Relationship marketing does not mean having a relationship with a customer like the one similar to simple friendships. It simply means treating marketing as a concept that continues wit time. All the tactics involved in this type of marketing will be based on the lifecycle of the consumer.
Relationship marketing has its history dating back to the twentieth century during the eighties and sixties. This form of marketing came about when marketing campaigns were aimed at getting direct responses from consumers. This aspect of marketing is different from others because it focuses on bringing back customers continuously through satisfaction of their needs. Relationship marketing takes a shift from the norm in that it does not focus on single transactions as other marketing strategies do. (Levitt, 1983)
This type of marketing aims at retaining customers rather than obtaining new clients; a characteristic uncommon to other types of marketing practices. The reason why this type of marketing practice was adopted was that traditional marketing had some inadequacies. Initially, traditional marketing dealt with the sale of many low quality goods to numerous customers. But with time, marketing gained a broader perspective and there was a need to enrich the scope of marketing so that other needs in business could be satisfied. This was one of the reasons why there was the introduction of relationship marketing.
The pioneer of this marketing strategy was called Leonard Berry. He realised that most businesses were concentrating almost all their efforts in acquiring new clients but when they got them, they did not have any strategy in place to ensure that they kept coming back. Berry worked in collaboration with Jag Emory who utilised this method in their business practices. Besides this, they were also able to introduce a new concept to marketing; that there is more to it than just conducting individual transactions. Even if these were the people who actually called the practise ‘relationship marketing’, the concept had already been practiced in certain fields like industrial markets. It was very common to find that a particular industry marketed its products in such a way that it targeted already existing customers.
There are three prerogatives necessary to facilitate relationship marketing as shown below as suggested by the pioneer of relationship marketing- Berry;
- if there are many product and services to choose from
- if a customer decides on one selection
- if the customer continuously needs the product or service
Relationship marketing falls under the type of marketing strategy called defensive marketing. This can be contrasted to the more common offensive marketing. The latter mainly focuses on eliminating customers who may be dissatisfied with a good or service and getting new ones. This latter strategy is characterised by a high customer turnover and generation of new customers. But defensive marketing focuses on increasing the level of customer loyalty and eliminating dissatisfaction among them that is, escalating switching barriers. (McKenna, 1991)
- How relationship marketing can be used to improve an organisation’s marketing performance and overall market standing
- How relationship marketing has been facilitated by the use of other marketing and managerial concepts.
Implementing relationship marketing has been made easy by the use of relationship management of customers. This is mostly because the latter concept allows businesses to analyse and track what their customer’s complaints, tastes, likes and dislikes are. This is both beneficial to the customer and the respective Company. The customer is able to communicate with the Company and can get what he needs. While at the same time, it is possible for the Company to decide which method of payment is most common among consumers, what type of products are bought on a continuous basis and what are the times when customers keep coming back to purchase items. Consequently, sales will increase and a given Company can be able to increase its overall marketing performance. (Schneider, 1980)
Lately, there have been new aspects to the concept of relationship marketing. One such aspect is the concept of personalised marketing. Here, a given Company tries to make a profile of a customer who may be purchasing items online. After doing so, the Company then suggests other products that he/she may be interested in; they can then recommend these items to the consumer though the use of emails or other forms of communication.
In line with this, Companies are also able to print information about a particular customer through the use digital printers. This allows them to have a specific description of an individual. This description may contain his name, address, purchase history and demographics. This means that Companies can be able to zero in on a particular individual and track their response rate. In so doing, the given Company will be increasing consumer’s rate of purchase hence their sales and this will go a long way in improving their marketing performance.
Relationship marketing can be able to improve the overall marketing standing of a particular Company through the use of the reengineering theory. Here, structures within the organisation are reorganised such that a given group is responsible for handling all the processes involved in the production of a certain item that is from the manufacturing phase, the promotion phase and even its pricing. This kind of reengineering emphasises the use of cross functional teams which is totally different from the traditional concept that places all aspects of the production process in categories/ departments. Then one department was supposed to hand over to another team and so on. (Berry, 1983)
However, this method of was found to be ineffective because there was a lot of room for poor coordination and very few departments would take the blame for something when it had gone wrong. But relationship marketing can be seen as cross functional marketing. This is because it involves all the areas concerned in the production process from manufacturing all the way to product delivery. It allows everyone involved in the production process to perceive themselves as marketers. In addition, all members of the production team can develop and asses customer relationships and hence do their part in improvement of the production process. Relationship marketing is quite broad since it merges a number of aspects necessary in making any Company successful. These are;
- customer service management
- quality marketing
Relationship marketing is the link between all these three phases and allows customer service and marketing to be viewed as one. In so doing this sort of marketing will be taking on a new dimension. Professors of marketing philosophy have defined marketing as a process not a business function. They claim that marketing should be incorporated into every single person’s job description whether their task is very simple in nature or whether it falls under management. This makes it all encompassing. (George, 1990)
Various approaches to relationship marketing
Relationship marketing focuses greatly on the idea of customer satisfaction. This implies that a given Company will attempt to get as much information as possible. It is mainly concerned with how a customer was satisfied with a particular good or service. Normally what happens is that the customer is given the option of whether or not to contribute their ideas to the Company. If they do, then the Company can be able to asses what kind of prices are most suitable for them, what quality of goods do the customers require and what kind of services are most suitable.
Because this mode of marketing targets a large audience of already existing customers, then the accuracy of information obtained is fairly high. By so doing, the Company will have determined what factors are necessary to boost their sales. Consequently, they will have a better market standing compared to other competing Companies because they will have dealt adequately with all the factors necessary to ensure success in the Company. Relationship marketing is a more focused strategy because of the relevance of facts acquired.
When a given Company adequately satisfies its customers through relationship marketing, it is able to cater for their needs above the abilities of other competing Companies. This implies that customers will continuously keep coming back since there is a stable relationship between the Company and the customers, consequently, profits will be generated in proportion to this. Buy so doing, a given Company will be eliminating the phenomenon of a leaking bucket in economics. This phenomenon is all about generation of new customers and retention of old customers.
In the process of acquiring new customers, Companies may not be able to focus on the satisfaction of the present ones. This implies that as they get new customers, they will be loosing the old ones; therefore profits generated from acquisition of the new ones will be offset by the losses experienced from the loss of the older consumers. This is why the analogy of a leaking bucket was used. The latter strategy is applicable to direct marketing while the former is applicable to relationship marketing. In light of these facts, relationship marketing is a strategy that is quite economically viable. (Dawkins & Reichheld, 1990)
Another reason that reinforces the economic viability of relationship marketing is the fact that it costs a Company about five times more when they decide to acquire new customers as compared to retaining their traditional customers. This especially applies those businesses that are treated as highly competitive. The reason for this is that when dealing with offensive marketing, a lot of resources are required to make potential clients switch direction from what they were previously using to a new offering. Offensive marketing has been propagated by classical theories. These theories normally deal with attraction of new clientele. But with the introduction of this new concept, marketing has taken on a new dimension. The significance of such a strategy is clearly starting to stand out.
Some Companies may choose to combine offensive marketing with relationship marketing. By so doing, they are then able to increase their Net Present Value. A research done by Reicheld (1999) claimed that when customer retention is coupled with other types of marketing, then profitability may be increased with a ratio of one to five.
The first is that the Company will only have to spend once when acquiring new clients. This is because there is a relationship that exists and it is not necessary to invest in creating it again. The second reason is that it is possible to maintain accounts at a relatively low cost compared to the overall costs incurred by the Company. Such a case is very rare in offensive marketing where Companies have to put in a lot of money to keep up the customer’s account. Consequently, Companies applying relationship marketing will have a higher revenue stream.
The third reason is that customers who have established a relationship with a given Company will be less likely to switch to other Companies. Chances are the longer a customer works with a certain Company, the more loyal they become. Such customers are also less susceptible to price changes or less sensitive to them. In so doing, a Company will register stable volume sales per unit. Another reason why output is likely to increase for a given Company using the relationship marketing concept is that a stable relationship with consumers turns them into Company marketers. They will spread the word bout the benefits of dealing with a certain Company. This is free marketing for the Company as they will be able to get more customers through referrals without even investing any form of finance.
In addition, long term customers are very likely to purchase other supplementary products on offer by the Company. The problem with new consumers is that most of them will simply be focusing on particular items. They may not fully understand how a given Company operates and may look at supplementary product offerings suspiciously. But this is not the case for older customers because even the ancillary product will be offered after doing a thorough research on the kind of preferences that that customer has.
Long term customers will also increase profitability for the Company because they act as barriers to the entry of new competitors. A long term relationship with the customer tends to act as a deterrent to entry of competitors because the latter will find it very difficult to convince those long term customers to leave their current suppliers, consequently, they will have a lot of difficulties when trying to penetrate the new market. (George, 1990)
Servicing older customers is very economical. This is because a Company does not have to put too much investment in education of clients. Besides this, those customers are already familiar with the goings on and processes of the Company. Therefore resources do not have to be allocated to tackle these anomalies. In addition, older customers are very predictable when it comes to placing orders. This allows the Company to be able to plan well. Lastly, the Company employing relationship marketing is able to increase satisfaction of its staff members. This is because their work is made simpler, by so doing staff output is increased, this trickles down to increased customer satisfaction and the cycles goes on and on.
Relationship marketing is done through the use of a ladder. This ladder comprises of the following aspects from the most senior customer to the least
- prospective (Kotler et al, 1999).
Relationship marketing aims at getting customers to climb up the ladder from the prospective all the way to the partner. The prospective is one who has not yet purchased goods from the Company while the partner is the one who has a long term relationship with the Company and one that has the highest level of loyalty to the business. All the others in between are arranged in decreasing order of loyalty.
To get customers to move from one aspect of the ladder to another requires the given Company to engage in improving service delivery, quality of their products and tackling other aspects of marketing that will lead to increased satisfaction. Because there is a set criterion to be used in implementing the relationship marketing strategy, then chances are very high that the business will succeed when implementing this kind of strategy.
Companies practising relationship marketing usually improve their overall marketing standing through the use of customer valuation. In this approach, customers are evaluated by the Company and it decides who the most valuable ones are. The company will choose which categories of customers need more investment and resource allocation. It will also decide on the types of customers that have no potential and as such, they should be terminated from their transactions.
There is also another aspect to relationship marketing called measurement of customer retention. This is normally done by finding the ratio of customers who have remained after one year as compared to those who started with the Company and then calculating the percentage. The retention rate will act as a basis to help Companies compare which products are the most valuable or which ones bring the highest return of investments.
In addition, retention rate allows Companies to calculate market segments. Research has shown that businesses with retention rates exceeding eighty percent normally increase the period which customers remain with the Company by a hundred percent. (Jackson, 1985)
Another approach in the use of relationship marketing as a marketing strategy is the determination of underlying problems. One of the major advantages of this kind of strategy is that problems are not dealt with at surface value. Relationship marketing allows the given Company to determine what are the main complaints, what are the solutions that customers can recommend and which is the way forward for that given Company.
The strategy also allows Companies to analyse the opinions of former customers to gain insight into the origin of their predicaments. It is also possible to know the root causes of problems by engaging in competitive benchmarking. Here, Companies can find out what other competitors in the field are doing and then they can use those ideas to implement changes in their own businesses. This will go along way in ensuring that customers are satisfied and that the business is ahead of its competition.
Another approach used in relationship marketing is the application of corrective measures. When a Company has finished collecting all the relevant information necessary for improvement of service and product delivery, it should then come up with a plan. The following can be adopted by Companies to serve as corrective measures;
- using recovery teams;
- improving reward systems;
- boosting employee practises (Buchanan & Gilles, 1990).
Recovery team are essential because they assign given tasks to a team and work is not distributed haphazardly to the entire organisation. By doing so, a Company will recover faster and will also be more focused in the recovery process. Bench marking is also another effective way of implementing change within the organisation. Companies can set targets according to customer preferences and they can be constantly comparing performance to these new standards.
When employees are motivated, their out put will consequently be increased. This will result in improvement of the Company’s image and hence customer satisfaction. The Company can also improve its performance through the process of developing employee practices. Companies that have bad employee practices usually have terrible images and this acts as a deterrent to sales since customers perceive that Company negatively. In addition to company image, good employee practices like insurance offers, holiday allowances and good pension schemes will encourage employees to improve their service. This will have a direct effect on the customer who will keep coming back and sales will be improved.
There are also other strategies that are incorporated into relationship marketing to ensure that customer retention is high. One of them is through the use of product bundling. In this type of strategy, a Company can obtain several types of products and offer them as one under a collective price. By doing this, the Company will be encouraging customers to purchase more items and customers will also feel like they are getting a bargain for their products. In addition to this, a Company can also use the strategy of cross selling. This is normally achieved through marketing products that are related to customers.
Another approach that is quite similar to the latter is called cross promotions. This approach involves selling related products to customers at a discount through the use of other promotional items. Companies can also introduce loyalty programmes. Here, those customers who have been known to frequent a given business can be given certain incentives that will give them more reasons to come back to the corporation. Companies can also introduce the concept of termination fees where customers who want to switch to another business or those who would like to end deals with it can be charged other types of end costs. (Carrol & Reichheld, 1992)
On top of these, Companies can also introduce the issue of networking computer systems for multiple organisations. This is quite beneficial to Companies that deal with industrial manufactures. But it should be noted that the overall similarity between all the above approaches is that there should be an increased level of contact between the customer and the Company. The two parties should consider each other as a team where both can benefit from the relationship which they have created.
Another important issue to remember is that relationship marketing need not eliminate the use of transactional marketing as the two strategies can be complementary to one another. What the Company can do is that it could asses its standing then it could choose which approach is most suitable at that time. In case circumstances change, then the Company can adopt a more relevant approach. Relationship marketing is most suitable to cases when it costs a lot of money to switch between suppliers while transactional marketing is best used for the opposite scenario. A good example of a service that costs very little to switch between suppliers is energy supply in the UK. This type of service could best be handled through transactional rather than relationship marketing. (Reichheld & Sasser, 1990)
Besides this, Relationship marketing is also suitable to Companies that mostly deal with tangible goods rather than services like in the manufacturing sector. It would also be inappropriate to use it in types of services where clients prefer buying once rather than having a long term relationship with the Company. Also when the process of making a certain product involves customers, then relationship marketing would be a wise approach to use.
There are many approaches that can be adopted in relationship marketing and one of them is internal marketing. Here, a given Company applies relationship marketing in all departments within the organisation. Internal marketing considers all the members of the Company to be customers. For example the sales department is a customer to the production department while the production department is a customer to the procurement department and so on.
Relationship marketing can be applied to theses departments such that all the members of the organisation can determine what the needs of their internal customers are. When they do this, then they can work towards the improvement of their services and these will consequently lead to overall improvement of the Company image. Beside this, employees will be able to comprehend what their function in the whole organisation is. This implies that they will be working towards a certain goal. Whenever there is good internal marketing then chances are high that external marketing applied will also be of high quality since employees now understand what is required in relationship marketing.
How relationship marketing is applied
There are various ways in which relationship marketing can be applied to ensure it is effective and to increase overall market standing of the Company. These include
- customer markets;
- influence markets;
- referral markets;
- recruitment markets;
- supplier markets;
- internal markets (Kotler et al, 1999).
Referral markets are achieved by the use of marketing plans whose end goal is to generate referrals from various consumers. The beauty about referrals is that the business will be getting customers who it did not pay for. These customers were simply directed to the business after it had been found out that the Company offers goods or services that are satisfactory in nature. This type of marketing plan is quite efficient and cost effective among all the six marketing models mentioned above. (Gordon, 1999)
Relationship marketing also applies to supplier markets in that it can be use to achieve satisfaction among them. It is important for the business to make sure that it forges a good relationship with its suppliers. This will go a long way in boosting quality of products made by the Company since raw materials will be arriving on time and in good quality. Supplier marketing is also crucial to the business because it will facilitate cost reduction when there is a mutual understanding between the two parties. If the two parties know what the other anticipates from them, then these expectations can be exceeded and quality will be improved.
Influence markets as a model for relationship marketing encompass all the external factors that may influence the Company during its operations. It may involve dealing with labour associations, environmental associations, consumer associations, stockbrokers, financial analysts, venture capitalists, bankers, stockholders, lobbyists, standard bodies and government regulators. Traditionally, dealing with these external factors was left to the public relations department. But this has since changed after the introduction of relationship marketing because the concept involves all the members of the organisation.
Customer markets may further be divided into two categories i.e. potential customers and present customers. Customer markets are the most important marketing model in relationship marketing. This is because revenue streams are directly generated from these markets. It is important to work out strategies that will improve the kind of satisfaction that is achieved by the consumer. However, it should be noted that different approaches are used when dealing with customers who may not yet have bought anything from the business and when dealing with those ones who have become regular customers for the Company. (Gale & Chapman, 1994)
Beside these six models listed above, relationship marketing can also be incorporated into the activities of a given business through a number of routes.
- improving market segments;
- incorporating customer preferences in design pf the product;
- communicating in an individualised manner;
- leaving time for market research;
- incorporating clients in pricing decisions;
- obtaining information about customers.
The first one is through market segments. Companies can alter the methods they use to segment their products. This is because when Companies are not informed about customer preferences, then it is possible for them to place their products in categories that my not be suitable to clients. But through good relationship marketing, Companies can be able to understand their customers better and can eliminate market segments that my not be very useful to them. They may also get suggestions on the creation of new segment in that regard.
Companies can also design their products or services according to customer preferences. For example if a clothing Company manufactures handbags, they may receive suggestions from customers that handbags with long handles are quite tedious and very easily mugged. After engaging in serious relationship marketing, the Company can be able to find out about this discrepancy and the next time they produce a different batch of handbags, they can make their handles shorter.
Services can also be improved; for example some customers may not find delivery services used by certain Companies effective: They my feel that their products are never delivered on time or that they have to pay too much for the product to be delivered. These concerns can be aired to the Company when there is a good relationship between the customer and the business and necessary changes can be made. (Butterworth-Heinemann, 1991)
Communication is a crucial aspect that needs to be improved when using relationship marketing. Customers always feel appreciated when they obtain feedback from a given Company. This is because they will not assume that a given Company was just using them for a sale and now they are done with them. When a certain business goes out of its way to communicate with customers on a one on one basis, these customers will have a stronger sense of loyalty towards this Company and they will feel obliged to go back to that Company again. This perception will be solidified further when suggestions made by that customer are incorporated in the design of the product.
Companies need to allocate time to do research markets and customer research. This is a vital element of relationship marketing. But with all the activities that a business has to undertake, it can be quite tricky trying to allocate some time to this particular aspect. It is therefore necessary to ensure that when planning activities for the Company, ample time is given for research into customer needs and preferences.
Customers should also be involved when making pricing decisions as part of an implementation strategy for relationship marketing. Customers are well aware of what other Companies out there may be offering. This implies that they are at a very authoritative position to suggest the kind of prices that are suitable for a given product. Customers will consider the value of the good when looking at the price, they will also determine whether the price compares to some other additional services being offered alongside the product by the Company. Companies should remember that prices are a reflection of the kind of value added to the product. It is therefore necessary to ensure that prices quoted are suitable to customer preferences. (Fornell & Wernerfelt, 1987)
Lastly, relationship marketing is also applied when trying to obtain information about customers on an individual basis. This implies that customers who participate are those ones who would like to do so. It must be done through mutual consensus and all parties must agree before any information is distributed. The process of getting this information should also be characterised by the use of sound data acquisition techniques such that decisions made after analysing the data are done on a solid basis.
Examples of how to use relationship marketing when conducting business or when dealing with a client
Since it has been established that relationship marketing involves the adjustment of a given marketing strategy, one can be able to customise their message to suite a particular customer instead of sending the message to numerous people. It should be remembered that the approach studies what kind of stage the customer is in, ten suitable adjustments are made in that regard. The stages are part of a customer lifecycle that affects the way they may behave. An example of these concepts is as shown below. (Berry, 1983)
If a customer has visited a certain Company website and they are looking for a good, then the Company can send them a kit for first timers. The kit may have information that encourages the given customer to come back and purchase other items. This customer can then be watched for two months. If the customer does not respond to the kit that had been sent to them through the purchase of certain products, the Company can then decide to send them an email that informs them about discounts that they offer.
Another scenario is when a certain customer visits a Company website frequently but they have never bothered to shop anything. The Company can deduce several things from such behaviour. First of all, it could be that the customer doe not like what they see being displayed at the website. Or it could be that they always find certain websites that have better offers than the ones being offered by this particular Company. In addition, it could be that the potential customer has lost interest in the product.
This lack of action should trigger the Company to do something about the customer. One of the approaches the Company could choose is improvement of their website. After doing that, the Company could inform the potential customer and then see what happens. When the customer starts purchasing the items, then it shows that they are giving feedback to the organisation. The Company can then send them a message to thank them for their buy and can even offer them a second discount.
This could trigger either a negative or a positive response. Either way, the Company should act accordingly to make sure that that they sealed the deal. When the customer keeps purchasing more then this means that the cycle has been completed and that a change in data should cause the Company to improve their communications or apply another approach.
There are four aspect of relationship marketing that must be remembered as explained in the essay above. First of all, customer behaviour in the future is best analysed by the way customers behave in the present. This is the reason why it is essential to evaluate this behaviour. The second aspect is that if a Company would like to retain customers then they must try as much as possible to keep them active. The third element about relationship marketing is that Companies must create a cycle with the customer, here they identify the prospective customer and take the first step, then they must wait for a reaction from the customer, give feed back to them and then repeat the latter three.
The last aspect of relationship marketing is the fact that resources must be allocated in order to retain the market. Resources here do not just mean finances; they also incorporate the use of time to ensure that customers are adequately satisfied and that they keep coming back to the business. By following these four steps, relationship marketing therefore improve marketing performance and overall marketing strategy. (Jackson, 1985)
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