Relationship Marketing-00-7458

By Author: 4Ps Marketing
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Since the mid-1990s the concept of relationship marketing has been gaining steady ground.

Relationship marketing is defined as the process of creating, building up and managing long-term relationships with customers, distributors and suppliers. It aims to change the focus from attracting customers to retaining customers.

Transaction marketing, on the other hand, is a business approach that concentrates on the transactions between a firm and its customers.

Types and levels of relationship

The type of relationship between a buyer and a seller may be of two types.
(a) In a transaction, a supplier gives the customer a good or service in exchange for money. The marketer, in offering the good or service, is looking for a response. Transaction-based marketing is based on individual transactions and little else, such as when you buy a bar of chocolate.
(b) In a relationship approach, a sale is not the end of a process but the start of an organisation's relationship with a customer.
So building up customer relationships requires a change ...
... of focus from the transaction-based approach to the relationship approach. The contrast is summarised below.

TRANSACTION MARKETING
(mainly one-way communication)
Focus on single sale
Orientation on product features
Short timescale
Little customer service
Limited customer commitment
Moderate customer contact
Quality is the concern of production

RELATIONSHIP MARKETING
(mainly two-way communication)
Focus on customer retention
Orientation on product benefits
Long timescale
High customer service
High customer commitment
High customer contact
Quality is the concern of all

There are five different levels of customer relationship, reflecting varying degrees of customer loyalty.

(a) Basic: The organisation sells the product/service without initiating or inviting any further contact with the customer.

(b) Reactive: The customer is invited to contact the organisation if there are any problems.

(c) Accountable: The organisation follows up the sale, contacting the customer to see if there are any problems and inviting feedback for future improvements.

(d) Proactive: The organisation contacts the customer on a regular basis, for a range of purposes (additional offerings, incentives, updates, loyalty rewards, feedback seeking).

(e) Partnership: Organisation and customer exchange information and work together to achieve customer savings and added value. Commercial buyers often work closely with a supplier to ensure that all aspects of the deal suit the needs of both parties, not just for this deal, but those that can be expected in the future.

Broadly speaking, the greater the number of customers and the smaller the profit per unit sold, the greater the likelihood that the type of marketing will be basic. At the other extreme, where a firm has few customers, but where profits are high, the partnership approach is most likely. Many firms, however, have begun to move towards proactive relationships - even in consumer markets - in order to build customers' loyalty to the brand, open feedback channels and cross-sell related products.

Benefits of relationship marketing

Jobber (2009) identifies six benefits for organisations in developing and maintaining strong customer relationships.
1. Increased purchases. Customers tend to spend more each year with a relationship partner, as that relationship develops. Loyal customers generate more revenue, for more years.
2. Lower cost of retaining (as opposed to recruiting) customers
3. Lifetime value of a customer (profit made on a customer's purchases over the lifetime of that customer)
4. Sustainable competitive advantage. The intangible benefits of a loyal relationship are not easily copied by the competition: trust, friendship etc.
5. Word of mouth from loyal customers leads to new customers
6. Employee satisfaction and retention - employees are more satisfied at work and can spend time improving relationships rather than constantly seeking out new ones

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