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 go beyond simple demographic and customer service data. Relationship
marketing extends to include inbound marketing efforts, (a combination of
search optimization and strategic content), PR, social media and application
development.
Development
Relationship marketing refers
to a short-term 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, personalized
purchase, and uses the experience to create stronger ties.
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 (or even hundreds) of other
variables. The result is a printed piece that (ideally) 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 (process) 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 (or 'silo') 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 (1999), 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 (in terms of net present value)
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 (or as a percentage of revenue).
- 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 (1999) 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 (1990) 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 (combining several products or services into one "package"
and offering them at a single price), cross selling (selling related products
to current customers), cross promotions (giving discounts or other promotional
incentives to purchasers of related products), loyalty programs (giving
incentives for frequent purchases), increasing switching costs (adding
termination costs, such as mortgage termination fees), and integrating computer
systems of multiple organizations (primarily in industrial marketing).
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 (or transactional) 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. (George, W. 1990)
The six markets model
Christopher, Payne and
Ballantyne (1991) 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 (LIM) 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.
e-mail : pratheepvasudev@gmail.com
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