Relationship marketing was first defined as a form of marketing developed from direct
response marketing campaigns which emphasizes customer retention and satisfaction, rather
than a dominant focus on sales transactions.
As a practice, relationship marketing differs from other forms of marketing in that it recognizes
the long term value of customer relationships and extends communication beyond intrusive
advertising and sales promotional messages.
With the growth of the internet and mobile platforms, relationship marketing has continued
to evolve and move forward as technology opens more collaborative and social communication
channels.
This includes tools for managing relationships with customers that goes beyond simple demographic
and customer service data.
Relationship marketing extends to include inbound marketing efforts,, PR, social media
and application development.
Development Relationship marketing refers to an arrangement
where both the buyer and seller have an interest in providing a more satisfying exchange.
This approach tries to disambiguiously transcend the simple post purchase-exchange process
with a customer to make more truthful and richer contact by providing a more holistic,
personalised purchase, and uses the experience to create stronger ties.
From a social anthropological perspective we can interpret relationship marketing theories
and practices as commodity exchange that instrumentalise features of gift exchange.
It seems that marketers—consciously or intuitively—are recognizing the power contained in 'pre-modern'
forms of exchange and have begun to use it.
This particular perspective on marketing opens up fertile ground for future research, where
marketing theory and practice can greatly benefit from in-depth research of the principles
governing gift exchange.
According to Liam Alvey, relationship marketing can be applied when there are competitive
product alternatives for customers to choose from; and when there is an ongoing and periodic
desire for the product or service.
Modern consumer marketing originated in the 1960s and 1970s as companies found it more
profitable to sell relatively low-value products to masses of customers.
Over the decades, attempts have been made to broaden the scope of marketing, relationship
marketing being one of these attempts.
Arguably, customer value has been greatly enriched by these contributions.
The practice of relationship marketing has been facilitated by several generations of
customer relationship management software that allow tracking and analyzing of each
customer's preferences, activities, tastes, likes, dislikes, and complaints.
For example, an automobile manufacturer maintaining a database of when and how repeat customers
buy their products, the options they choose, the way they finance the purchase etc., is
in a powerful position to develop one-to-one marketing offers and product benefits.
In web applications, the consumer shopping profile can be built as the person shops on
the website.
This information is then used to compute what can be his or her likely preferences in other
categories.
These predicted offerings can then be shown to the customer through cross-sell, email
recommendation and other channels.
Relationship marketing has also migrated back into direct mail, allowing marketers to take
advantage of the technological capabilities of digital, toner-based printing presses to
produce unique, personalized pieces for each recipient through a technique called "variable
data printing".
Marketers can personalize documents by any information contained in their databases,
including name, address, demographics, purchase history, and dozens of other variables.
The result is a printed piece that reflects the individual needs and preferences of each
recipient, increasing the relevance of the piece and increasing the response rate.
Scope Relationship marketing has also been strongly
influenced by reengineering.
According to reengineering theory, organizations should be structured according to complete
tasks and processes rather than functions.
That is, cross-functional teams should be responsible for a whole process, from beginning
to end, rather than having the work go from one functional department to another.
Traditional marketing is said to use the functional department approach.
The legacy of this can still be seen in the traditional four P's of the marketing mix.
Pricing, product management, promotion, and placement.
According to Gordon, the marketing mix approach is too limited to provide a usable framework
for assessing and developing customer relationships in many industries and should be replaced
by the relationship marketing alternative model where the focus is on customers, relationships
and interaction over time, rather than markets and products.
In contrast, relationship marketing is cross-functional marketing.
It is organized around processes that involve all aspects of the organization.
In fact, some commentators prefer to call relationship marketing "relationship management"
in recognition of the fact that it involves much more than that which is normally included
in marketing.
Martin Christopher, Adrian Payne, and David Ballantyne at the Cranfield School of Management
claim that relationship marketing has the potential to forge a new synthesis between
quality management, customer service management, and marketing.
Approaches Satisfaction
Relationship marketing relies upon the communication and acquisition of consumer requirements solely
from existing customers in a mutually beneficial exchange usually involving permission for
contact by the customer through an "opt-in" system.
With particular relevance to customer satisfaction the relative price and quality of goods and
services produced or sold through a company alongside customer service generally determine
the amount of sales relative to that of competing companies.
Although groups targeted through relationship marketing may be large, accuracy of communication
and overall relevancy to the customer remains higher than that of direct marketing, but
has less potential for generating new leads than direct marketing and is limited to Viral
marketing for the acquisition of further customers.
Retention A key principle of relationship marketing
is the retention of customers through varying means and practices to ensure repeated trade
from preexisting customers by satisfying requirements above those of competing companies through
a mutually beneficial relationship This technique is now used as a means of counterbalancing
new customers and opportunities with current and existing customers as a means of maximizing
profit and counteracting the "leaky bucket theory of business" in which new customers
gained in older direct marketing oriented businesses were at the expense of or coincided
with the loss of older customers.
This process of "churning" is less economically viable than retaining all or the majority
of customers using both direct and relationship management as lead generation via new customers
requires more investment.
Many companies in competing markets will redirect or allocate large amounts of resources or
attention towards customer retention as in markets with increasing competition it may
cost 5 times more to attract new customers than it would to retain current customers,
as direct or "offensive" marketing requires much more extensive resources to cause defection
from competitors.
However, it is suggested that because of the extensive classic marketing theories center
on means of attracting customers and creating transactions rather than maintaining them,
the majority usage of direct marketing used in the past is now gradually being used more
alongside relationship marketing as its importance becomes more recognizable.
It is claimed by Reichheld and Sasser that a 5% improvement in customer retention can
cause an increase in profitability of between 25 and 85 percent depending on the industry.
However Carrol, P. and Reichheld, F. dispute these calculations, claiming they result from
faulty cross-sectional analysis.
Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times
more revenue than normal customers, while having engaged employees and engaged customers
returns a revenue gain of 3.4 times the norm.
According to Buchanan and Gilles, the increased profitability associated with customer retention
efforts occurs because of several factors that occur once a relationship has been established
with a customer.
The cost of acquisition occurs only at the beginning of a relationship, so the longer
the relationship, the lower the amortized cost.
Account maintenance costs decline as a percentage of total costs.
Long-term customers tend to be less inclined to switch, and also tend to be less price
sensitive.
This can result in stable unit sales volume and increases in dollar-sales volume.
Long-term customers may initiate free word of mouth promotions and referrals.
Long-term customers are more likely to purchase ancillary products and high margin supplemental
products.
Customers that stay with you tend to be satisfied with the relationship and are less likely
to switch to competitors, making it difficult for competitors to enter the market or gain
market share.
Regular customers tend to be less expensive to service because they are familiar with
the process, require less "education", and are consistent in their order placement.
Increased customer retention and loyalty makes the employees' jobs easier and more satisfying.
In turn, happy employees feed back into better customer satisfaction in a virtuous circle.
Relationship marketers speak of the "relationship ladder of customer loyalty".
It groups types of customers according to their level of loyalty.
The ladder's first rung consists of "prospects", that is, people that have not purchased yet
but are likely to in the future.
This is followed by the successive rungs of "customer", "client", "supporter", "advocate",
and "partner".
The relationship marketer's objective is to "help" customers get as high up the ladder
as possible.
This usually involves providing more personalized service and providing service quality that
exceeds expectations at each step.
Customer retention efforts involve considerations such as the following:
Customer valuation – Gordon describes how to value customers and categorize them according
to their financial and strategic value so that companies can decide where to invest
for deeper relationships and which relationships need to be served differently or even terminated.
Customer retention measurement – Dawkins and Reichheld calculated a company's "customer
retention rate".
This is simply the percentage of customers at the beginning of the year that are still
customers by the end of the year.
In accordance with this statistic, an increase in retention rate from 80% to 90% is associated
with a doubling of the average life of a customer relationship from 5 to 10 years.
This ratio can be used to make comparisons between products, between market segments,
and over time.
Determine reasons for defection – Look for the root causes, not mere symptoms.
This involves probing for details when talking to former customers.
Other techniques include the analysis of customers' complaints and competitive benchmarking.
Develop and implement a corrective plan – This could involve actions to improve employee
practices, using benchmarking to determine best corrective practices, visible endorsement
of top management, adjustments to the company's reward and recognition systems, and the use
of "recovery teams" to eliminate the causes of defections.
A technique to calculate the value to a firm of a sustained customer relationship has been
developed.
This calculation is typically called customer lifecycle value.
Retention strategies may also include building barriers to customer switching.
This can be done by product bundling, cross selling, cross promotions, loyalty programs,
increasing switching costs, and integrating computer systems of multiple organizations.
Many relationship marketers use a team-based approach.
The rationale is that the more points of contact between the organization and customer, the
stronger will be the bond, and the more secure the relationship.
Application Relationship marketing and traditional marketing
are not mutually exclusive and there is no need for a conflict between them.
A relationship oriented marketer still has choices at the level of practice, according
to the situation variables.
Most firms blend the two approaches to match their portfolio of products and services.
Virtually all products have a service component to them and this service component has been
getting larger in recent decades.
Internal marketing Relationship marketing also stresses what
it calls internal marketing, or using a marketing orientation within the organization itself.
It is claimed that many of the relationship marketing attributes like collaboration, loyalty
and trust determine what "internal customers" say and do.
According to this theory, every employee, team, or department in the company is simultaneously
a supplier and a customer of services and products.
An employee obtains a service at a point in the value chain and then provides a service
to another employee further along the value chain.
If internal marketing is effective, every employee will both provide and receive exceptional
service from and to other employees.
It also helps employees understand the significance of their roles and how their roles relate
to others'.
If implemented well, it can also encourage every employee to see the process in terms
of the customer's perception of value added, and the organization's strategic mission.
Further it is claimed that an effective internal marketing program is a prerequisite for effective
external marketing efforts.
The six markets model Christopher, Payne and Ballantyne from Cranfield
University goes further.
They identify six markets which they claim are central to relationship marketing.
They are: internal markets, supplier markets, recruitment markets, referral markets, influence
markets, and customer markets.
Referral marketing is developing and implementing a marketing plan to stimulate referrals.
Although it may take months before you see the effect of referral marketing, this is
often the most effective part of an overall marketing plan and the best use of resources.
Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in
which all parties understand each other's needs and exceed each other's expectations.
Such a strategy can reduce costs and improve quality.
Influence markets involve a wide range of sub-markets including: government regulators,
standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts,
stockbrokers, consumer associations, environmental associations, and labor associations.
These activities are typically carried out by the public relations department, but relationship
marketers feel that marketing to all six markets is the responsibility of everyone in the organization.
Each market may require its own explicit strategies and a separate marketing mix for each.
Live-in Marketing Live-in Marketing is a variant of marketing
and advertising in which the target consumer is allowed to sample or use a brands product
in a relaxed atmosphere over a longer period of time.
Much like product placement in film and television LIM was developed as a means to reach select
target demographics in a non-invasive and much less garish manner than traditional advertising.
History While LIM represents an entirely untapped
avenue of marketing for both big and small brands alike it is not an all that novel an
idea.
With the rising popularity of experiential and event marketing in North America and Europe,
as well as the relatively high ROI in terms of advertising dollars spent on experiential
marketing compared to traditional big media advertising, industry analysts see LIM as
a natural progression.
Premise LIM functions around the premise that marketing
or advertising agencies go out on behalf of the brand in question and find its target
demographic.
From that point forward avenues such as sponsorship or direct product placement and sampling are
explored.
Unlike traditional event marketing, LIM suggests that end-users will sample the product or
service in a comfortable and relaxed atmosphere.
The idea behind this technique is that the end-user will have as positive as possible
an interaction with the given brand thereby leading to word-of-mouth communication and
potential future purchase.
If the success of traditional event and experiential marketing is shared with LIM then it could
indicate quite a lucrative and fairly low-cost means of product promotion.
However, due to the fact that this means of advertising is still in its infancy more research
is required to determine the true success of such campaigns.
Because LIM is a fairly new concept many agencies are only now beginning to incorporate it into
their advertising and marketing portfolios.
The first such company to explicitly offer LIM services was Hostival Connect in late
2010.
It is expected that more and more agencies will begin to sell LIM type campaigns.
See also Personalized marketing
Customer relationship management References