Everything you need to know about relationship marketing. Relationship marketing refers to those marketing activities that are aimed at developing and managing long-term relationships with the customers.
The details about the customer, his buying patterns, contacts, etc. are maintained in a sales database and an account executive is assigned to fulfill the needs of the customers and maintain the relationships successfully.
Relationship marketing recognizes the value of a customer and the significance of keeping good relations with him.
Improvement in communication technology has created newer methods of maintaining interactive relations with the existing and potential customers.
Nowadays, many firms store the birthdays and anniversaries of the customers in their database and contact to wish them on those days.
Relationship marketing is attracting, maintaining and enhancing customer relationships. Servicing and selling existing customers is viewed to be just as important to long-term marketing success as acquiring new customers. Good service is necessary to retain the relationship. Good selling is necessary to enhance it.
1. Meaning of Relationship Marketing 2. Definitions of Relationship Marketing 3. Why Relationship Marketing 4. Characteristics 5. Relationship Marketing Strategies
6. Foundations 7. Applications 8. Customer Relationship 9. Difference between Transaction and Relationship Marketing 10. Developing Relationship 11. Levels of Relationship with Customers
12. Total Quality Marketing and Customer Relationship 13. Valued Relationship with Customers 14. Benefits 15. Important Tips for Successful Relationship Marketing.
Relationship Marketing: Meaning, Characteristics, Applications, Customer Relationship, Levels and Benefits
- Meaning of Relationship Marketing
- Definitions of Relationship Marketing
- Why Relationship Marketing?
- Characteristics of Relationship Marketing
- Relationship Marketing Strategies
- Foundations for Relationship Strategies
- Application of Relationship Marketing
- Customer Relationship in Relationship Marketing
- Difference between Transaction and Relationship Marketing
- Developing Relationship Marketing Approach
- Levels of Relationships with Customers
- Total Quality Marketing and Customer Relationship
- Valued Relationships with Customers
- Benefits of Relationship Marketing
- Important Tips for Successful Relationship Marketing
Relationship Marketing – Meaning
Relationship marketing refers to those marketing activities that are aimed at developing and managing long-term relationships with the customers. The details about the customer, his buying patterns, contacts, etc. are maintained in a sales database and an account executive is assigned to fulfill the needs of the customers and maintain the relationships successfully.
Relationship marketing recognizes the value of a customer and the significance of keeping good relations with him. Improvement in communication technology has created newer methods of maintaining interactive relations with the existing and potential customers. Nowadays, many firms store the birthdays and anniversaries of the customers in their database and contact to wish them on those days.
Marketers attempt to build goodwill and confidence in the consumer’s mind by showing that they care. Relationship marketing is a wide concept; it covers not just the customers, but also the other stakeholders who are vital to the company.
Strong ties are forged with the regular suppliers, shareholders and the employees of the organization. The scope of relationship marketing extends far beyond the scope of traditional marketing—it is basically a long-term concept which leads to sustainability and growth of the business over the years.
Relationship marketing has been receiving increasing attention in recent years as more and more organizations focus their attention on retaining existing customers rather than attracting new ones.
Although the origins of relationship marketing are to be found in an industrial context, it is with the increasing importance of the services sector during the last decade that relationship marketing has emerged as an important topic in helping marketers focus on maintaining and enhancing customer relationship.
Berry first introduced the concept of relationship marketing in a service context to describe a long-term approach to marketing.
When it comes to marketing, many service firms devote most of their resource, to attracting new customers. Efforts to retain existing customers are minimal, at least in so far as formal marketing programming is concerned. This view of marketing is needlessly restrictive and potentially wasteful.
It is needlessly restrictive because firms benefit by keeping valued customers as well as by attracting new customers. Assuming equality in customer attractiveness, the firm that attracts 100 new customers and loses 20 existing customers for a net gain of 80 customers, is better off than the firm attracting 130 new customers but losing 60 for a net gain of 70 customers. The new customer-only approach to marketing can also be wasteful since it’s the new customers that retain or build up existing ones.
Relationship marketing is attracting, maintaining and enhancing customer relationships. Servicing and selling existing customers is viewed to be just as important to long-term marketing success as acquiring new customers. Good service is necessary to retain the relationship. Good selling is necessary to enhance it.
The marketing mindset is that the attraction of new customers is merely the first step in the marketing process cementing the relationship, transforming in different customers into loyal ones, serving customers as clients —this is marketing too.
Relationship Marketing – Definitions Provided by American Marketing Association and Lee Iacocca
The term relationship marketing was first coined in America in the early 1980s. Although it has no single, agreed meaning, most definitions have common factors defined in the dictionary of marketing terms of American Marketing Association (1995), “Relationship Marketing is marketing with the conscious aim to develop and manage long term and/or trusting relationship with customers, distributors, suppliers, or other parties in the marketing environment”.
The building and management of relationship with customers has always been a key approach to marketing practices and some companies habitually market on a relationship basis without consciously calling it that. However use of term relationship marketing suggests that deliberate efforts are being made to retain customers and provide effective communication with them and use different approaches to marketing that is –
i. Based on development of two way communication between suppliers and customers.
ii. Affordable by technology
iii. Usually guided by highly technical analysis of customers purchasing and profitability.
The building of good personal relationship with customer is usually integral to small business management and example of owner of small corner shop is often used to illustrate the essence of relationship marketing. The small shopkeeper has direct knowledge of all regular customers and becomes familiar with their needs and their likes and dislikes. This enables the shopkeeper to provide services tailored to individual needs, planned on the basis of known customer requirements. Overtime, a bond of loyalty is likely to develop between shopkeeper and the regular customer.
Attracting new customers to a business is only the beginning. The best companies view new customer attraction as the launching point for developing and enhancing a long-term relationship.
Companies can expand market share in three ways:
(i) Attracting new customers,
(ii) Increasing business with existing customers, and
(iii) Retaining existing customer.
Many companies have created marketing strategies to keep their customers coming back, buying more and staying loyal. It is, therefore, essential to maintain long standing relationship with customers. It is a known fact that cost of serving existing customers is less expensive than attracting new ones.
Relationship marketing is defined as “a strategy that aims at developing and managing long-term relations with customers, suppliers and distributors in order to earn and retain the business of the enterprise”. Marketers accomplish this by promising and delivering high-quality products and services at fair prices to the other parties involved in the distribution process.
Lee Iacocca, former president of both Ford and Chrysler, says that if you “take care of your customers, everything else will fall into place. You have to understand your customers and you have to follow them. You have to change as your customers’ lives change.”
The ultimate outcome of relationship marketing is building a strong marketing network. A marketing network consists of the company and its supporting stake holders- customers, employees, suppliers, distributors, retailers, ad agencies and others- with whom it has built mutually profitable business relationships. In fact, competition is not between companies but between marketing networks. The operating principle is simple- Build an effective network of relationships with key stakeholders, and profits will follow.
Relationship management begins with clear understanding of:
(i) Who your customers are
(ii) What are their values
(iii) What they want to buy
(iv) How they prefer to interact with you and
(v) How they expect you to serve them.
The internet is an effective tool for generating relationships with customer because of its ability to interact with the customer. With the internet, companies can use e-mail for fast customer service and database tracking of buying habits for customizing products.
Relationship Marketing – Why Relationship Marketing?
The deregulation policies of the government and the competition because of internationalisation, many industries have faced a far reaching effects on the competitive environment like –
1. The ability to replicate physical products at lower costs facilitated price undercutting by domestic and international competitors. This encouraged many manufacturers to augment their physical products with services in order to compete and even to survive. Many large firms have been transformed from predominantly manufacturing organisations into predominantly service organisations by bundling services with products.
2. The need to keep existing customers became a priority in the face of intense competition and the higher comparative marketing costs of acquiring new customers.
3. Increased competition and deregulation in many service-dominated industries resulted in concentration on service quality as a means of achieving a competitive advantage.
Pathmarajah (1993) defines relationship marketing as “the process whereby the seller and the buyer join in strong personal, professional and mutually profitable relationship over a time”
He characterised relationship as having following properties:
Companies which are genuinely committed ‘to the 5 E’s’ are far less common than one may except, but those who are, aim to:
i. Offer the most value, personally and professionally;
ii. Become a unique source in helping the buyer build something better, e.g., better peace of mind;
iii. Become a partner with the buyer in his or her objectives; and,
iv. Establish a long-term trusting relationship with the buyer
Levitt has opined that sale transaction should be regarded as a start rather than end of relationship.
1. Objective achieved
2. Selling stops
3. Focus goes elsewhere
4. Tension released
5. Relationship reduced or ended
1. Judgement postponed; applies test of time
2. Shopping continues
3. Focus on purchase; wants affirmation that expectations have been met
4. Tension increased
5. Commitment made; relationship intensified
In fact, even today many firms still practice transactional marketing rather than relationship marketing. Pathmarajah provides summary of key differences in two approaches.
Contrasting Transactional and Relationship Marketing:
1. Do the deal and disappear
2. Push Price
3. Short-term thinking and acting
4. Build the business on deals
5. Getting new customers
6. No structure of on-going business
7. Selling focused
8. Short-term empathy
9. Incentive for doing the deal
10. Foundation of sale telling and selling
11. Race for a sale result
12. After-sales support and service poor-seen as cost
13. Product-service focused
14. Rewards-incentive for ‘doing deals’
15. ‘The deals is the end’. Pursuit of deal
Companies with transactional marketing approach constantly search for new customers because they fail to satisfy existing customers rather than retaining the existing customers base by demonstrating an unequivocal commitment to total quality customer care. Transactional marketing leads quickly to corporate decline. Your most expensive customer is the new customer you have probably had to advertise to get him or her. You have no relationship as yet. Getting an order from new customer can be five to six time more costly than getting one from the previous one.
The latter contributes to enduring corporate prosperity. Why are your most profitable customers—your old customers—consistent repeat purchases? Answer-because their value sharply rises with each subsequent order. Not only do their subsequent orders defray your front end advertising costs, but also the more they buy from you, the more they trust you. And more likely they are to buy again-and again.
According to Groonroos marketing is to establish, maintain, and enhance [usually but not necessarily always long-term] relationships with customers and other partners, at a profit, so that the objectives of the parties involved are met. This is achieved by a mutual exchange and fulfilment of promises.
He suggests that relationship and transaction marketing are opposed on a marketing strategy continuum and equated with the marketing of services and consumer packed goods respectively. In other words transaction marketing is common in the consumer packaged goods sector and services marketing performance is purely the type of relationship with the consumer.
Relationship Marketing – Characteristics: Concern, Trust, Commitment and Service
Traditionally marketing was all about making sales and earning profits. Companies were more interested in increasing their sales by attracting new customers; enough efforts were not made to satisfy and maintain the existing ones.
On the other hand, relationship marketing realizes the importance of not just the customers, but also the other stakeholders like shareholders, suppliers, employees, etc. and aims to maintain fruitful relationships with them based on mutual cooperation.
(i) The focus of relationship marketing is on the customers and stakeholders rather than on the company’s products.
(ii) It requires a move from functional teams to cross- functional teams.
(iii) There is more emphasis on customer retention and growth than on acquisition of new customers.
(iv) It addresses all the stakeholders like suppliers, distributers, employees, shareholder, etc. rather than just the customers.
The Characteristics of Relationship Marketing:
RM is about healthy relationships, which are characterized by concern, trust, commitment and service.
Strong relation can be maintained by knowing and understanding the needs of customers. Howsoever the size of business either it is small retailer or big manufacturer all enterprise need loyal customers and it can be achieved by showing concern towards customers. Relationship marketers should be concerned about the welfare of their customers.
2. Trust and Commitment:
Relationship marketing focuses on developing strong relationship between buyers and sellers through trust and commitment. Trust can only be achieved if the strategy is not only transactional but relational. Both buyer and seller has to understand that strong trust full relation can only be achieved by avoiding focusing on short-term benefits and investing into building long term relationship. And if both can establish, maintain and preserved this trust objectives of both the parties will be meet.
When commitment and trust are executed together by managers, the outcomes are efficiency, productivity and effectiveness. But the real challenge often lies in ensuring demonstrating commitment to the relationship and inculcating trust in partners.
Those companies which see service to customer as a cost and only are concerned about their market share will never be able to retain customers. Relation marketing is not a cost to the company; on the other hand it is a huge return on investment that is worth every rupee and effort put in. One must always remember this sequence “service quality leads to customer satisfaction which leads to relationship strength, which leads to relationship longevity, which leads to customer relationship profitability.”
Relationship Marketing – 5 Major Strategies: Core Service Strategy, Relationship Customization, Service Augmentation, Relationship Pricing and Internal Marketing
There are five relationship marketing strategies.
(i) Core Service Strategy
(ii) Relationship Customization
(iii) Service Augmentation
(iv) Relationship Pricing
(v) Internal Marketing.
Core service marketing strategy is one around which a customer relationship can be established. The ideal core service is one that attracts new customers through its need meeting character, cements the business through its quality, multiple parts and provides a base for the selling of additional services over time.
The nature of service affords many service firms the opportunity to customize the relationship. By learning about the specific characteristics and requirements of individual customers and then comparing these data for use as needed, service firms can more precisely tailor service to the situation at hand. In doing so, they provide their customers with an incentive to remain as customers rather than starting over with other suppliers.
Another relationship marketing strategy is service augmentation. Service augmentation involves building extras into the service to differentiate it from competitive offerings. An old marketing idea — a better price for better customers — forms the basis of relationship pricing, another strategy option available to service companies pursuing customer loyalty. Relationship pricing means pricing services to encourage relationships. In effect, customers are given a price incentive to consolidate much of their business with one supplier.
A pivotal relationship marketing strategy for many service firms is internal marketing. These are several forms of internal marketing. What all forms have in common is the customer inside the organization. In this case the employee is the customer and the job is the product.
The people who buy the goods and services in the role of consumer are the same people who buy jobs. What is known in marketing about selling and reselling them goods and services can also be used in selling and reselling them jobs.
With the advent of the post-industrial era, major changes are taking place within both the marketing environment and business organizations. Markets are more global and sophisticated, competition is more acute and consumers are more demanding.
These changes are leading firms to place a greater emphasis on the service aspects of products as a way of competing. Also information and communication are becoming increasingly important to all business and the traditional boundaries between industries are becoming less relevant.
The traditional view of marketing is the management process of planning, anticipating and satisfying customer requirements profitably. The traditional view is sometimes referred to as transaction marketing or marketing mix management. This is due to the focus on managing the marketing-mix decision variables of product, price, promotion and place in order to generate a transaction (i.e., to attract customers).
The transaction approach has been a dominant theme in marketing education since the 1960s.
Some authors like Gummesson, Moller and others challenged the traditional transaction view of marketing as being overly clinical and outdated. It is argued that it is more important to focus on the development and management of relationships — relationships that may extend beyond customers to include suppliers, channel intermediaries and other market contacts. Often referred to as relationship marketing, this view has received increasing support in the literature.
One of the strongest advocates of relationship marketing is Christian Gronroos. He defines relationship marketing as follows – to identify and establish, maintain and enhance and terminate relationships with customers and other stockholders, at a profit, so that the objectives of all parties involved are met. This is done by a mutual exchange and fulfilment of promises.
It is, however, important to emphasize that the relationship marketing perspective excludes neither the marketing decision-making activities associated with attracting customers nor the processes that lead to innovation and new product development. Rather, it recognizes that these types of marketing activity need to be balanced with activities associated with the building of on-going customer relationships.
The relationships marketing perspective provides a broader and a longer term view of the role of marketing in an organization. In doing so, it leads to integration of other aspects of management, so that the division between what is ‘relationship marketing’ and what is ‘relationship management’ becomes somewhat arbitrary.
This broader perspective is recognized by Christopher Payne who defines relationship marketing as a ‘synthesis of marketing customer service and quality management’.
Similarly, Sheth talks even more broadly by defining relationship marketing as “the understanding, explanation and management of on-going collaborative business relationships between suppliers and customers”. And Morgan and Hunt define it as ‘all marketing activities directed towards establishing and maintaining successful relational exchanges.’
The relationship is not simply between the buyers and sellers — relationships can even become ‘partnerships’. It is further recognized that it is not only the relationships between sellers and buyers that are important, but also a network of other relationships both in the organization and external to the organization.
For example, Buttle identifies four such groups of partnerships or relationships:
i. Supplier partnerships (with goods and services suppliers);
ii. Lateral partnerships (with competitors, government, and other organizations);
iii. Internal partnerships (between business units, employees, and departments);
iv. Buyer partnerships (with intermediate and final customers).
A similar classification was developed by Christopher et. al., who identify six ‘markets’ with which organizations have relationships:
i. Customer market
ii. Referral market
iii. Supplier market
iv. Employee market
v. Influence market
vi. Internal market.
According to Christopher et. al., the first traditional customer market is where the emphasis is on developing relationships to attract and retain customers. The second, referral market includes all organizational contacts that have the potential to act as advocates for the firm, providing word-of-mouth support for the organisation.
Christopher et. al., give the example of banks, where referral groups include insurance companies, property brokers, accountants, solicitors, surveyors and valuers, and other banks, as well as existing customers. The third group is the Supplier market, where the need is to foster cooperative buyer-supplier relationships — relationships that reflect a ‘win-win’ situation rather than the traditional and somewhat adversarial focus on getting the lowest price from suppliers. Thus the emphasis shifts to achieving reliability, quality, on-time delivery, flexibility in delivery, lowering of costs, and so on.
The fourth group is the employee market. This recognizes the vital role people play in an organization, and hence the success of the organization depends on attracting a sufficient number of suitably motivated and trained employees. The fifth group is the influence market —a market that includes parties that may influence the business environment in which the organization operates.
These parties include government policy-makers, the media, environmental and other lobbyists, and the general public. The final group is referred to as the internal market. This market explicitly recognizes employees as internal customers, and the importance of developing strong relationships with them. Consistent with this is the view that, in every firm, marketing is becoming everyone’s job.
Moving from a discussion of ‘who’ relationships might be with, Bitner describes three ‘types’ of marketing activity in the context of ‘promises’. Drawing from Gronroos, she suggests that the external, rather traditional and transactional approach between the organization and its customers is about ‘making promises’.
Secondly, internal interaction occurs within the organization, and this is referred to as ‘enabling promises’. Finally, the interaction between employees and customers is described as ‘keeping promises’. Organizations that have a relational perspective will focus also on internal and interactive marketing activity as well as on external marketing.
Gummessen has developed a more elaborate classification of relationships types. After two decades of studying marketing organizations, he identified thirty generic types of relationships, relationships that can be categorized into five groups –
i. Mega relationships – Relationships on level above the market proper —e.g. political and economic alliances between countries.
ii. Inter-organizational relationships – such as alliances between companies;
iii. Mass relationships – such as communications with different segments of a markets
iv. Individual relationships – Continuous customer contact
v. Nano (‘dwarf’) relationships – such as relationships within an organization.
Gummensson emphasizes that to understand and manage these relationships it is important not to focus on simple dyads alone (e.g., buyer and seller interactions), but to understand and manage all the networks of relationships and interactions around the dyad. This leads to the conclusion that the essence of relationships marketing is an approach ‘based on interactions, relationships and networks’.
Relationship Marketing – Foundations for Relationship Strategy: Market Segmentation, Targeting, Process for Market Segmentation and Targeting in Service
We discuss the foundations needed to begin focusing on relationship strategies:
(1) Market Segmentation and Targeting:
A second basic foundation of relationship marketing segmentation—learning and defining who the organisation wants to have relationships with. If we were to aggregate all the behaviour, expectation and perception information for all the customers in a particular market, we would probably be overwhelmed with the variations across customers.
At one extreme, service firms — historically those with a relatively small number of customers, each of whom is vitally important — treat customers as individuals and develop individual marketing plans for each customer. For example – a law firm, an advertising agency, or even a large manufacturer like the Boeing Aeroplane Company will develop service offerings customised specifically and individually for their large corporate clients.
At the other extreme, some service firms offer one service to all potential customers as if their expectations, needs, and preferences were homogeneous. Providers of gas or electricity, for example, often view the needs of customers as varying only in terms of quantity purchased; for this reason their marketing approach is standardised. Between these two extremes are options that most service marketers choose — offering different services to different groups of customers. To do this effectively, companies need market segmentation and targeting.
(2) Process for Market Segmentation and Targeting in Services:
Many aspects of segmentation and targeting for services are the same as those for manufactured goods. The most powerful difference involves between basic marketing principles for segmentation and targeting, the need for compatibility in market segments. Because other customers are often present when a service is delivered, service providers must recognise the need to choose compatible segments or to ensure that incompatibles segments are not receiving service at the same time. A second difference between goods and services is that service providers have a far greater ability to customise service offerings in real time than manufacturing firms have.
The steps and involved in segmenting and targeting services, and a brief discussion of each steps follows:
(i) Identify Bases for Segmentation of the Market:
Market segments are formed by grouping customers who share common characteristics that are, in some way, meaningful to the design, delivery, promotion, or pricing of the service. Common segmentation bases for consumer markets including demographic segmentation, geographic segmentation, psychographic segmentation, and behavioural segmentation. Segments may be identified on the basis of one of these characteristics or a combination.
(ii) Develop Profiles of Resulting Segments:
Once the segments have been identified, it is critical to develop profiles of them. In consumer markets, these profiles usually involve demographic characterisation or psychographic or usage segments. Of most importance in this stage clearly understands how and whether the segments differ from each other in terms of their profiles. If they are not different from each other, the benefits derived from segmentation, that is, from more precisely identifying sets of customers, will not be realised.
(iii) Develop Measures of Segment Attractiveness:
The fact that segments of customers exist, does not justify a firm’s choice of them as targets. The size and purchasing power of the segments must be measurable so that the company can determine if the segments are worth the investment in marketing and relationships costs associated with the group. The idea of customer profitability segmentation is presented as an approach for defining and selecting target segments. The chosen segments also must be accessible, meaning that advertising or marketing vehicles must exist to allow the company to reach the customers in the segments.
(iv) Select the Target Segments:
Based in part on the evaluation criteria just discussed, the services marketer will select the target segment or segments for the service. The firm must decide if the segments are large enough and trending toward growth. Market size will be estimated and demand forecasts completed to determine whether the segment provides strong potential.
Competitive analysis, including an evaluation of current and potential competitors, substitute products and services, and relative power of buyers and suppliers, will also help in the final selection of target segments. Finally, the firm must decide whether serving the segment is consistent with company objectives and resources.
This step, of all the steps in segmentation strategy, is arguably more critical for service companies than for goods companies. Because services are often performed in the presence of the customers who are compatible with each other. If during the nonpeak season, a hotel chooses to serve two segments that are incompatible with each other — for example, families who are attracted by the discounted prices and college students on their spring break—it may find that the two groups do not merge well.
It may be possible to manage the segments in this example so that they do not directly interact with each other, but if not; they may negatively influence each other’s experiences, hurting the hotel’s future business. In identifying segments, it is thus important to think through how they will use the service and whether segments will be compatible.
When carried to their logical conclusions, both segmentation and customisation lead to “segments of one” or “mass communication”— products and services designed to fit each individual’s needs. The inherent characteristics of services lend themselves to customisation and support the possibility of segmenting to the individual level. That is, because services are delivered to people by people, they are difficult to standardise and their outcomes and processes may be inconsistent from provider to provider, from customer to customer, and even from one time period to the next.
This inherent heterogeneity is at once a curse and a blessing. On the one hand it means that service delivery is difficult to control and predict, and the resulting inconsistencies may cause customers to questions a firm’s reliability. On the other it presents opportunities to customise and tailor the service in ways typically not possible for manufacturers of goods. Because the service itself is frequently delivered in “real time” by “real people” there is an opportunity for one-to-one customisation of the offering.
Heterogeneity pursued in a purposeful manner can be turned into an effective customisation strategy. While segments of one may be practically unrealistic in some cases, the underlying idea of crafting a customised service to fit each individual’s needs fits very well with today’s consumers, who demand to be treated as individuals and who want their own particular needs satisfied. For service providers who have a limited number of large customers, the segments of one marketing strategy may be obvious.
For example – a food management company that provides cafeteria and other types of food services for large manufacturing facilities will customise its services for each large account on the basis of the specific needs of the organisations. Or an advertising agency that specialises in providing communication services for Fortune 500 companies will develop individualised plans for each client.
In such situations, a relationship manager or an account manager will likely be assigned to a particular customer or client to develop a marketing plan tailored to that client’s needs. But even in consumer markets where a company may have hundreds, thousands, or even millions of moments of truth per day, technology combined with employee empowerment is leading the way to mass customisation.
Retention strategies will have little long-term success unless there is a solid base of service quality and customer satisfaction to build on. This doesn’t necessarily mean that firm has to be the very best among its competitor, or “world class” in terms of quality and customer satisfaction. It must be competitive, however, and frequently better than that. All of the retention strategies we describe later are built on the assumption of competitive quality being offered. It does no good to design relationship strategies for inferior services.
Current customers should be surveyed to determine their perceptions of value received, quality, satisfaction with services, and satisfaction with the provider relative to competitors. The organisation should also regularly communicate with its best customers in person or over the telephone. In a competitive market, it is difficult to retain customers unless they are receiving a base level of quality and value. A well-designed customer database is critical.
Knowing who the organisations’s current customer are (names, addresses, phone numbers, and so on), what their buying behaviour is, and relevant segmentation information (like demographics, lifestyle, and usage patterns) forms the foundation of a customer database. In cases of customers leaving the organisation, information on termination would also exist in the database. By having such a detailed database on its customers, American Express is able to tailor its corporate card member newsletter on the basis of cardholders’s spending patterns and preferences.
The result of this tailoring is 1,349 versions of the newsletter, targeted at specific customer needs and interests. These two basics (relationship and customer database) are combined with variety of other types of marketing research as (for example, trailers calls, complaint monitoring, lost customers surveys, and customer visits) to develop a profile of the organisation’s customer relationships. With a foundation of customer knowledge combined with quality offerings and value, a firm can engage in retention strategies to hold onto its best customers.
When faced with such contrasting outcomes, it becomes imperative for marketers to practice relationship marketing.
The extent of relationship marketing concept varies with the customer as some are more disposed towards it than others, Jackson’s identification of three type of customer was based on “the time horizon within which a customer makes a commitment to a vendor and also the actual pattern of relationship follows over time”.
The three types of applications are:
i. The lost-for-good customers
ii. The always-a-share customer
iii. The intermediate type.
The lost-for-good customer makes a series of purchases overtime, faces high costs in switching to a new supplier, and views the commitment to a particular supplier as relatively permanent. The buyer adopts this position because switching costs are high. For example, airlines are unlikely to change lightly the type of aircraft which they purchase. Even at a more mundane level, an organisation will have some reluctance in changing its office automation system because of the costs and disruption that ensues.
It is argued that since the buyer faces switching costs, it is looking to form a long-term relationship with the seller. Hence, the seller needs to adopt a similar approach, and be prepared to make a substantial up-front investment to win new or greater commitments from such customers. It suggests that ‘relationship marketing is apt for the buyer who might be lost-for-good’. In short, the big plus of this type of accounts is that once won, customer loyalty can be expected. The down side is that if lost, it is unlikely ever to be regained.
At the other end of the customer behaviour spectrum, lies the always-a- share customer who purchase regularly, has little loyalty to a particular supplier, and can switch easily from one vendor to another. Both parties recognise such relationships as short-term. For example, if an Indian firm wishes to send a package by courier to England, it is unlikely to attach any special importance as to which courier operator it last used, but instead obtain quotations from a number of equally acceptable operators.
Any operator who can offer immediately an attractive package (i.e., a combination of the marketing mix) has a chance of winning business from always-a-share customers. Thus, Jackson suggests that transaction marketing-marketing that emphasises the individual transaction is most appropriate for the always-a-share buyer.
Most of the customers belong to this category. Wide range of factors like – the characteristics of the product, category, the customer’s pattern of product usage and the actions of the customer and the supplier affect the relationship. Such relationships are more applicable for organisational buyers than consumer products, where regular buying is a norm.
Relationship Marketing – Importance
It is important to keep and improve relationship with customers for the following reasons:
1. There are higher marketing costs associated with generating interest in new customers as opposed to already informed existing customers.
The marketing costs involved in the creation of interest in an uniformed new customer far outweigh those involved in maintaining the relationship necessary to continue exchanges between buyer and seller.
It has been estimated that the cost of attracting new customers can be as high as six times that of retaining existing customers.
2. Close and long-term relationships with customers imply continuing exchange opportunities with existing customers at a lower marketing cost per customer. Reichheld and Sasser observe –
Across a wide range of business, the pattern is the same – the longer a company keeps a customer, the more money it tends to make.
3. Viewing customer exchanges as a revenue stream, as opposed to a compendium of isolated transactions, enables cross-selling of related services over time and premium pricing for the customer’s confidence in the business.
4. Strong customer relationships with a high degree of familiarity and communications on both sides can generate more practical new product ideas from customers and contact personnel.
5. Good relationships with customers can result in good work for publicity from successful exchanges and minimal bad work-of-mouth in the event of unsuccessful exchanges. Service quality cracks can often be papered over where good relationships have existed previously.
Relationship Marketing – Differences between Transaction and Relationship Marketing
The difference between the two types of marketing is that transaction marketing tends to focus on the outcome and value distribution surrounding the product, while relationships marketing tends to focus on service processes and value creation.
This suggests that transaction marketing may be more appropriate for product-based industries such as fast-moving consumer goods (FMCG) where a lesser amount of service is usually involved in the differentiation process as compared with firms in the industrial or services markets.
Grouroos has identified eight dimensions distinguishing transaction and relationship marketing.
Eight Dimensions Distinguishing Transaction and Relationship Marketing:
Relationship Marketing – Developing Relationship Marketing Approach
The development of a relationship marketing approach requires the alignment of the three functions of marketing, customer service and quality.
This involves the following:
i. Charting the service delivery system and setting standards for each part of the system, especially the ‘encounter points’ — the critical events in the system when the customer comes face to face with the service process.
ii. Identifying critical service issues by research and analysis of customer needs and reactions.
iii. Setting service standards for all aspects of service delivery.
iv. Developing customer communication systems which define service standards and how the company is achieving them.
v. Developing programmes for contacting and maintaining well and continuing relationships with customers with the aim of retaining their loyalty.
vi. Instituting intensive training course for staff on their responsibility for building and maintaining good relationships with customers.
vii. Monitoring service standards and rewarding staff for exceeding service levels while taking corrective action if service levels are persistently substandard.
viii. Ensuring that all staff in all functions (operations, distribution and support services as well as sales and marketing) are fully aware at all times that customer service and qualities are key elements in the marketing mix, and that it is their responsibility to achieve the high levels of performance required.
Relationship Marketing – Levels of Relationships with Customers: Basic, Reactive, Accountable, Pro-Active and Partnership
Relationship exposure with their customers differs from one company to another.
The levels are:
Basic – Once the company sells the product, it does not follow-up in any way.
Reactive – The salesman sells the product and tries to encourage customers to call on whenever the problems are faced.
Accountable – The salesman himself checks with the customers as to whether the product is meeting the customer’s expectations and tries to improve the company’s offering
Pro-active – The salesman, from time to time, seeks suitable suggestions from customers to improve the product use or to create new product.
Partnership – The Company works continuously with customers to discover ways to deliver better value. One a customer, always a customer is the guiding principle here.
Rating of Relationship Marketing:
Relationship marketing refers to everything an organisation does to make its prospective and current customers aware of its products and services, position its business in their minds as the obvious choice, and help the organisation to build lifelong, profitable relationships with them.
Whereas the traditional marketing approach is transactional, relationship marketing is relational. Old-style marketing mostly focuses on sales transactions. The new relationship marketing focuses on working hand-in-hand with the prospects and customers to co-create a more meaningful, personalized, and lasting experience.
Relationship Marketing – Total Quality Marketing and Customer Relationship: Customer-Oriented Personnel, The Role of Training, Empowerment and Team Work
Customer satisfaction and company profitability are linked closely to product and service quality. Higher levels of quality results in greater customer satisfaction. Studies have shown that there is a high correlation between relative product quality and profitability. The top priority of the company should be directed to improve the product and service quality.
The striking global success of Japanese companies has resulted from their building exceptional quality into their products. Therefore, companies today have no choice but to adopt quality concepts if they want to continue in the race. “Total quality here refers to the totality of features and characteristics of a product or a service that bear on its ability to satisfy stated or implied needs”.
Today, large number of companies facing global competition. Hence, companies should produce goods which are competitive in world market. Japanese companies try to build exceptional quality into their products.
They owe their success to market oriented quality principles:
i. Focus on building major customer relationships
ii. Organize into client-centered teams- get everyone working towards customer satisfaction
iii. Develop high-quality processes and products
iv. Explicitly ask customers what they expect form them
v. Seek customer feedback
vi. Hire best people and invest in their development
vii. Stay flexible
viii. Build quality continuously
ix. Never be satisfied
Most successful relationship marketing strategies depend on customer- oriented personnel, effective training programs, employees with authority to make decisions and solve problems, and team work.
1. Customer- Oriented Personnel:
For an organization to be focused on building relationships with customers, employees’ attitude and actions must be customer oriented. It should be noted here that the ’employee’s attitude represents the whole firm’. Any person, any department or division that is not customer oriented weakens the positive image of the entire organization.
2. The Role of Training:
Leading marketers recognize the role or employee training in customer service and relationship building. Training improves the capabilities of personnel. It trains them to cultivate better interpersonal and human relations. It improves communication between employees and target audience. It helps the individual in making better decisions and solving problems of the customers effectively.
In addition to training, many marketing-oriented firms are giving employees more authority to solve customer problems on the spot. Delegation of such authority is referred to as empowerment here. Employees develop ownership attitude whey they are treated as part-owners of the business. Empowerment results in greater satisfaction of both employees and customers.
Teamwork entails collaborative efforts of people to accomplish common objectives. Job performance, company performance, product value, and customer satisfaction all improve together when people in the same group begin supporting each other and emphasize cooperation instead of competition.
Performance is also enhanced when people in different areas of responsibility such as production and sales or sales and service practice teamwork, with the ultimate goal of delivering superior customer value and satisfaction.
To conclude, satisfied customers are the assets of any organization. Customers should be made to feel happy to buy our products frequently. Therefore, dealings of the company with customers should be guided by the concept of ‘relationship marketing’. The company’s sales force should help the organization in developing profitable long-term relationships with key customers based on superior customer value and satisfaction.
Relationship Marketing – Valued Relationships with Customers
What is valued relationship? It’s one in which the customer finds value because the benefits received from service delivery significantly exceed the associated costs obtaining them. For the firm, it’s a relationship that is financially profitable over time and in which the benefits of serving a customer may extend beyond revenues to include such intangibles as the learning obtained from working with what customer.
Having a good working relationship between two parties implies that they relate positively to one another, as opposed to just conducting a series of almost anonymous transactions. In a healthy and mutually profitable relationship, both parties have an incentive to ensure that it extends for many years.
And the seller, in particular, recognises that it pays to take an investment perspective, justifying the upfront costs of acquiring new customers and learning about their needs — which may even make the account unprofitable in its first year — by an expectation of future profits. Some service businesses conduct a series of discrete transactions with their customers, as in food service, theatre, travel, and freight transport, whereas others enter into a formal agreement to provide continuing service delivery, as in banking, insurance, and telephone service.
In theory, it’s relatively easy for service firms into the latter category to establish formal relationship with their customers, since each one is identified as a specific account and is billed periodically for the services taken. Firms or industries that sell discrete transactions have to work a little harder to establish relationships. In small business shops such as hair-saloons or hair-dressers, frequent customers are (or should be) welcomed as “regulars” whose needs and preferences are remembered.
In large firms with substantial customer bases, transactions can still be transformed into relationships by opening accounts, maintaining computerised customer records, and instituting account management programs that may involve a telephone number to call for assistance or even a designated account representative.
Long-term contracts between suppliers and their customers take the nature of relationships to a higher level, transforming them into partnerships and strategic alliances. An example of a strategic alliance at a global level is found in the long-term contract between Federal Express’s logistics service division and the worldwide operations of the Laura Ashley manufacturing and retail business.
Relationship Marketing – Benefits
The benefits of relationships marketing are:
i. Focus on providing value to customers;
ii. Emphasis on customer retention;
iii. He integrated approach to marketing, service and quality provides a firmer basis for achieving sustainable competitive advantage; and
iv. The importance of quality and service support is made absolutely clear to all staff.
Relationship Marketing – Important Tips for Successful Relationship Marketing: Listen to Customers and Be Honest
For successful relationship marketing following steps may be considered:
1. Listen to Customers:
Customers are good at speaking out their hearts and minds – their true feel for the product and service. And so, if you just are willing to spare the time, make them comfortable and listen to them with care, they can tell you a lot of useful information. And in case you are unable to volunteer information, just ask questions to dig up the problems and the needs. Then don’t just stop at listening.
It is now time to act. Focus on solving those problems or meeting the needs rather than continuing to sell yet another product. They will appreciate the interest that you show in their feedback and even if you don’t make a sale now, you may end up making a sale. Even otherwise, customers might refer the product to another friend or someone else based on the first class service provided to them by you.
2. Be Honest:
This is the second important point. Do not try to sell a product or service that is not needed by the market. Similarly, if you cannot fulfill particular needs of a customer, just tell them so and help them to find the service or product. This could be someone else who is offering the product.
Your helpfulness will be long remembered and those customers will most likely come back to you some other day when they need your product or service simply because they appreciate the customer service rendered by you the other day.