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.
It is an approach which emphasizes the continuing relationships that should exist between the organization and its customers. It emphasizes the importance of customer service and quality and of developing a series of transactions with consumers. The terminology was first described by Theodore Levitt in 1983.
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. This includes tools for managing relationships with customers that goes beyond simple demographic and customer service data. Relationship Marketing extends to include inbound marketing efforts, (a combination of search optimization and strategic content), PR, social media and application development.
Origin of the Relationship Marketing
Already in 1980, B. Schneider wrote: What is surprising is that researchers and businessmen have concentrated far more on how to attract customers to products and services than on retaining customers. In 1983 Levitt wrote: In a great and increasing proportion of transactions, the relationship actually intensifies subsequent to the sale. This becomes a central factor in the buyer’s choice of the seller the next time.
Relationship Marketing is strongly linked to Business Process Reengineering. According to this reengineering theory, organizations should be structured according to complete tasks and processes. Rather than functions.
Usage of Relationship Marketing
Relationship marketing and traditional transactional marketing are not mutually exclusive and they are not necessarily in conflict with each other. Relationship Marketing may be more suitable in the following circumstances or situations:
- High value products or services.
- Industrial products.
- Products are not generic commodities.
- Switching costs are high.
- Customers prefer a continuous relation.
- There is customer involvement in the production phase. See: Co-Creation.
Steps in the Relationship Marketing
- Chart the service delivery system. Set standards for each part of the system, especially the ‘encounter points’.
- Identify critical service issues.
- Set service standards for all aspects of service delivery.
- Develop customer communication systems.
- Train employees on building and maintaining a good relationship with clients.
- Monitor service standards, reward staff for exceeding service levels, correct sub-standard service levels.
- Ensure that each employee fully understands the importance of quality and relationships in the marketing philosophy.
Strengths of Relationship Marketing
- Focus on providing value to customers.
- Emphasis on customer retention.
- The method is an integrated approach to marketing, service and quality. Therefore it provides a better basis for achieving Competitive Advantage.
- Studies in several industries show that the costs to keep an existing customer are just a fraction of the costs to acquire a new customer. So often it makes economic sense to pay more attention to existing customers.
- Long-term customers may initiate free word of mouth promotions and referrals.
- Long-term customers are less likely to switch to competitors. This makes it more difficult for competitors to enter the market.
- Happier customers may lead to happier employees.
Limitations of the Relationship Marketing model
Relationship Marketing is less appropriate in the following circumstances:
- Relatively low value products or services.
- Consumer products.
- Generic commodities.
- Switching costs are low.
- Clients prefer a single transaction to relationships.
- No / low customer involvement in production.
Source: Theodore Levitt – The Marketing ImaginationBusiness frameworks like Relationship Marketing are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.