Relationship marketing is a form of marketing that evolved from direct response marketing in the 1960s and emerged in the 1980s, in which emphasis is placed on building longer term relationships with customers rather than on individual transactions. It involves understanding the customer's needs as they go through their life cycles. It emphasizes providing a range of products or services to existing customers as they need them. Wikibooks has more about this subject: Marketing Look up marketing in Wiktionary, the free dictionary. ... Wikibooks has more about this subject: Marketing In economics and marketing, a service is the non-material equivalent of a good. ...

What is relationship marketing

It is a philosophy of doing business, a strategic orientation, that focuses on keeping and improving relationships with current customers rather than on acquiring new customers. It is the use of the wide range of marketing, sales, communication, and customer care techniques and processes to identify your named individual customers, create a relationship between your company and these customers.

One of America's foremost expert in Referral Marketing is Bill Cates[1] - author of "Get More Referrals Now"[2] and "Don't Keep Me a Secret"[3] - both published by McGraw-Hill. His website is: [4]

The goals of relationship marketing

The discussion of the evolution of customer relationship demonstrates how a firm's relationship with its customers might be enhanced as customers move further along this relationship continuum. As the relationship value of customer increases, the provider is more likely to pursue a closer relationship. The primary goal of relationship marketing is to build and maintain a base of committed customers who are profitable for the organization.

Development of relationship marketing

The origins of relationship marketing observes: "What is surprising is that researchers and businessmen have concentrated far more on how to attract customers to products and services than on how to retain customers". The initial research was done by Leonard Berry at Texas A&M (Berry, L. 1982) and Jag Sheth at Emory, both of whom were early users of the term "Relationship Marketing", and by marketing theorist Theodore Levitt at Harvard (Levitt, T. 1983) who broadened the scope of marketing beyond individual transactions. Texas A&M University, often called A&M or TAMU, is a coeducational public research university located in College Station, Texas. ... Emory University is a private university located in the city of Atlanta, Georgia. ... Theodore Levitt is an American economist and professor at Harvard Business School. ... Harvard University (incorporated as The President and Fellows of Harvard College) is a private university in Cambridge, Massachusetts, USA and a member of the Ivy League. ...

In practice, relationship marketing originated in industrial and B2B markets where long-term contracts have been quite common for many years. Academics like Barbara Bund Jackson at Harvard re-examined these industrial marketing practices and applied them to marketing proper ^[1]. Dr Zak article:-Business-to-business electronic commerce (B2B) typically takes the form of automated processes between trading partners and is performed in much higher volumes than business-to-consumer (B2C) applications. ...

According to Leonard Berry ^[2], relationship marketing can be applied: when there are alternatives to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service.

Fornell and Wernerfet^[3] used the term "defensive marketing" to describe attempts to reduce customer turnover and increase customer loyalty. This customer-retention approach was contrasted with "offensive marketing" which involved obtaining new customers and increasing customers' purchase frequency. Defensive marketing focused on reducing or managing the dissatisfaction of your customers, while offensive marketing focused on "liberating" dissatisfied customers from your competition and generating new customers. There are two components to defensive marketing: increasing customer satisfaction and increasing switching barriers. Switching barriers or switching costs are terms used in microeconomics, strategic management, and marketing to describe any impediment to a customers changing of suppliers. ...

Traditional marketing originated in the 1960s and 1970s as companies found it more difficult to sell consumer products. Its consumer market origins molded traditional marketing into a system suitable for selling relatively low-value products to masses of customers. Over the decades, attempts have been made to broaden the scope of marketing, relationship marketing being one of these attempts. Marketing has been greatly enriched by these contributions.

The practice of relationship marketing has been greatly facilitated by several generations of customer relationship management software that allow tracking and analysing of each customer's preferences, activities, tastes, likes, dislikes, and complaints. This is a powerful tool in any company's marketing strategy. For example, an automobile manufacturer maintaining a database of when and how repeat customers buy their products, the options they choose, the way they finance the purchase etc., is in a powerful position to custom target sales material. In return, the customer benefits from the company tracking service schedules and communicating directly on issues like product recalls. Customer relationship management (CRM) is a broad term that covers concepts used by companies to manage their relationships with customers, including the capture, storage and analysis of customer information. ...

Customer retention

At the core of relationship marketing is the notion of customer retention. According to Gordon ^[4], relationship marketing involves the creation of new and mutual value between a supplier and individual customer. Novelty and mutuality deepen, extend and prolong relationships, creating yet more opportunities for customer and supplier to benefit one another.

Studies in several industries have shown that the cost of retaining an existing customer is only about 10% of the cost of acquiring a new customer so it can often make economic sense to pay more attention to existing customers.

It is claimed by Reichheld and Sasser ^[5] that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry. However Carrol, P. and Reichheld, F. ^[6] dispute these calculations, claiming they result from faulty cross-sectional analysis. Fred Reichheld (undated photograph) Frederick F. Reichheld (born 1952, Cleveland) is an United States business author and business strategist best known for his research and writing on the loyalty business model and Loyalty Marketing. ... It has been suggested that this article or section be merged with Discounted cash flow. ...

According to Buchanan and Gilles ^[7], the increased profitability associated with customer retention efforts occurs because:

• The cost of acquisition occur only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.
• Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
• Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.
• Long-term customers may initiate free word of mouth promotions and referrals.
• Long-term customers are more likely to purchase ancillary products and high margin supplemental products.
• Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share.
• Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.
• Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle.

Relationship marketers speak of the "relationship ladder of customer loyalty". It groups types of customers according to their level of loyalty. The ladder's first rung consists of "prospects", that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of "customer", "client", "supporter", "advocate", and "partner". The relationship marketer's objective is to "help" customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step. Word of mouth, is a reference to the passing of information by verbal means, especially recommendations, but also general information, in an informal, person-to-person manner. ... In many parts of economics there is an assumption that a complex system of determinants will tend to lead to a state of equilibrium. ...

Customer retention efforts involve considerations such as the following:

1. Customer valuation - Gordon (1999) describes how to value customers and categorize them according to their financial and strategic value so that companies can decide where to invest for deeper relationships and which relationships need to be served differently or even terminated.
2. Customer retention measurement - Dawkins and Reichheld (1990) calculated a company's "customer retention rate". This is simply the percentage of customers at the beginning of the year that are still customers by the end of the year. In accordance with this statistic, an increase in retention rate from 80% to 90% is associated with a doubling of the average life of a customer relationship from 5 to 10 years. This ratio can be used to make comparisons between products, between market segments, and over time.
3. Determine reasons for defection - Look for the root causes, not mere symptoms. This involves probing for details when talking to former customers. Other techniques include the analysis of customers' complaints and competitive benchmarking (see competitor analysis).
4. Develop and implement a corrective plan - This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company's reward and recognition systems, and the use of "recovery teams" to eliminate the causes of defections.

A technique to calculate the value to a firm of a sustained customer relationship has been developed. This calculation is typically called customer lifetime value. only joking Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. ... Benchmarking (also best practice benchmarking or process benchmarking) is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector. ... This is a long-term marketing principle which looks at the value to the company of a customer over the whole time that they relate with the company. ...

Retention strategies also build barriers to customer switching. This can be done by product bundling (combining several products or services into one "package" and offering them at a single price), cross selling (selling related products to current customers), cross promotions (giving discounts or other promotional incentives to purchasers of related products), loyalty programs (giving incentives for frequent purchases), increasing switching costs (adding termination costs, such as mortgage termination fees), and integrating computer systems of multiple organizations (primarily in industrial marketing). Wikibooks has more about this subject: Marketing Sales promotion is one of the four aspects of promotional mix. ...

Many relationship marketers use a team-based approach. The rationale is that the more points of contact between the organization and customer, the stronger will be the bond, and the more secure the relationship.

The broad scope of relationship marketing

Relationship marketing has been strongly influenced by reengineering. According to reengineering theory, organizations should be structured according to complete tasks and processes rather than functions. That is, cross-functional teams should be responsible for a whole process, from beginning to end, rather than having the work go from one functional department to another. Traditional marketing is said to use the functional department approach. This can be seen in the traditional four P's of the marketing mix. Pricing, product management, promotion, and placement are claimed to be functional silos that must be accessed by the marketer if she is going to perform her task. According to Gordon (1999), the marketing mix approach is too limited to provide a usable framework for assessing and developing customer relationships in many industries and should be replaced by an alternative model where the focus is on customers and relationships rather than markets and products. reengineering (or re-engineering) is the radical redesign of an organizations processes, especially its business processes. ... In business, a cross-functional team consists of a group of people working toward a common goal and made of people with different functional expertise. ... The marketing mix is generally accepted as the use and specification of the 4 Ps describing the strategic position of a product in the marketplace. ... This article does not cite any references or sources. ... This article or section does not adequately cite its references or sources. ... Scale model of a Wheaties cereal box at a pep rally Promotion is one of the four aspects of marketing. ... Wikibooks has more about this subject: Marketing Distribution is one of the 4 aspects of marketing. ...

In contrast, relationship marketing is cross-functional marketing. It is organized around processes that involve all aspects of the organization. In fact, some commentators prefer to call relationship marketing "relationship management" in recognition of the fact that it involves much more than that which is normally included in marketing.

Martin Christopher, Adrian Payne, and David Ballantyne ^[8]at the Cranfield Graduate school of Management claim that relationship marketing has the potential to forge a new synthesis between quality management, customer service management, and marketing. They see marketing and customer service as inseparable.

In spite of this broad scope, relationship marketing has not lost its core marketing orientation though. It involves the application of the marketing philosophy to all parts of the organization. Every employee is said to be a "part-time marketer". The way Regis McKenna (1991) puts it:

"Marketing is not a function, it is a way of doing business . . . marketing has to be all pervasive, part of everyone's job description, from the receptionist to the board of directors."

Because of this, it is claimed that relationship marketing is a more pure form of marketing than traditional marketing.

Internal marketing

Relationship marketing stresses what it calls internal marketing. This refers to using marketing techniques within the organization itself. It is claimed that many of the traditional marketing concepts can be used to determine what the needs of "internal customers" are. According to this theory, every employee, team, or department in the company is simultaneously a supplier and a customer of services and products. An employee obtains a service at a point in the value chain and then provides a service to another employee further along the value chain. If internal marketing is effective, every employee will both provide and receive exceptional service from and to other employees. It also helps employees understand the significance of their roles and how their roles relate to others'. If implemented well, it can also encourage every employee to see the process in terms of the customer's perception of value added, and the organization's strategic mission. Further it is claimed that an effective internal marketing program is a prerequisite for effective external marketing efforts. (George, W. 1990) The value chain was described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance, New York, NY The Free Press. ...

The six markets model

Adrian Payne (1991) from Cranfield University goes further. He identifies six markets which he claims are central to relationship marketing. They are: internal markets, supplier markets, recruitment markets, referral markets, influence markets, and customer markets.

Referral marketing is developing and implementing a marketing plan to stimulate referrals. Although it may take months before you see the effect of referral marketing, this is often the most effective part of an overall marketing plan and the best use of resources.

Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in which all parties understand each other's needs and exceed each other's expectations. Such a strategy can reduce costs and improve quality.

Influence markets involve a wide range of sub-markets including: government regulators, standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts, stockbrokers, consumer associations, environmental associations, and labour associations. These activities are typically carried out by the public relations department, but relationship marketers feel that marketing to all six markets is the responsibility of everyone in the organization. Influencer marketing is a form of marketing that has emerged from a variety of recent practices and studies, in which focus is placed on specific key individuals (or types of individual) rather than the target market as a whole. ... Public relations (PR): Building sustainable relations with all publics in order to create a postive brand image. ...

At times Payne sub-divides customer markets into existing customers and potential customer, yielding seven rather than six markets. He claims that each market will require its own strategies and recommends separate marketing mixes for each of the seven. The marketing mix is generally accepted as the use and specification of the 4 Ps describing the strategic position of a product in the marketplace. ...

When to use relationship marketing

Relationship marketing and transactional marketing are not mutually exclusive and there is no need for a conflict between them. However, one approach may be more suitable in some situations than in others. Transactional marketing is most appropriate when marketing relatively low value consumer products, when the product is a commodity, when switching costs are low, when customers prefer single transactions to relationships, and when customer involvement in production is low. When the reverse of all the above is true, as in typical industrial and service markets, then relationship marketing can be more appropriate. Most firms should be blending the two approaches to match their portfolio of products and services. Virtually all products have a service component to them and this service component has been getting larger in recent decades. (See service economy and experience economy.) Switching barriers or switching costs are terms used in microeconomics, strategic management, and marketing to describe any impediment to a customers changing of suppliers. ... Service economy can refer to one or both of two recent economic developments. ... The Experience Economy, according to B. Joseph Pine II and James H. Gilmore in their 1999 book of the same name, is an advanced service economy which has begun to sell mass customization services that are similar to theatre, using underlying goods and services as props. ...

Benefits for customers

<1> Confidence benefits: comprise feelings of trust or confidence in the provider along with a sence of reduced anxiety and comfort in knowing what to expect. Across all the services studied in the research just sited,confidence benefits were the most important to customers.

<2> Social benefits: customers develop a sence of familiarity and even a social relationship with their service providers. In some long-term customer-firm relationship,a service provider may actually become part of consumer's social support system.For example, the health club or restaurant manager who knows her customers personally. These types of personal relationships can develop for business to business customers as well as for end consumers of services.

 ......to be continued 

References

1. ^ Jackson, Barbara (1985). Build customer relationships that last. Harvard Business Review, 195.  ISBN 0669111465
2. ^ Berry, Leonard (1983). Relationship Marketing. American Marketing Association, Chicago, 146.  ISBN 0877571619
3. ^ Fornell, C. and Wernerfelt, B. (1987) "Defensive marketing strategy by customer complaint management : a theoretical analysis", Journal of Marketing Research, November, 1987, pp 337-346
4. ^ Gordon, Ian (1999). Relationship Marketing: New Strategies, Techniques and Technologies to Win the Customers You Want and Keep Them Forever. John Wiley and Sons Publishers, 336.  ISBN 0471641731
5. ^ Reichheld, F. and Sasser, W. (1990)"Zero defects: quality comes to services", Harvard Business Review, Sept-Oct, 1990, pp 105-111
6. ^ Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention", Journal of Retail Banking, vol 13, no 4, 1992
7. ^ Buchanan, R. and Gilles, C. (1990) "Value managed relationship: The key to customer retention and profitability", European Management Journal, vol 8, no 4, 1990
8. ^ (1991) Relationship Marketing. Butterworth-Heinemann, Oxford, 264.  ISBN 0750648392

• Dawkins, P. and Reichheld, F. (1990) "Customer retention as a competitive weapon", Directors and Boards, vol 14, no 4, 1990
• George, W. (1990) "Internal marketing and organizational behaviour", Journal of Business Research, vol 20, no 1, 1990
• Levitt, T. (1983) "After the sale is over", Harvard Business Review, Sept-Oct, 1983
• McKenna, R. (1991) "Marketing is everything", Harvard Business Review, Jan-Feb, 1991, pp 65-70 (ebook)
• Schneider, B. (1980) "The service organization climate is critical", Organizational Dynamics, 1980

External link

• Relationship Marketing Summit 2007