEY BUY Contents Surviving the 1990s Stone Age Databases Look Who's Driving Mixing Beer and Diapers Without a database, business-to-business firms may be out of business by the year 2000--if not sooner "We're trying to make the sails while we're still sailing," says Eric Clem, barely conscious of his play on words. In trying to make sales happen more effectively, Clem, marketing communications manager for American Mobile Satellite Corporation, is in the same boat as most marketers plying the uncharted waters of database marketing: he alters course frequently and knows he's a long way from port. "We didn't leap into total automation," he says, describing how the process of building a database for lead tracking and other tasks has ebbed and flowed for nearly two years at the Reston, Virginia-based company, which provides satellite services for cellular phone companies. Despite his enthusiasm for creating detailed profiles of prospects and customers, Clem, like marketers at many small and mid-sized companies, dove into the process and then found he could take it no farther, at least for now. For one thing, half of the company's 12 field salespeople keep their own databases on PCs that aren't compatible with the software that Clem uses for lead tracking. For another, a consultant is revamping the company's entire information system, so that, when the job is finished by the middle of next year, all data on a customer will be available in a single file. "It'll be one-stop shopping," he says eagerly, but for now all he can do is wait. If most business-to-business marketers were as far along as Clem on the databasing curve, there would be no cause for alarm, but they're not. "I'm shocked at how much bad marketing is going on," says consultant James R. Rosenfield. "It's still a wasteland out there." Even high-tech companies that, presumably, should be leading the way, haven't gotten to first base in databasing, says the San Diego-based Rosenfield, still smarting from a recent run-in with IBM. Responding to an ad for the company's AS/400 computer system, he called the 800 number and waited while the phone rang nine times. ("Three should be the maximum," he says.) Eventually, a human being answered, only to put Rosenfield on hold for two minutes. When the young man came back on the line, Rosenfield asked about the AS/400. "What's that?" the rep inquired. "The computer you advertised." "Well, I don't happen to be familiar with that," said the rep, letting drop that he worked for an outside company. "All we do is send out brochures from here." At that point, Rosenfield was ready to settle for a brochure, so he gave the rep his name and address. To date, no material has arrived. What, then, is this concept that, while seeming to embody the right stuff for success in a customer-focused era, has thus far failed to capture the fancy of top management at most small and medium-sized companies? In his book, Strategic Database Marketing, (Probus Publishing Company, 1994) Arthur M. Hughes defines database marketing as "managing a computerized relational database system that collects relevant data about customers and prospects, which enables us to better service and establish long-term relationships with them." Done right, says Hughes, databasing helps build loyalty, reduce attrition, and increase customer satisfaction and sales. "The database is used to target offerings to customers and prospects, enabling us to send the right message at the right time to the right people." Surviving the 1990s Despite its promise, many companies that should know better continue to ignore database marketing or, worse, botch the job. In a gentler era, such glitches as the one experienced by Rosenfield might be laughed off, but not in the lean, mean 1990s. How serious is the problem? Several experts in the area of database marketing contend that companies without a marketing database will be out of business by, say, the year 2000. "Probably sooner," says Tracy Emerick, president of Taurus Direct Marketing, a Hampton, New Hampshire, consultancy. "With a finite number of business sites and households out there, you can't afford not to have a lock on your customers." The strongest blast comes from the head of a small industrial company who, after trials and tribulation, installed a marketing database and cleaned up on the competition. "You're an idiot if you don't at least use some databasing techniques," says this CEO, who, because competitors haven't caught on to his act, prefers to remain anonymous. "It can't hurt," he continues. "It's an easy way to access and segment information about your customers, which, by the way, is a good working definition of database marketing." In a mundane industrial market where most companies rely mainly on their own sales forces or independent reps to promote their products, the CEO had the nerve to fire his own reps six years ago and, using a database to prioritize his sales effort, built strong relationships with customers via direct mail, trade shows, telesales, and ads in industry publications. "Frequency is the key," he says, revealing his promotional bias. "We call people once a quarter. I like repetition: reach and frequency!" Another critical difference from traditional selling is that those calls aren't strong-arm sales pitches. They generate orders, but they also glean information to update the database. "It's a mistake to compensate salespeople solely for selling when you should be paying them to get information about prospects and customers as well," says the CEO. Scoffing at the notion that databasing is just for mega-corporations, the CEO argues that "it makes more sense for small companies, because the president or owner is likely to be the company's chief salesperson as well." Backed by reliable information about people genuinely interested in the company's product, the president can concentrate on the prospects and customers most likely to buy. Why, then, is databasing so scarce among small and medium-sized companies? "People are scared of the term," snaps the CEO. "They think it means computers, which ain't necessarily so. We put everything on index cards for the first two years, before shifting over to computers." Stone Age Databases Deep in the crevices of the managerial mind, however, is the hope that customer loyalty can be maintained by a field sales force steeped in the knowledge of their accounts right down to wedding anniversaries and preference in football teams. Top salespeople, in fact, scribbled down such tidbits long before anyone heard of databasing. The problem is that many field reps either scribble the wrong information or, seeing no long-term payout, don't bother to do anything. At worst, this means the company is paying dearly to have most of its salespeople calling blindly on prospects. At best, it means the elite performers on the sales force possess an intimate knowledge of their accounts, which they may or may not snare with other departments in the company. Either way, the chances are excellent that few people have a handle on who the company's best customers are and, even more important, why they buy. "If you want to develop long-term relationships, you've got to know how you acquire customers," Frederick W. Timmerman Jr., executive director of corporate research for United States Automobile Association (USAA) said at a recent conference held by the Marketing Institute. For Timmerman, this means systematically keeping in touch with your clientele and doing it without bothering them. USAA, based in San Antonio, Texas, started out as an association providing auto insurance to both active and retired military personnel and their families. As it has expanded into mutual funds and other areas of financial services, it has relied on a combination of continuous research and customer care to nail down its position in a hotly competitive market. Today, with a membership of 10,000, it has gone beyond market segmentation to deal with each person one-on-one. "We talk to each member four times a year," says Timmerman, noting that people can request not to be called. "It's important to know whether members want to be communicated with by phone or mail." Developing trust is a gradual process, he says. Once someone feels comfortable talking to a rep, it's possible to ask open-ended questions that truly enrich a database. "We ask members who else they're doing business with, who's their banker," says Timmerman, "to see how we compare with them." Knowing where customers are coming from is a big step toward knowing where they're going, which, its advocates proclaim, is the destiny of database marketing. "We are in the midst of a fundamental change in the way business-to-business firms market," says Randall B. Bean, a vice president with database builder Harte-Hanks Data Technologies. Look Who's Driving Bean points out that, as technology makes it possible to communicate with likely buyers on a one-on-one basis, people are referring to the process as database-driven marketing. A few years ago, marketers might have recoiled at the thought of digitized information driving them to do anything, but Bean says, where he once dealt almost entirely with banks and other financial services marketers, he now has clients in 15 major industries. "It's much more than people just climbing on a bandwagon," he says. "Databasing enables management to measure the effectiveness of the entire business. This could involve anything from examining how a company creates new business to looking at opportunities for cross selling and identifying the best prospects for new products." Currently, it's hard to find many instances where sales, marketing, operations, and finance are all singing off the same computerized song sheet. Indeed, Bean says that, when he walks into a client's headquarters for the first time, he's likely to be confronted with an oversupply of balkanized databases. "To get one view of the customer, I may have to consolidate from five to two hundred sources of information at one company," he says. Such consolidation is well worth the effort, says James W. Obermayer, vice president of sales and marketing of Inquiry Handling Service Inc. in San Fernando, California. Describing the rigors of building an intelligent database, he says, "The challenge is to structure relationships between existing company databases. For example, all sorts of patterns emerge when you integrate a database of prospects against accounts receivable." Database marketing is wrongly criticized, says Obermayer, because some companies attempt to solve their problems with what he calls "ignorant databases." Usually, these are just lists of company names, often purchased from an outside supplier. They may include the name of a contact at each company, but there is no indication of why prospects might want to buy the company's product or what they would do with it. That's the least a marketer should expect from a relational database, says Ed Pfeiffer, a direct marketing adviser to Deloitte & Touche LLP. Although the technology has been in place for some time, however, most senior managers look on it as a way to process data faster rather than a strategic tool that can radically alter the way they look at their business. Mixing Beer and Diapers When management embraces the concept, though, the results can be dramatic, says Pfeiffer, observing that a little number crunching will turn up some "crazy, random correlations" that let marketers pounce on a sales opportunity. For example, he relates how marketers at a large warehouse club suddenly noticed an unlikely correlation between sales of disposable diapers and beer. Checking into the matter, they found that young fathers assigned to buy diapers in the evening often picked up a six pack on the same trip. To enhance the process, the store moved a beer display next to the diapers, and sales jumped 10 percent. Although a small business-to-business company theoretically could come up with computerized insights of this sort, the odds are against it, at least for the time being. Unlike the anonymous CEO who built his own system, most heads of small and medium-sized companies have shown little stomach for embracing database marketing as a strategic tool. Even if they did, they would find the cost of a ready-made system prohibitive. "Done properly, databasing pays for itself quickly," says Bean of Harte-Hanks, but because of economies of scale, it's expensive for a small company to undertake. In the end, most business-to-business marketers who see the light will probably pursue a course similar to that charted by Eric Clem of American Mobile Satellite. Using the SNAP program from Dun & Bradstreet's Sales Technologies subsidiary, Clem maintains his own database of prospects gleaned from ads he's run in trade publications. "It's changed the way we advertise," he says. "We know which publications have a high response rate and which ones don't." But, even though he works closely with the sales force, there's no system in place to inform him of the fate of a lead once he's handed it off to the appropriate rep in the field. Hopefully, Clem and his superiors are getting into databasing in time to hold their own in a hotly competitive market. Unfortunately, many other marketers are content to approach the subject like politicians invoking motherhood: by extolling the virtues of a painful process they're certain never to experience first-hand. PHOTO (COLOR): Database on business-to-business firms. ~~~~~~~~ BY MARTIN EVERETT BETTING YOUR DOLLARS ON A DATABASE Any marketer can get a small company into database marketing on their own without spending a lot of money, if they happen to be handy with a computer. Very handy. By extracting data from existing account files and dumping it into a desktop system, marketing executives can create an accessible picture of your company's best customers for less than $3,000. Buy some outside lists to put on top of this, and you can do an efficient job of prospecting as well. Unless they happen to have people who are intimately familiar with marketing databases, larger companies are likely to hire an outside firm to get them on line. Cost: $100,000 and up to create the database and at least $200,000 a year to maintain it. "The kiss of doom is to use your own management information systems people," quips consultant James R. Rosenfield. Industry experts say relying on in-house MIS staff is a mistake for two reasons. First, most MIS people have never built a marketing database, so it's likely to take them longer than a professional databasing company to come up with what is needed, and they may bust the budget in the process. Second, there's a political advantage in retaining an outside service bureau, because it will create and maintain a database at the marketing department's behest. Regardless of whether the project is handled inside or outside, it's important that it be directed by a team headed by a strong marketing executive. In his book, The Complete Database Marketer (Probus Publishing Company, 1991), Arthur M. Hughes suggests having two types of people on the team, whom he calls constructors and creators. The former like to put pieces together, as in computer programing or tinkering with hardware. The latter enjoy developing ideas for using the information once it's in the database. Of tightfisted skeptics, Hughes asks: "Can you afford all these [database] fields? Can you afford not to have them if your competition moves heavily into database marketing?" ~~~~~~~~ By Martin Everett

The Role of Marketing in Customer Relationships: Asking the Right Questions

The role of trust in customer relationships: asking the right questions 

Deborah L. Cowles, Virginia Commonwealth University, Richmond, USA 

Takes an in-depth look at the meaning of trust in customer relationships by drawing from the economics and communications literatures, where researchers distinguish between concepts of trustworthiness and trusting 

behaviour. Develops a typology of trust based on whether a marketing entity is considered trustworthy and whether a behaviour can be considered trusting, and offers the managerial implications of ideas presented, along with six propositions for future research. The perspective presented here suggests that marketing researchers must first come to terms with the meaning of trust in customer relationships before they can begin to understand its role in more comprehensive, explanatory models of customer behaviour. 

Reissued from Asia-Australia 

Marketing Journal, Vol. 4 

No. 1, 1996. 

Management Decision 

35/4 [1997] 273–282 

© MCB University Press 

[ISSN 0025-1747] 

The marketing literature reflects an ongoing interest in the central role that trust plays in the discipline. The emergence of the relationship paradigm in marketing (e.g. Cravens, 1995; Gronroos 1990, 1993; Hunt and Morgan, 1994) has heightened scholarly interest in the subject of trust, given the pivotal role that trust is thought to play in the development and maintenance of business relationships. At the same time, the potentially broad scope of the domain of relationship marketing – including not only customer, but also non-

customer and personal relationships – has complicated research efforts in this area. 

Trust has been studied extensively in business-to-business settings (e.g. Anderson and Narus, 1990; Anderson and Weitz, 1989; Ganesan, 1994; Hunt and Morgan, 1994; Morgan and Hunt, 1994; Salmond, 1994; Wilkinson and Young, 1994) and relational retail settings (e.g. Crosby, Evans and Cowles, 1990; Dwyer, Schurr and Oh, 1987; Schurr and Ozanne, 1989). Interest has also developed apropos of the role that trust may play in transactional retail settings (e.g. Cowles, 1994, 1995a, 1995b). Despite a considerable amount of attention, the literature provides no definitive position on either the meaning or the role of trust in 

marketing thought and practice. A review of the marketing literature suggests at least two shortcomings regarding the state of knowledge and understanding of this apparently important construct, trust. First, neither scholars nor practitioners agree on a single model of trust that applies to all marketing contexts (e.g. industrial, retail, person-toperson, interfirm). Second, there is not even agreement that trust is an important concept in all marketing settings. The aim of this paper is to integrate a number of different perspectives to develop a better understanding of the concept of trust and to contribute to the development of a comprehensive model of trust for the marketing discipline. This goal will be accomplished by posing a series of questions not addressed specifically before in the marketing literature, which provide the framework for the discussion presented here: 

1 In what way is the term “trust” being used? 

2 What constitutes a trusting behaviour in a marketing setting? 

3 When does trust explain a customer’s behaviour. 

However, the discussion begins with a brief overview of competing perspectives of trust from a variety of literatures. 

Consensus appears to exist in the marketing literature that trust is a crucial concept in industrial marketing settings (e.g. Anderson and Narus, 1990; Anderson and Weitz, 1989; Ganesan, 1994; Morgan and Hunt, 1994). Trust also has been thought to be relevant in the context of relational retail relationships that mirror person-to-person relationships in industrial settings, e.g. service provider-client (Crosby et al., 1990; Dwyer et al., 1987; Schurr and Ozanne, 1989). Such studies overwhelmingly have focused first on the meaning of trust, and then on the role that trust – as a measurable construct – plays in specific marketing settings. The current marketing literature has less to say about the relevance of trust in discrete, transactional retail settings, although it has been treated as being relevant (e.g. Cowles, 1994, 1995a, 1995b). Assuming the relevance of trust in a variety of contexts, marketing researchers generally have attempted to learn what determines whether a customer will trust a marketing entity and then how that trust influences behaviours and other outcomes. 

“The elusive notion of trust” (Gambetta, 1988, p. ix) has also perplexed other disciplines (e.g. economics, sociology, law, communications) and other areas of business (e.g. management, human resources) and has been discussed widely in academe. In particular, perspectives of trust in two literatures – communications and economics – offer potentially valuable insights for marketers as they contemplate the role of trust in relationship marketing. Relevant discussions in this literature suggest that the relevance of trust cannot always be assumed, regardless of the context or behaviour. Moreover, researchers in both areas have criticized the use of the term “trust” in less than definitive ways (e.g. Craswell, 1993; Williamson, 1993). For example, in the communications literature, Pearce (1974) distinguishes between “trustworthy” and “trust” to develop a model of the construct in person-to-person relationships. Interestingly, his discussion parallels concerns raised by Craswell (1993) in the economics literature, who distinguishes between trust as an explanandum (i.e. what is being explained) and trust as explanans (i.e. the explanation). Both of these perspectives suggest 

a need for marketing researchers to explore more fully the various ways the term “trust” can be used to define marketing phenomena. 

The scope of this paper is necessarily limited to the extent that it focuses on the role of trust in customer relationships which stand at the heart of marketing thought and practice. At the same time, the ideas developed here cover a broad territory since they do not distinguish between relational and transactional marketing settings. Rather, they consider the person-to-person interactions which can comprise any customer decision-making setting in marketing. 

In what way is “trust” being used? Although numerous definitions of the term trust have been offered over the years, many of them are not unlike that offered by Giffin (1967) in the communications literature such that trusting behaviour occurs when a person: 

1 relies on another; 

2 risks something of value; and 

3 attempts to achieve a desired goal. 

This definition is quite similar to that offered by Rotter (1967), who is cited frequently in the marketing literature (e.g. Crosby, Evans and Cowles, 1990; Moorman, Deshpande and Zaltman, 1993; Morgan and Hunt, 1994) “… [trust is] a generalized expectancy held by an individual that the word of another … can be 

relied on” (Rotter, 1967, p. 651). 

Drawing on the work of Kee and Knox (1970) in the communications literature, Pearce (1974) points out that many theorists and researchers do not distinguish between trusting behaviour and trust itself, which he defines as “the subjective probability that the other will behave trustworthily” (p. 238): 

This approach [i.e. making the distinction between trusting behaviour and trust] … [allows researchers] to distinguish between trusting behavior in which the person has little hope that the other will respond trustworthily (which they likened to the lifestyle of “Peanuts” character Charlie Brown) and trusting behaviour in which the person has virtually complete confidence in the other’s trustworthiness. 

In light of this view, Pearce’s model of trust in person-to-person relationships differentiates between cognitive trust (i.e. the ter m he uses to describe the extent to which an individual assesses the subjective probability of trustworthiness) and trusting behaviour. According to Pearce (1974), it would be possible for a person to engage in trusting behaviour without having reached “a cognitive state of trust”. Conversely, an individual’s cognitive trust in another person does not relegate all subsequent behaviours with the other person to the category of “trusting”. The other elements comprising Pearce’s model, as well as the implications of his assertions, are discussed below. 

Pearce’s distinction between cognitive trust and trusting behaviour mirrors a more recent discussion in the economics literature, which recognizes two different uses of the term “trust” (Craswell, 1993, p. 487): 

(1) X loaned some money to Y. What might explain X’s act of trust?” (2) “X loaned some money to Y because he trusted her.” In the first example, “trust” is used merely to label the behavior for which an explanation is being sought. In the second, “trust” is put forward as an explanation of that behavior.In the first context, Craswell (1993) labels trust as “explanandum”, whereas, in the second context, he labels trust as “explanans” (p. 487). A marketing parallel using trust in the first sense would be: Mr Smith, a consumer, took his car to Fred’s service station where Fred installed new brake pads. What might explain Mr. Smith’s apparently trusting behaviour? A competing version of that marketing situation in which trust would be considered an explanans would be: Mr Smith, a consumer, took his car to Fred’s service station for new brakes because he trusts Fred. From Craswell’s perspective, trust may or may not explain Mr Smith’s trusting behaviour in the first scenario; in the second scenario, trust would indeed explain Mr Smith’s behaviour which may or may not be an act of trust The significance of Pearce’s and Craswell’s observations for marketers is that studies focusing on trusting behaviour, or acts of trust, typically assume that trust is at least in part responsible for the behaviour. Likewise, if customers are found to trust a marketing entity (e.g. service provider), studies typically treat all subsequent behaviour as trusting, or an act of trust. Although Pearce’s and Craswell’s arguments are not identical, each implies that it would be possible for a customer to engage in any of the categories of behaviour. 

What constitutes an act of trust? What constitutes an act of trust? 

A typology of trust situations 

Taken together, the perspectives presented above suggest that marketing researchers must make two determinations when contemplating the role of trust in customer relationships. First: what constitutes an act of trust, or trusting behaviour? Second: when does trust explain a customer’s behaviour, trusting or otherwise? Each of these questions will be addressed in turn. 

According to Coleman (1990), in the economics literature: “Situations involving trust constitute a subclass of those involving risk. They are situations in which the risk one takes depends on the perfor mance of another 

actor” (p. 463). This perspective embraces most views presented in the marketing literature in as much as it focuses on reliance – the extent to which a customer must rely on the marketer (i.e. the perfor mance of a marketing entity) to be sure that a marketplace offering meets needs and wants. Coleman’s definition is consistent with the first element in Pearce’s (1974) model of trust which asserts that “it is meaningful to speak of trust in situations in which there is some form of contingency between the truster and the trusted …” (p. 241). 

In addition to contingency (i.e. risk) Pearce asserts that cognitive trust and trusting behaviour can only occur when “the truster has some confidence in his expectations for the other’s behaviour [predictability]” (p. 241) 

and the truster has alternative options, or choice. Apropos of these three dimensions – risk, predictability, and choice – Sheth and Parvatiyar (1994, 1995) have defined a relationship marketing model in similar terms: customers “reduce the choice set to be in a relationship” by evaluating the “risk of switching” and the “value of the relationship” (p. 3). Thus, relationships – defined in terms of choice, value and risk – by definition present situations in which it may be meaningful to speak of trust. At the same time, no perspective 

presented thus far suggests that customer relationships necessarily involve trust. This recognition is demonstrated in the following proposition: Proposition 1: A relationship between a customer and a marketing entity (i.e. specific person) creates situations in which it may be meaningful to speak of trust; however, neither trust in the marketing entity nor trusting behaviour is necessarily a component of any given situation. 

Is there a trust threshold? 

Although Coleman’s (1990) definition focuses on when an act of trust does occur, it implies that a customer would not be engaged in trusting behaviour insofar as the customer faced no risk and/or did not have to rely on the marketing entity. The extent to which any behaviour might be considered an act of trust would be deter mined by the amount of risk faced by the customer, as well as the extent to which a customer had to rely on the performance of the marketing entity. 

The conceptualization of trusting behaviour makes it possible for one to consider whether a threshold might 

exist on either or both axes of the diagram. For example, it may be reasonable to assume that at a very low level of risk or potential 

Trusting behaviour as a function of reliance and risk harm (point X), it may not be practical or “worth it” for a customer to be concerned about whether a particular marketplace offering will meet needs and wants. In a similar way, it may be reasonable to assume that if a customer perceives a very low level of reliance on a marketer (point Y) to be sure that a marketplace offering will meet needs and wants, trust simply may not be part of the decision either to begin or to remain in a relationship. It asserts that below the threshold level (the 

unshaded area) behaviours would not be considered acts of trust, whereas behaviours occurring above the threshold level (the shaded area) would be considered trusting in nature. These assertions are offered with the assumption that the customer perceives alternatives to be available in the marketplace. 

If the concept of a “trust threshold” is valid, such thresholds may well vary from customer to customer, as well as across product categories and situations. In other words, a specific behaviour could be labelled an “act of trust” for one customer, yet may not at all be an “act of trust” for another. It also holds open the possibility that in the case of much retail decision making, many behaviours fall below the threshold level and, thus, would not be considered acts of trust. Finally, consistent with Pearce’s model (1974), as well as Craswell’s assertions (1993), the threshold concept suggests that it would be possible for a customer to feel that a marketer or other marketing entity is trustworthy in situations where trusting behaviour does not occur. 

The following propositions address this perspective: 

Proposition 2a: To the extent that a customer perceives risk in situations resulting from a relationship with a marketing entity and/or must rely on the marketing entity to achieve the desired outcome of any given situation, it may be possible to define the customer’s behaviour as trusting. 

Proposition 2b: Customer characteristics and situational factors may influence the threshold level at which perceived risk and reliance on the marketing entity make any specific behaviour an act of trust. 

Is the customer’s behaviour “calculative” or “non-calculative”? In addition to the notion of a threshold for trust, Williamson (1993) sheds some light in the economics literature on the question of what constitutes an act of trust. According to Williamson, it is necessary to consider the calculativeness of a behaviour before one can determine whether the behaviour is trusting. He contrasts calculative behaviour with non-calculative behaviour such that the latter is characterized by “(1) the absence of monitoring, (2) favourable or forgiving predilections, and (3) discreteness. Such relations are clearly very special” (pp. 483-4). Further, he argues that “calculative relations should be described in calculative terms, to which the language of risk [not trust] is exactly suited” (pp. 485-6). Although Williamson’s (1993) narrow view of what can be labelled trust has been criticized (Craswell, 1993) and will be addressed below, his discussion of calculative behaviour contributes to an understanding of what constitutes trusting behaviour in marketing settings. 

Williamson’s (1993) distinction between “risk” and “trust” is especially important to marketers, since marketplace decisions generally are thought to involve risk (e.g. Sheth and Parvatiyar, 1994). He points out that some economists refer to “contractual safeguards, or their absence, rather than trust, or its absence” (p. 463). Williamson asserts that “it is redundant at best and can be misleading to use the ter m ‘trust’ to describe commercial exchange for which cost-effective safeguards have been devised in support of more efficient exchange” (p. 463). He argues essentially that contractual safeguards preclude the need for trusting behaviour. Although the potential implications of this assertion for marketers are numerous, one that stands out is the possibility that many routine customer decisions in the marketplace could be classified as commercial exchanges “for which cost-effective safeguards have been devised” (e.g. guarantees, warranties, other implicit or explicit promises). 

If it is the case that a customer could interpret such safeguards as a means of minimizing or eliminating vulnerability, risk, or reliance on “the word of another” (Rotter, 1967, p. 651), one must then consider what 

would cause a customer to have confidence in the safeguards. Williamson (1993) addresses this issue explicitly in a lengthy discussion of calculativeness in general and “institutional economics” (p. 457) in particular. Although some of his key points are discussed below, the full scope of his discussion is worthy of 

further consideration in the development of relationship marketing thought. 

Are environmental safeguards at work? 

Williamson’s (1993) discussion of “institutional trust” (p. 486) provides additional insight concer ning the topic of contractual safeguards and their impact on customer behaviour. Rejecting the notion that the construct should be labelled “trust” at all (preferring either “institutional safeguards” or "environmental safeguards”), Williamson acknowledges that in the economics and sociology literatures, institutional trust “refers to the social and organizational context within which contracts are embedded” (p. 486). According to this view, institutional environments provide general-purpose safeguards which relieve the need for added transaction-specific supports, and include at least five population-level effects (societal culture, politics, regulation, professionalization and networks) and one organizational-level effect (corporate culture). An example of such a safeguard in a marketing setting would be the retail sale of gasoline to individual consumers. In most cases, consumers are not able to ascertain whether a gasoline pump actually dispenses the amount of fuel indicated at the time of sale or whether a particular octane level of gasoline is dispensed. Without a competing explanation, one would have to label this situation involving risk and reliance as an act of trust, insofar as the risk and reliance together were sufficient to exceed any potential threshold level. In Williamson’s terms, however, these customers would not be considered to have engaged in trusting behaviour insofar as they relied on the institutional safeguards of state and federal regulation and inspection of retail gasoline pumps – as opposed to relying on the marketing entity – to evaluate the weights-and-measures aspects of the retail decision. 

With regard to the specific issue of regulatory safeguards, Williamson suggests that “regulation can serve to infuse trading confidence into otherwise problematic trading relations” (p. 477). Although he acknowledges that, in some situations, “institutional trust has the appearance of being noncalculative” (p. 486), he maintains that to the extent that transactions are “organized (governed) with reference to the institutional context (environment) of which they are a part” (p. 486) calculativeness is a part of decision making and the concept of trust is not relevant. This perspective is presented in the form of a proposition below: 

Proposition 3: To the extent that a customer relies on population-level environmental, or institutional, safeguards to be sure that needs and wants are met by a specific marketing entity (i.e. person), the behaviour should not be categorized as an act of trust. 

It is important to note that Proposition 3 does not address organizational-level safeguards. Moreover, it addresses only the issue of trusting behaviour; it does not suggest that a customer engaged in such behaviour could not perceive the marketer or marketing entity to be trustworthy. Each of these issues is addressed below in sequence. 

How does corporate culture affect trusting behaviour? 

Although the implications of regulatory and other population-level safeguards are numerous, especially as they pertain to customer decisions about marketplace offerings, they could be viewed as a backdrop against which all marketers in any given context compete. On the other hand, the influence of organizational-level safeguards (i.e. corporate culture) could be thought of as more strategic in nature since a customer’s perception of the safeguard would likely vary from one marketer to another. 

Williamson (1993) acknowledges that determining the role that corporate culture plays in decision making is problematic apropos of the issues of calculativeness and trust. His observations concer ning corporate culture in this context alternate between insisting that “calculativeness characterizes even such apparently ‘soft’ notions as corporate culture” (p. 479) to recognizing the possibility that one might be able to speak of organizational-level safeguards in ter ms of trust “in a hyphenated form” (p. 486). This discussion argues that Pearce’s concept of cognitive trust, discussed below, contributes to reconciling these competing views. Thus, the following proposition is set forth: 

Proposition 4: To the extent that a customer relies on organizational-level safeguards to be sure that needs and wants are met by a specific marketing entity (i.e. person), the behaviour should not be categorized as an act of trust. 

When does trust explain a customer’s behaviour? The second key question that marketers must answer when considering the role of trust in customer relationships involves “trust as explanans” (Craswell, 1993, p. 492), or trust as an explanation for customer behaviour. As noted above, Williamson (1993) restricts the concept of trust to a narrow category of non-calculative behaviour; “…trust, if it obtains at all, is reserved for very special relations between family, friends, and lovers. Such trust is also the stuff of which tragedy is made. It goes to the essence of the human condition” (p. 484). Subscribing to the view that trust is not based on an expectation of its justification, Williamson (1993) concludes: “Commercial relations do not qualify” (p. 486) under the rubric of trust. 

Focusing on the importance of precise linguistic and conceptual tools for advancing human understanding, Williamson maintains that the term “trust” should “be reserved for noncalculative personal relations” (p. 486) and, as noted earlier, “possibly, in a hyphenated form, to describe differences in the institutional environment” (p. 486). Although Craswell (1993) criticizes this narrow view by distinguishing between trusting behaviour, or acts of trust, and trust as an explanation for behaviour, most of his critique focuses on trust as an explanandum, not trust as an explanans. Pearce’s (1974) concept of cognitive trust could be viewed as filling this void. 

Has the customer achieved a cognitive state of trust? 

According to Pearce’s model of interpersonal trust, “a cognitive state of trust exists when one person assumes without adequate evidence that the other’s behavior will not confer unacceptably negative outcomes upon him” (p. 246). Further, he asserts that the trusting individual bases the assumption on perceptions of “the other’s knowledge, competence, and motive” (p. 246). For example, the model suggests that, in a typical retail setting, a customer could judge a retail salesperson to be trustworthy to the extent that the contact person was perceived as being adequately knowledgeable, competent, and well intentioned. If these three elements determine customers’ perceptions of marketers’ trustworthiness, and if such perceptions can influence subsequent behaviour, trusting or otherwise, then one must consider how customers achieve a state of cognitive trust. 

Although both the concept of cognitive trust in general and how customers might achieve a state of cognitive trust in particular are areas worthy of much greater consideration in the future, two potentially valuable perspectives are discussed briefly below. The first draws from the consumer behaviour and relationship marketing literatures on the influence of customer memory, and the second refers back to the concept of institutional, or environmental safeguards and their potential influence on customer decision making. 

How does customer memory influence cognitive trust? 

The consumer behaviour and relationship marketing literatures both underscore the important role that memory plays in customer decision making (e.g. Alba, Hutchinson and Lynch, 1991; Madhaven, Shah and Grover, 1994). Focusing on trust as an element of customer decision making, Customer experience with a marketer or marketing entity, along with other factors, as influencing a customer’s memory which, in turn, shapes customer perceptions of whether the marketer or marketing entity is knowledgeable, competent, or well-intentioned. According to Pearce, these perceptions determine whether the marketer or marketing entity is thought to be trustworthy (i.e. whether a customer achieves a cognitive state of trust). Proposition 5 addresses this perspective: 

Proposition 5: A customer draws from memory, past experience, and other factors to evaluate the knowledgeability, competence, and motives of a specific marketing entity (i.e. person). These evaluations, in turn, influence whether a customer develops a cognitive state of trust apropos of the marketing entity. 

The concept of trustworthiness has been addressed in the marketing literature, largely in the context of ongoing, relational marketing contexts (e.g. Crosby et al., 1990). In such studies, the length of a relationship (i.e. past experience with the marketing entity) typically has been shown to be related positively to a customer’s perceptions of the trustworthiness of the other individual. 

Although the role of trust in transactional marketing settings has been discussed recently (Cowles, 1995a, 1995b), the concept of memory and its role in the development of trust in such contexts has not been treated as fully compared to ongoing marketing relationships. This discussion argues that just as institutional, or environmental safeguards may influence whether a customer’s behaviour can be categorized as trusting, such 

factors – specifically, organizational-level safeguards – may impact on a customer’s cognitive state of trust. 

Do organizational-level safeguards influence cognitive trust? 

Proposition 4 suggests that, to the extent that customers rely on organizational safeguards (e.g. corporate culture) to be sure that needs and wants are met by specific marketing entities, resulting behaviour should not be classified as an act of trust. This discussion argues that corporate culture can also influence a customer’s cognitive state of trust, although the influence would be significantly different compared to its impact on trusting behaviour. According to Williamson (1993), a primary function of corporate culture is to foster and maintain a “feeling of personal integrity, of self-respect, and independent choice” (p. 479) among employees. In one respect, customer awareness of relevant organizational safeguards could be considered one of the “other factors”. If customers are aware of a specific firm’s corporate culture, this awareness should influence the components of cognitive trust. 

A positive evaluation of corporate culture would permit a customer, in Pearce’s terms, to assume “without adequate evidence that the other’s behavior will not confer unacceptably negative outcomes upon him” (p. 246). This potential relationship between corporate culture and cognitive trust is the focus of the sixth proposition: 

Proposition 6a: To the extent that a customer is aware of a firm’s corporate culture, the customer will use that awareness to make assumptions about the knowledge-ability, competence and motives of a specific marketing entity representing that firm. In turn, these assumptions influence the customer’s cognitive state of trust, or perceptions of the firm’s and the marketing entity’s trustworthiness. 

Do other safeguards influence cognitive trust? 

Although organizational-level safeguards would probably influence cognitive trust most directly, it is possible that one or more of the other, population-level safeguards also could influence customer perceptions of knowledge-ability, competence and motive. For example, Williamson (1993) defines professionalization as the “obligation to fulfill the definition of a role” (p. 478) and notes that many of the professions are “supported by entry limitations (such as licensing), specific ethical codes, added fiduciary obligations, and professional sanctions” (p. 478). As such, it is argued here that an environmental safeguard like professionalization could serve as a basis for making assumptions about an individual’s knowledgeability, competence and motive, even in the absence of past experience and memory related to the other person: 

Proposition 6b: To the extent that a customer is aware of relevant population-level safeguards, the customer will use that awareness to make assumptions about the knowledgeability, competence and motives of a specific marketing entity representing a firm. In tur n, these assumptions influence the customer’s cognitive state of trust, or perceptions of the marketing entity’s trustworthiness. 

The ideas conveyed here in response to the series of questions set forth in this paper hold numerous implications for marketers as they consider the role of trust in customer relationships. Although many of these implications deserve further scrutiny in the future, a number of the key considerations are discussed below. In particular, the distinction between trusting behaviour and cognitive trust holds considerable promise for marketers seeking to understand trust in a wide variety of marketing settings. Moreover, the potential impact of environmental, or institutional safeguards vis-a-vis the influence of trust in customer decision making warrants attention in future research in relationship marketing. Although the theoretical implications of the conceptualization of trust presented here are significant, the managerial aspects of these ideas are at least as important. 

Managerial implications 

If future research finds the distinction between trusting behaviour and cognitive trust to be valid, then marketing practitioners should benefit from insights made possible as a result of this distinction. For example, minimizing the customer’s perceived risk and/or reducing customer perceptions of reliance on the marketing entity can serve to preclude the need for trusting behaviour, while not having an adverse impact on the customer’s perceptions of the trustworthiness of the marketing entity. Marketers have a wide variety of tools and tactics available to them to influence such perceptions (e.g. warranties, guarantees, customer participation strategies). Indeed, in some marketing contexts, a more competitive strategy might be to make trusting behaviour on the part of the customer unnecessary. From at least one perspective, such a strategy could influence positively a customer’s cognitive state of trust, especially concer ning perceptions of a marketer’s motives. The concept of a cognitive state of trust also holds practical insight for marketers. For example, a firm aiming to increase customers’ perceptions of the trustworthiness of contact personnel faces very different marketing and/or training challenges depending on whether weaknesses in this area are found to be the result of customer perceptions of the knowledgeability, competence, or motives of the contact personnel. 

Finally, if customers use environmental, or institutional safeguards either to minimize perceived risk and/or reliance on the marketer, or to draw assumptions about the trustworthiness of customer contact personnel, then marketers must develop an in-depth understanding of such safeguards, as well as their impact of customer decision making. For example, while corporate culture has been recognized as a potent force in business, it has largely been thought of in managerial terms. Although the business literature has recognized the indirect impact of corporate culture on customers, the ideas presented here suggest that it may influence customers directly via their evaluations of trustworthiness and as a determinant of the need for trusting behaviour. 

Institutional safeguards also have public policy implications. In particular, to the extent that it can be argued that regulatory safeguards are intended to “infuse trading confidence into otherwise problematic trading relations” (Williamson, 1993, p. 477), policy makers could be called on to focus on this role for regulation for the benefit of consumers and the firms that serve them. 

Directions for future research 

As in all areas of marketing theory and practice, the measurement of key concepts comprising the view of trust presented here remains an issue of foremost importance. With regard to the concept of trusting behaviour, a number of measures of perceived risk currently exist (Bruner and Hensel, 1992) which could be used as a starting point for making determinations about this concept. On the other hand, the subject of reliance – customer perceptions of reliance on the marketing entity to ensure needs and wants are met – has not been treated as extensively in the marketing literature. Given the apparent agreement among the definitions of trust contained in the marketing literature – that customer reliance or dependence on the marketer is a key component of trust – the need to develop adequate measures of customer perceptions of reliance is paramount. 

Future research into the issue of reliance may benefit from findings in the communication literature which identify control as one of three dimensions of personal relationships, along with trust and intimacy (Rogers and Millar, 1988). It is possible that to the extent that customers can control the outcome of marketing situations (e.g. guarantees, warranties, customer participation in a service process or production of a product) then trust may not be as relevant to any given relationship. Future studies could show whether any correlation exists between intimacy and the other two relationship dimensions, control and trust. This direction for future research may hold particular promise for studies examining the role of trust in business-to-business or other complex, ongoing relationships. 

One of the more intriguing areas worthy of future research is the potential relationship between the concepts of cognitive trust and trusting behaviour. For example, an ongoing relationship between a customer and a specific individual representing a marketer would create the memories drawn on to assess trustworthiness. Similarly, an ongoing relationship with a specific marketer would increase customer awareness of organizational-level safeguards (i.e. corporate culture) which, in turn, may influence perceptions of knowledgeability, competence and motive. 

From at least one perspective, the characteristic of trustworthiness, resulting from assumptions based either on past experience or organizational-level safeguards, could influence a customer’s perception of risk and reliance on the marketing entity (i.e. the determinants of trusting behaviour). In general, some of the concepts presented in this paper (e.g. perceived risk; reliance on the marketing entity; population-level safeguards; corporate culture; memory; perceptions of knowledgeability, competence and motive) have all been recognized as influencing trust and customer relationships, but the theoretical underpinnings of the constructs 

have not been well understood in this context. 

Finally, because trust is thought to be relevant across the marketing domain, future research into the conceptualization of trust presented here will have to address trusting behaviour and cognitive trust in a wide variety of settings. As stated at the outset of this discussion, the goal of this paper has been to contribute to developing a comprehensive model of trust, applicable in all customer relationship contexts. Future research based on the ideas presented here will determine whether this goal has been achieved. 

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KMV Model Hypotheses

H1      There is a positive relationship between relationship termination costs and relationship commitment.

H2      There is a positive relationship between relationship benefits and relationship commitment

H3      There is a positive relationship between shared values and relationship commitment

H4      There is a positive relationship between shared values and trust

H5      There is a positive relationship between communication and trust

H6      There is a negative relationship between opportunistic behaviour and trust

H7      There is a positive relationship between relationship commitment and acquiescence

H8      There is a negative relationship between relationship commitment and propensity to leave

H9      There is a positive relationship between relationship commitment and cooperation

H10    There is a positive relationship between trust and relationship commitment

H11    There is a positive relationship between trust and cooperation

H12    There is a positive relationship between trust and functional conflict

H13    There is a negative relationship between trust and uncertainty 

A First Summary of Previous Posts

Gummesson (1987) and Grönroos (1990;1992;1994;1995) among others criticize the pre-existing model of Marketing Mix, proposing a shift in Marketing towards Relationship Marketing.

Kotler (2003, pp. 151-154) says about: “Relationship Marketing (RM) marks a significant paradigm shift in marketing, a movement from thinking solely in terms of competition and conflict toward thinking in terms of mutual interdependence and cooperation”.

We live in the era of change. Markets change (globalisation, information diffusion, financial crisis), competitors change (new appear from “exotic” destinations, new products features or characteristics, prices continuously reduced), customers change (leaving the passive role and undertaking an interactive role in the sale), products and services more and more become as look-alike and perceived by the customers as commodities.

Marketing commodity products in business-to-business environments becomes tougher as the low cost strategies lead in a continuous and disastrous price competition, the so called “commodity trap”.

To avoid the commodity trap suppliers need to differentiate their offerings – to decommoditize them – in order to gain the customer for the long term and also to gain a price premium.

Clarke-Hill, Robinson and Clarkson (1999, p. 2 of 20) summarize these as: “In an era of strong competition, over capacity in many sectors and extreme price sensitivity, chemical companies are attempting to break out of the commodity trap. Companies that are operating in mature markets with commodity type products and with large investments in production capacity and the need to produce at or near optimum efficiency have begun to consider alternative marketing strategies for their products and have started to get nearer to their customers”.

Effective Use of Relationship Marketing as a Differentiation tool with B2B has been examined in order to create a sustainable Competitive Advantage for Commodity Businesses.

According to Peppers and Rogers (2001) companies identify their potential customers, differentiate in their approach, interact with the customer gathering information and learning his needs, customize then their offering to satisfy these needs, achieving an advantage towards the competition and aim to sustain this adapting themselves in the dynamic changes of these needs, adding this way value to their customers and profiting also themselves from customers loyalty (IDIC Model).

Morgan and Hunt (1994, p. 22) define their “KMV model” (key mediating variable) of Relationship Marketing, which focuses on one party in the relational exchange and that party’s relational commitment and trust” and they hypothesize “that relationship commitment and trust are key constructs, we position them as mediating variables between five important antecedents (i.e. relationship termination costs, relationship benefits, shared values, communication, and opportunistic behaviour) and five outcomes (i.e. acquiescence, propensity to leave, cooperation, functional conflict, and decision making uncertainty)”