AUGMENTING RELATIONSHIP MARKETING WITH A STAKEHOLDER AND TRIPLE BOTTOM LINE ORIENTATION TO ENHANCE BUSINESS PROFITABILITY

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1 AUGMENTING RELATIONSHIP MARKETING WITH A STAKEHOLDER AND TRIPLE BOTTOM LINE ORIENTATION TO ENHANCE BUSINESS PROFITABILITY Brian Murphy, Paul Maguiness, Chris Pescott and Soren Wislang Massey University Track: Market Orientation and Relationship Marketing Keywords: Relationship Marketing, Stakeholders, Triple Bottom Line Abstract Relationship Marketing is evolving from a strong customer orientation to a stakeholder orientation including employees, suppliers, shareholders, the community, as well as customers. Business philosophy is also evolving from the traditional single business objective of achieving a single bottom line of maximum economic returns to shareholder stakeholders, to the Triple Bottom Line (TBL) philosophy of a tripartite sustainable business objective of achieving optimum economic, social, and environmental returns to all stakeholders. At the same time there is an increasing requirement that marketing performance be linked to profitability. This paper examines whether a stakeholder and Triple Bottom Line augmentation of relationship marketing enhances business profitability. Present stakeholder attitudes are measured in a Stakeholder Performance Appraisal within a Stakeholder Business Model, as timely, early warning signals of emerging stakeholder behaviour and concomitant emerging business performance. Appraisal results to date indicate that a stakeholder emphasised relationship marketing orientation significantly enhances business profitability beyond that achieved by a customer emphasised relationship marketing orientation. A further augmentation with TBL philosophy provides a very significant additional enhancement to business profitability. Introduction Relationship marketing evolved in the 1980s from the transactional marketing of the 1960s and 1970s. As practised in the 1980s and 1990s relationship marketing had a strong emphasis on business to customer relationships (Berry 1983, Gronroos 1997, Gummeson 1999). However, Freeman (1984) and commentators in the 1990s and beyond (Verbeke 1992, Polonsky 1995, Murphy et al and 1999, Payne et al. 2001) were expressing the view that a business is a coalition of stakeholders including employees, suppliers, shareholders, the community, as well as customers, and thus the scope of relationship marketing should be expanded to embrace business to stakeholder relationships. Parallel to the movement to augment relationship marketing with a stakeholder orientation, the Triple Bottom Line (TBL) business philosophy was developing, emphasising that the traditional single business objective of achieving a single bottom line of maximum economic returns to shareholder stakeholders requires augmentation to a tripartite sustainable business objective of achieving optimum economic, social, and environmental returns to all stakeholders (Elkington 1997). A further movement in the late 1990s was the increasing requirement that marketing performance be linked to profitability (Coviello et al. 2002). The purpose of this paper is to examine whether a stakeholder and TBL augmentation of relationship marketing enhances Market Orientation and Relationship Marketing Track 979

2 business profitability. We intend to investigate this research question by using a Stakeholder Business Model developed by Murphy (2002). The Stakeholder Business Model Stakeholders are those with a vital stake in the operation of a business without whose sanction and support the business would cease to exist (Murphy et al. 1997): Customers provide patronage and revenue support Employees provide human talent resources support Suppliers provide materials and services resources support Community Human provide legal sanction Natural provide ecological sanction Shareholders provide financial sanction It is commonsense to consider the five stakeholder groups as being indispensable in the functioning of a sustainable business. The business is financed by shareholders, is allowed to exist by the community, has suppliers providing materials and services, for employees to create products, which customers purchase. Stakeholders can rightfully expect a sustainable business to exhibit excellence in customer service, employee relationships, supplier partnerships, community corporate citizenship, and shareholder investment returns, based on ethical values of affirmation (respect), integrity (morality), efficiency (stewardship), equity (fairness) (Murphy et al. 1999). The holistic contribution of stakeholders to business performance underpins the Triple Bottom Line sustainable business philosophy of equally weighted economic profitability, social responsibility, and environmental preservation (Elkington 1997). The desirable collective stakeholder behaviour which is inherent in sustainable business performance is: optimised revenue (from customer purchases and community reputation) - minimised costs (from employee and supplier productivity) = optimal profit shareholders investment = optimal ROI To help manage a business towards the goal of an optimal ROI a relationship marketer needs to understand the determinants of stakeholder behaviour through an appropriate model. Murphy (2002) postulated the Stakeholder Business Model as a model which incorporates a Behaviour_Attitude_Behaviour continuum over time (Ajzen 2001), implying that emerging stakeholder behaviour and business performance is influenced by present stakeholder attitudes which are influenced by previous stakeholder behaviour: Stakeholder Behaviour t-1 _ Stakeholder Attitudes t _ Stakeholder Behaviour t+1 = Business Performance t+1 The Stakeholder Business Model focuses on the measurement of present stakeholder attitudes as timely, early warning signals of emerging stakeholder behaviour and concomitant emerging business performance. It is contended that stakeholders frontline, holistic, perceptual appraisal of a business s performance will reflect actual performance in terms of ROI (Enderle and Tavis 1998, Berman et al. 1999, Caulkin 2002). The Stakeholder Business Model has been operationalised by measuring stakeholders' present attitudes in a Stakeholder Performance Appraisal (Murphy 2002). In each Appraisal a survey ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

3 of a representative, convenience sample of customers, employees, suppliers, community, and shareholders of a business is undertaken to measure current perceptual business performance in terms of the following economic, social and environmental indicators on a 0 10 rating scale: Economic: profitability; return on investment; provision of value for money products Social: customer, employee, supplier, community, shareholder relationships; ethical standards Environmental: environmental preservation; sustainable resource use The perceived overall performance of the business is also rated on a 0 10 scale, and the CEO of the business is asked to rate the current ROI in relation to the average percentage return in the financial market on a 0 10 scale, which provides a standardised measure of perceptual business performance. The social, economic, and environmental perceptual performance data are analysed by stakeholder group and total sample, averaged into aggregate Perceived Social, Environmental, Economic Performance, and then averaged into a Stakeholder Performance Index (SPI). The total sample SPI incorporates TBL philosophy and stakeholder management philosophy by equally weighting Perceived Social, Environmental, Economic Performance, and equally weighting each stakeholder group. The SPI is a standardised index which is benchmarkable over time and against other businesses. Stakeholder Performance Appraisals have been undertaken on 12 New Zealand businesses to date involving 372 stakeholders, producing the following aggregate total sample results shown in Table 1: Market Orientation and Relationship Marketing Track 981

4 Table 1 Aggregate Stakeholder Performance Appraisal Total Sample Results Performance Indicators Mean Range Customer relationships Employee relationships Supplier relationships Community relationships Shareholder relationships Ethical standards Preservation of the environment Sustainable use of natural resources Provision of value for money products Profitability Return on Investment Overall Performance Perceived Social Performance Perceived Environmental Performance Perceived Economic Performance Stakeholder Performance Index ROI Rating Data from the 12 businesses represented in Table 1 have been used to test whether a stakeholder and TBL augmentation of relationship marketing is profitable by correlating various levels of stakeholder performance perception with the ROI rating. The first level is customer perceptions of customer relationships (CCR) as a proxy measure for customer emphasised relationship marketing performance. The aggregate total sample results for this measure are a mean of 6.5 and a range of The second level is total stakeholder perception of overall business performance (SOP) as a proxy measure for customer emphasised relationship marketing performance augmented with a wider stakeholder orientation. The third level is the total SPI as a proxy measure for customer emphasised relationship marketing performance augmented with both a stakeholder and TBL orientation. Results are shown in Table 2: ANZMAC 2003 Conference Proceedings Adelaide 1-3 December

5 Table 2 Perceptual Performance Measures Correlation With Perceptual ROI Level Proxy Measure Correlation with ROI Significance 1. Relationship Marketing CCR r = p = * 2. Stakeholder Augmentation SOP r = p = ** 3. TBL Augmentation SPI r = p = *** Indicative significance at the.1 level*,.01 level**,.001 level*** These results indicate that a stakeholder emphasised relationship marketing orientation significantly enhances business profitability beyond that achieved by a customer emphasised relationship marketing orientation. A further augmentation with TBL philosophy provides a very significant additional enhancement to business profitability. Conclusions There is an indication that higher stakeholder performance perception presages higher ROI for sustainable businesses which have a management philosophy of being stakeholder and TBL orientated by providing economic, social, and environmental returns to customers, employees, suppliers, the community, and shareholders. We contend that the Stakeholder Business Model is an appropriate modus operandi for modern, sustainable businesses which are stakeholder relationship orientated and are synchronous with TBL philosophy. Based on the significant correlation between SPI and ROI, stakeholders are likely to support and reward such businesses. References Ajzen, Icek Nature and Operation of Attitudes. Annual Review of Psychology : Berman, Shawn L., Andrew C. Wicks, Suresh Kotha, Thomas M. Jones Does stakeholder orientation matter? The relationship between stakeholder management models and firm financial performance. Academy of Management Journal. Vol. 42, No. 5: Berry, L.L Relationship Marketing, in L.L. Berry, G.L. Shostack, G.D. Upah (Eds). Emerging Perspectives on Service Marketing. Chicago: AMA Caulkin, Simon Four moves to live long and prosper. Business Herald. Wednesday 25 September:D1. Market Orientation and Relationship Marketing Track 983

6 Coviello, Nicole E., Roderick J. Brodie, Peter J. Danaher, Wesley J. Johnston How Firms Relate to Their Markets: An Empirical Examination of Contemporary Marketing Practices. Journal of Marketing. Vol. 66, Issue 3: Elkington, John Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Oxford: Capstone. Enderle, Georges and Lee A. Tavis A Balanced Concept of the Firm and the Measurement of Its Long-term Planning and Performance. Journal of Business Ethics. 17: Freeman, R.E Strategic Management: A Stakeholder Approach. Maryland: Pitman. Gronroos, C From marketing mix to relationship marketing towards a paradigm shift in marketing. Management Decision. Vol.35, No.3/4: Gummerson, Evert Total Relationship Marketing: Moving from the 4Ps to the 30 Rs. Oxford: Butterworth-Heinemann. Murphy, Brian, Keith Stevens, and Robert McLeod A Stakeholderism Framework for Measuring Relationship Marketing. Journal of Marketing Theory and Practice. 5, Spring: Murphy, Brian, Andrew Murphy, Sonja Woodall, and Roseann O Hare The Stakeholder Relationship Audit: Measuring the Effectiveness of Integrated Marketing Communications. Integrated Marketing Communications Research Journal. Vol. 5, Issue 1, Spring: Murphy, Brian The Stakeholder Business Model. Working Paper Department of Commerce. Auckland: Massey University at Albany. Payne, A., S. Holt, and P. Frow Relationship value management: Exploring the integration of employee, customer and shareholder value and enterprise performance models. Journal of Marketing Management. Vol. 17, No. 7/8: Polonsky, M.J A Stakeholder theory approach to designing environmental marketing strategy. The Journal of Business & Industrial Marketing. Vol. 10, No. 3: Verbeke, W Advertising, Product Quality, and Complex Evolving Marketing Systems. Journal of Consumer Policy. Vol. 15: ANZMAC 2003 Conference Proceedings Adelaide 1-3 December