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Relationship Marketing

Relationship marketing is more concerned with retaining and maintaining its current customers rather than pursuing new ones. Within this concept lies the belief that marketing is not the sole job of the marketing department, but considered a part time job for all employees working in a business. It is their job to promote their business, and at the same time portray a positive image as representatives. In the words of Reggis McKenna, considered the marketing guru of Silicon Valley, “Marketing is not a function, it is a way of doing business,” One can argue that everyone in their own right is a marketer, in that while interacting with others they are marketing themselves.  The role of the marketing department now is to fuse together customer service management, quality management, and marketing. This degree of cross functionality allows the marketing department to better understand and respond to the need of its customers, allowing for the availability of information needed to retain existing customers and build brand loyalty. Three key consideration for retaining customers involve the following

Customer evaluation: at this step customers are categorized based on their monetary and strategic value for the pertaining business. This allows them to determine which relationships are worth to pursue, maintain, and develop, and which are to be avoided or dropped. This allows for efficiency and cost management in order to avoid any unfruitful relationships.

Customer retention measurement: This involves measuring the number of customers a business has in the beginning of the year, and the number remaining in the end. The result of this measurement allows for a business to analyze their own performance and at the same time compare themselves to competing industries.

Reason for Defection : This step implies analyzing the reason why customer switched to a competitors’ product. Information can be obtained from existing departments such as customer service, or pursued by interviewing previous customers, or issuing surveys. Yet in order to maintain a personalized and intimate methodology, mass communication should be avoided. The resulting information should be used to rectify and improve the product, and should be used in future marketing strategies to acknowledge the change. Reasons for defection may include high prices, unresolved complaints, and more attractive offers by competitors. Some techniques to combat this could involve bundling product to rise perceived benefit and lower perceived cost and an improved customer complaint center offering an incentive to vocalize a complaint.

Yet business relationships are not limited to the customer, but also includes those of the supplier and the internal staff. The Six Market Modal demonstrates these relations which include:

Customers:

Customer Markets: The aim of this relationship is to retain customers by increasing their perceived value of the offered product, and at the same time maintaining and developing existing relationships.

Employees:

Internal Markets: A firm must insure that their employees are qualified in delivering the level of quality and value it has set. This includes motivating and insuring a certain level of job security and satisfaction in order for them to be productive and efficient.

Recruitment Markets: This mainly involves issues concerning the HR department, such as screening and training, yet is an important facet in the relationship marketing mix in order to insure high levels of quality.

Collaborators:

Supplier Markets: In order to compete effectively, firms need to maintain and develop their relationship with suppliers. They must both strive in insuring quality in all facets of their work, and acknowledge their mutual relationship.

Influence markets: This can range from suppliers, to consumers, to almost anyone a firm has work with, including journalists and analysts. The aim is to build a strong relationship and a positive image to all parties that interact with the firm in order to spread positive “word of mouth” in order to enhance the reputation of the firm.

Referral markets: Providing an exceptional service with exceptional quality will most likely stimulate referrals by experts and professionals in the industry. Positive referrals will stimulate customer switchover and sustain and increase retention levels.

Below is a review of the difference between traditional transactional marketing and relationship marketing

Data Source
Benefits of Relationship Marketing & Methods of Adoption

Many applications and case studies of relationship marketing has shown that not only is it effective in communicating and retaining customers, but it is also cost effective. Studies have shown the businesses spend 80% of their marketing dollars pursuing new customers, yet this has been proven ineffective due to the fact that repeat customers spend 33% more then new customers. This is because old customers trust the product and have gained a sense of loyalty towards it, while new customers are still in the trial phase. Despite the large amount of money spent on attracting new customers, studies have shown that referrals among repeat customers are 107% greater than those of new customers. Referrals are not only costless, but have higher motivation and a “call of action” effect than that of mass marketing strategies that lack the personal and trust factor. It has also been proven that it cost six times more to sell a product to new customer to that of an existing customer. Another important fact is that loyal customers are able to constructively highlight the weaknesses of the company which could be incorporated in the marketing strategy allowing it to obtain an edge over competitors.

The benefit of retaining customers does not end there. There is no need to advertise to retained customers since they already favor your product or service, so the cost of acquiring the customer only takes place in the beginning. Retained customers also cost less when offering a service, in that there is no need to train the customer on how to use the service once again. This in turn makes the job of the sales people and employees easier and more satisfying which in turn insures customer satisfaction. Furthermore, building strong relationships with customers and allowing them to repeat the purchase of product makes them less inclined to switch products to those offered by competitors. This in turn makes it harder for competitors to enter the respective market when there is a high level of brand loyalty.

Due to the fact that Relationship marketing has it strengths in both good and service sectors, (yet mostly in service sectors) and transactional marketing has its strength in the good sector, both can be fused together to create a holistic marketing mix. As previously stated, all business sectors will benefit from relationship marketing, if not with its consumers, then with its suppliers and calibrators. The following procedures can be used to incorporate relationship marketing to transactional marketing:

Six Market Mix: Adopting the Six market model into the marketing mix to maintain relationships with customer markets, referral markets, influence markets, supplier markets, internal markets, recruitment markets. Assigned managers that have the necessary skills should be in charge of each department and there should be full cohesion and communication between these departments.

Tracking Customer Retention: The above noted techniques for evaluating and measuring retention rates should be adopted, closely monitoring and reacting to the resulting information.

Cohesion: The Marketing, Human Resources, and Public Relations department should fully collaborate and join together to enable successful relationship marketing strategy, with appointed managers with the necessary skills for each.

Developing Relation Plans: Based on the above noted retention analysis, managers of the Human Resource and Public Relations department should analyze and project annual and long term customer relations plan.

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5 comments to Relationship Marketing

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