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10/15/2005 12:05:00 AM

Less is more with self-motivated customers

We all get them in the mail from time-to-time: reminder coupons offering us a discount the next time we purchase a company's product or service. Such tactics are meant to build relationships with customers, but research by Rice marketing expert Paul Dholakia suggests that aggressive marketing programs targeted at current customers can have the opposite effect. Customers who are more likely to do repeat business with a firm are those who feel the least manipulated to do so.  

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Although a favorite marketing strategy, aggressive direct marketing programs such as reminder coupons may be undermining rather than cultivating companies' long-term relationships with their customers.   New research by Rice University's Paul Dholakia shows that a "hard sell" may not be the best approach for attracting and maintaining a loyal customer base. Customers who are more likely to do repeat business with a firm are those who feel the least manipulated to do so.

"This is because some customers see such coupons as an attempt to control their behavior and persuade them to purchase a product or service," Dholakia explains.

While this particular marketing strategy might not work in extending a customer's relationship with the company, Dholakia has found that providing customers with relational rewards can. Instead of appearing to try to control customer behavior with an extrinsic reward like reminder service coupons, companies are more likely to see positive results when they provide customers a specific set of benefits for maintaining their relationship with a company on a certain level, such as those offered by banks to customers who maintain a given account balance.

A key to designing appropriate, more effective relational marketing programs, according to Dholakia, is for companies to distinguish between customers who believe they chose a company's products on their own initiative versus those who were persuaded to do so through the company's marketing initiative. Self-determined versus firm-determined customers, for example, are much more responsive - both negatively and positively -- to relational programs. Certain types of direct marketing programs can damage a company's relationship with self-determined customers who may view such promotions as attempts to control or manipulate them.

In an article for the Journal of Marketing Research, titled "How Customer Self-Determination Influences Relational Marketing Outcomes," Dholakia conducts four longitudinal field studies involving retail customers of a large U.S. financial services firm, college students who are patrons of a particular fast-food restaurant near their campus and new service customers of a large automotive sales and services firm.

In his first two studies, Dholakia confirms that the success of many relational marketing programs depends on the customers' perceptions of their relationship with the company. For example, customers who claimed they chose to make contact with a company on their own rather than as a result of the company's promotional efforts were more motivated to make future purchases from that company.   On the other hand, those customers who believed they purchased a company's product or service because of its marketing initiative claimed they were less motivated to continue a relationship with that company.

  These findings supported earlier psychological research, which has linked self-determination motivation to successes in weight-loss programs and long-term smoking cessation.

  "The more customers believe that they chose to initiate contact with a company, the greater the likelihood they will remain engaged with that company or behavior," Dholakia says.

In his remaining studies, the Rice researcher identifies two types of company promotions using rewards, their impact on both self-determined and firm-determined customers and how marketing managers might identify and promote their products to potential long-term customers.

"Companies are likely to maintain longer, more profitable customer relations with those customers who believe their affiliation with the company was self-motivated and not the result of marketing programs, and if the company appropriately rewards such customers by showing their value to the company," Dholakia concludes.

"To be effective in the long run, marketers must make customers want to form a relationship with the company on their own initiative."

In addition to his work on relational marketing programs, Dholakia has done extensive studies on customer communities, involving online auctions and brand communities and their potential for long-term profits.

His research is forthcoming or has been published in a number of journals including, the Journal of Marketing Research, Marketing Science, Management Science, the Journal of Consumer Research, the Journal of Marketing and Harvard Business Review.

A graduate of the University of Bombay, where he received a bachelor's degree in industrial engineering, Dholakia earned his master's degree in operations research from Ohio State University and a master's in psychology and Ph.D. in marketing from the University of Michigan.

For more information on this research, contact Dholakia at dholakia@rice.edu or Debra Thomas in the Jones School at dthomas@rice.edu .