Relationship marketing

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. his includes tools for managing relationships with customers that goes beyond simple demographic and customer service data. Relationship Marketing extends to include !nbound Marketing efforts, "a combination of search optimization and #trategic $ontent%, &R, #ocial Media and Application 'evelopment. (ust like customer relationship management,"$RM%, Relationship Marketing is a broadly recognized, widely)implemented strategy for managing and nurturing a company*s interactions with clients and sales prospects. !t also involves using technology to organize, synchronize business processes, "principally sales and marketing activities%, and most importantly, automate those marketing and communication activities on concrete marketing se+uences that could run in autopilot, "also known as marketing se+uences%. he overall goals are to find, attract and win new clients, nurture and retain those the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service. ,-. /nce simply a label for a category of software tools, today, it generally denotes a company)wide business strategy embracing all client)facing departments and even beyond. When an implementation is effective, people, processes, and technology work in synergy to increase profitability, and reduce operational costs.

Development
Relationship Marketing refers to a long)term and mutually beneficial arrangement where both the buyer and seller have an interest in providing a more satisfying exchange. his approach attempts to transcend the simple purchase)exchange process with a customer to make more meaningful and richer contact by providing a more holistic, personalized purchase, and uses the experience to create stronger ties. According to 0iam Alvey ,-., relationship marketing can be applied when there are competitive product alternatives for customers to choose from1 and when there is an ongoing and periodic desire for the product or service. 2ornell and Wernerfelt,3. used the term 4defensive marketing4 to describe attempts to reduce customer turnover and increase customer loyalty. his customer)retention approach was contrasted with 4offensive marketing4 which involved obtaining new customers and increasing customers5 purchase fre+uency. 'efensive marketing focused on reducing or managing the

dissatisfaction of your customers, while offensive marketing focused on 4liberating4 dissatisfied customers from your competition and generating new customers. here are two components to defensive marketing6 increasing customer satisfaction and increasing switching barriers. Modern consumer marketing originated in the -789s and -7:9s as companies found it more profitable to sell relatively low)value products to masses of customers. /ver 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. he practice of relationship marketing has been facilitated by several generations of customer relationship management software that allow tracking and analyzing of each customer5s preferences, activities, tastes, likes, dislikes, and complaints. 2or 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. !n web applications, the consumer shopping profile can be built as the person shops on the website. his information is then used to compute what can be his or her likely preferences in other categories. hese 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 uni+ue, personalized pieces for each recipient. 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. he 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. hat 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. raditional marketing is said to use the functional "or 5silo5% department approach. he legacy of this can still be seen in the traditional four &5s of the marketing mix. &ricing, product management, promotion, and placement. According to ;ordon "-777%, 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. !n contrast, relationship marketing is cross)functional marketing. !t is organized around processes that involve all aspects of the organization. !n fact, some commentators prefer to call

relationship marketing 4relationship management4 in recognition of the fact that it involves much more than that which is normally included in marketing. Martin $hristopher, Adrian &ayne, and 'avid <allantyne ,=. at the $ranfield #chool of Management claim that relationship marketing has the potential to forge a new synthesis between +uality management, customer service management, and marketing. hey see marketing and customer service as inseparable. Relationship marketing involves the application of the marketing philosophy to all parts of the organization. >very employee is said to be a 4part)time marketer4. he way Regis Mc?enna "-77-% puts it6 4Marketing is not a function, it is a way of doing business . . . marketing has to be all pervasive, part of everyone5s @ob description, from the receptionist to the board of directors.

Approaches
Satisfaction
Relationship marketing relies upon the communication and ac+uisition of consumer re+uirements solely from existing customers in a mutually beneficial exchange usually involving permission for contact by the customer through an 4opt)in4 system.,A. With particular relevance to customer satisfaction the relative price and +uality 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 Biral marketing for the ac+uisition 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 re+uirements above those of competing companies through a mutually beneficial relationship,A.,8. his techni+ue 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 4leaky bucket theory of business4 in which new customers gained in older direct marketing oriented businesses were at the expense of or coincided with the loss of older customers.,:.,C. his process of 4churning4 is less economically viable than retaining all or the ma@ority of customers using both direct and relationship management as lead generation via new customers re+uires more investment.,D. 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 8 times more to attract new customers than it would to retain current customers, as direct or

4offensive4 marketing re+uires much more extensive resources to cause defection from competitors.,D. Eowever, 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 ma@ority usage of direct marketing used in the past is now gradually being used more alongside relationship marketing as its importance becomes more recognizable.,D.. !t is claimed by Reichheld and #asser ,7. that a 8F improvement in customer retention can cause an increase in profitability of between 38 and D8 percent "in terms of net present value% depending on the industry. Eowever $arrol, &. and Reichheld, 2.,-9. dispute these calculations, claiming they result from faulty cross)sectional analysis. Research by (ohn 2leming and (im Asplund indicates that engaged customers generate -.C times more revenue than normal customers, while having engaged employees and engaged customers returns a revenue gain of =.A times the norm. According to <uchanan and ;illes ,--., the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.

he cost of ac+uisition 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%. 0ong)term customers tend to be less inclined to switch, and also tend to be less price sensitive. his can result in stable unit sales volume and increases in dollar)sales volume. 0ong)term customers may initiate free word of mouth promotions and referrals. 0ong)term customers are more likely to purchase ancillary products and high margin supplemental products. $ustomers 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, re+uire less 4education4, and are consistent in their order placement. !ncreased customer retention and loyalty makes the employees5 @obs easier and more satisfying. !n turn, happy employees feed back into better customer satisfaction in a virtuous circle.

Relationship marketers speak of the 4relationship ladder of customer loyalty4. !t groups types of customers according to their level of loyalty. he ladder5s first rung consists of 4prospects4, that is, people that have not purchased yet but are likely to in the future. his is followed by the successive rungs of 4customer4, 4client4, 4supporter4, 4advocate4, and 4partner4. he relationship marketer5s ob@ective is to 4help4 customers get as high up the ladder as possible. his usually

involves providing more personalized service and providing service +uality that exceeds expectations at each step. $ustomer retention efforts involve considerations such as the following6 -. $ustomer valuation ) ;ordon "-777% 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. 3. $ustomer retention measurement ) 'awkins and Reichheld "-779% calculated a company5s 4customer retention rate4. his is simply the percentage of customers at the beginning of the year that are still customers by the end of the year. !n accordance with this statistic, an increase in retention rate from D9F to 79F is associated with a doubling of the average life of a customer relationship from 8 to -9 years. his ratio can be used to make comparisons between products, between market segments, and over time.
3. 'etermine reasons for defection ) 0ook for the root causes, not mere symptoms. his

involves probing for details when talking to former customers. /ther techni+ues include the analysis of customers5 complaints and competitive benchmarking "see competitor analysis%.
4. 'evelop and implement a corrective plan ) his could involve actions to improve

employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, ad@ustments to the company5s reward and recognition systems, and the use of 4recovery teams4 to eliminate the causes of defections. A techni+ue to calculate the value to a firm of a sustained customer relationship has been developed. his calculation is typically called customer lifecycle value. Retention strategies also build barriers to customer switching. his can be done by product bundling "combining several products or services into one 4package4 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 fre+uent 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. he 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. Birtually all products have a service component to them and this service component has been getting larger in recent decades. "#ee service economy and experience economy.% Many big brands are involved with >xperiential Marketing and some of the best 5big)brand5 marketing campaigns are conducted by specialist Relationship Marketing or >xperiential Marketing Agencies. #ome of the most well known brands and marketing campaigns include6

$oca $ola,-3. Bolkswagen Gescafe,-=. < EHagen)'azs,-A. e<ay,-8. 'ell,-:.

Internal marketing
Relationship marketing also stresses what it calls internal marketing. his refers to using a marketing orientation within the organization itself. !t is claimed that many of the relationship marketing attributes like collaboration, loyalty and trust determine what 4internal customers4 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. !f internal marketing is effective, every employee will both provide and receive exceptional service from and to other employees. !t also helps employees understand the significance of their roles and how their roles relate to others5. !f implemented well, it can also encourage every employee to see the process in terms of the customer5s perception of value added, and the organization5s strategic mission. 2urther it is claimed that an effective internal marketing program is a prere+uisite for effective external marketing efforts. ";eorge, W. -779%

The six markets model

$hristopher, &ayne and <allantyne "-77-% from $ranfield Iniversity goes further. hey identify six markets which they claim are central to relationship marketing. hey are6 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 others5 needs and exceed each others5 expectations. #uch a strategy can reduce costs and improve +uality. !nfluence markets involve a wide range of sub)markets including6 government regulators, standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts, stockbrokers, consumer associations, environmental associations, and labor associations. hese 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. >ach market may re+uire its own explicit strategies and a separate marketing mix for each.

Live-in Marketing
0ive)in Marketing is a term used to describe 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 0!M was developed as a means to reach select target demographics in a non)evasive and much less garish manner than traditional advertising. History While 0!M 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,-C. in Gorth America and >urope, as well as the relatively high R/! in terms of advertising dollars spent on experiential marketing compared to traditional big media advertising, industry analysts see 0!M as a natural progression. remise 0!M functions around the premise that marketing or advertising agencies go out on behalf of the brand in +uestion and find its target demographic. 2rom that point forward avenues such as sponsorship or direct product placement and sampling are explored. Inlike traditional event marketing, 0!M suggests that end)users will sample the product or service in a comfortable and relaxed atmosphere. he idea behind this techni+ue is that the end)user will have as positive as possible an interaction with the given brand thereby leading to word)of)mouth,-D. communication and potential future purchase. !f the success of traditional event and experiential marketing is shared with 0!M then it could indicate +uite a lucrative and fairly low)cost means of product promotion. Eowever, due to the fact that this means of advertising is still in its infancy more research is re+uired to determine the true success of such campaigns. <ecause 0!M is a fairly new concept many agencies are only now beginning to incorporate it into their advertising and marketing portfolios. he first such company to explicitly offer 0!M services was Eostival $onnect in late 39-9. !t is expected that more and more agencies will begin to sell 0!M type campaigns