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 focus on sales transactions.
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 as technology opens more collaborative and social communication channels. This includes tools for managing relationships with customers that goes beyond 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.
Relationship marketing refers to an arrangement where both the buyer and seller have an interest in providing a more satisfying exchange. This approach tries to transcend the post purchase-exchange process with a customer to make richer contact by providing a more personalised purchase, and uses the experience to create stronger ties.Relationship marketing is different from other marketing techniques as it mainly focuses on long term relationship with customers.
Relationship marketing first appeared in the 1980s and was proposed by American marketing scholars Berry(1983) and Jackson(1985).Berry(1983) argued in a conference on the field of service marketing that relationship marketing is a marketing activity for enterprises to obtain, maintain and promote effective relationships with customers.At the same time, after a long term follow-up study on the marketing process of the service industry, it is concluded that the ultimate goal of enterprise marketing should not only develop new customers, but also pay attention to the maintenance of existing customers, and improve the long term interests of both parties through good cooperative relations.Then the content of relationship marketing is given.It also argues that the cost of maintaining an old customer is far lower than the cost of developing a new customer, and that the marketing concept of maintaining the relationship with old consumers is more economical than the marketing concept of developing new customers.arbitrable Jackson (1985) in the aspect of industry marketing added further perfected the concept, he argues that the essence of relationship marketing is the enterprise attract, establish and maintain close relationship with enterprise customers, the relationship marketing scholars are found in obtains the profit obtained by keeping the customer review rate than the profit obtained by developing new customers higher phenomenon, has launched a research on the essence of relationship marketing, concluded that relationship marketing is through the actual maintenance of existing customers, thus creating long-term interests to maximize a way of marketing.This research conclusion has been generally recognized later, but the research scope is only limited to the relationship with old customers, which is easy to ignore the dynamic development of customers, because the formation of customer loyalty customers are from the development of new customers, so we should pay attention to the development of new customers.If the enterprise is limited to the maintenance of existing customers, then it is impossible for the enterprise to achieve any progress and cannot cope with the current market competition.
From a social anthropological perspective, relationship marketing theory and practice can be interpreted as commodity exchange that instrumentalise features of gift exchange. It seems that marketers — consciously or intuitively — are recognizing the power contained in 'pre-modern' forms of exchange and have begun to use it. This perspective on marketing opens up fertile ground for future research, where marketing theory and practice can benefit from in-depth research of the principles governing gift exchange.
According to Liam Alvey, relationship marketing can be applied when there are competitive product alternatives for customers to choose from; and when there is an ongoing desire for the product or service.
Relationship marketing revolves around the concept of gaining loyal customers. Research conducted to developing relationship marketing suggests that firms can best do this through having one of the three value strategies; best price, best product, or best service. Firms can relay their relationship marketing message through value statements.
The practice of relationship marketing has been facilitated by several generations of customer relationship management software that allow tracking and analyzing of each customer's preferences, activities, tastes, likes, dislikes, and complaints. 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 develop one-to-one marketing offers and product benefits.
In web applications, the consumer shopping profile can be built as the person shops on the website. This information is then used to compute what can be his or her likely preferences in other categories. These 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 unique, personalized pieces for each recipient through a technique called "variable data printing". 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. The 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.
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. 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 (or 'silo') department approach. The legacy of this can still be seen in the traditional four P's of the marketing mix. Pricing, product management, promotion, and placement. 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 the relationship marketing alternative model where the focus is on customers, relationships and interaction over time, rather than markets and products.
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.
Because of its broad scope, relationship marketing can be effective in many contexts. As well as being relevant to 'for profit' businesses, research indicates that relationship marketing can be useful for organizations in the voluntary sector and also in the public sector.
Martin Christopher, Adrian Payne, and David Ballantyne at the Cranfield School of Management claim that relationship marketing has the potential to forge a new synthesis between quality management, customer service management, and marketing.
Relationship marketing relies upon the communication and acquisition of consumer requirements solely from existing customers in a mutually beneficial exchange usually involving permission for contact by the customer through an "opt-in" system. With particular relevance to customer satisfaction the relative price and quality 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 Viral marketing for the acquisition of further customers.
A principle of relationship marketing is the retention of customers through varying means to ensure repeated trade from preexisting customers by satisfying requirements above those of competing companies through a mutually beneficial relationship This technique is counterbalancing new customers and opportunities with current and existing customers as a means of maximizing profit and counteracting the "leaky bucket theory of business" in which new customers gained in older direct marketing oriented businesses were at the expense of or coincided with the loss of older customers. This process of "churning" is less economically viable than retaining all or the majority of customers using both direct and relationship management as lead generation via new customers requires more investment.
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 5 times more to attract new customers than it would to retain current customers, as direct or "offensive" marketing requires much more extensive resources to cause defection from competitors. However, 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 majority usage of direct marketing used in the past is now gradually being used more alongside relationship marketing as its importance becomes more recognizable.
It is claimed by Reichheld and Sasser 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. dispute these calculations, claiming they result from faulty cross-sectional analysis. Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers returns a revenue gain of 3.4 times the norm.
According to Buchanan and Gilles, the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.
- The cost of acquisition 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).
- 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.
Customer retention efforts involve considerations such as the following:
- 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.
- 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.
- 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).
- 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.
Retention strategies may also include building 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).
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.
Relationship marketing and traditional (or transactional) marketing are not mutually exclusive and there is no need for a conflict between them. In practice, a relationship-oriented marketer still has choices, depending on the situation. Most firms blend the two approaches to match their portfolio of products and services. Many products have a service component to them and this service component has been getting larger in recent decades.Social bond refers to the relationship established through the collective blood relationship between people. Relationship marketing is to establish and strengthen these two kinds of bonds, especially the structural bond, so as to strengthen the relationship with clients and lock them in.Morgan and Hunt(1994) made a distinction between economic and social exchange on the basis of exchange theory and concluded that the basic guarantee of social exchange was the spirit of the contract of trust and commitment.The traditional marketing concept of one-time transaction begins to transfer to the concept of relationship marketing.This is the transition from economic exchange theory to social exchange theory. The theoretical core of enterprise relationship marketing in this period is the cooperative relationship based on commitment.They define the concept of relationship marketing from the perspective of exchange theory, and emphasize that relationship marketing is an activity related to the progress, maintenance and development of all marketing activities.Shows that trust and commitment is a trading enterprise and the basis of marketing activities to establish a long term good relations, also is the factors affecting the basis of cooperation for both sides, moreover the relationship effect of other factors include: communication, power, cost and benefit, opportunism behavior and so on, but the deal the relationship effect is mainly by trust and commitment of the two dominant factors.Coptics and Wolf(1990) believe that relational marketing is the marketing of databases.They think, the enterprise want to be able to continue to improve the effect of relationships with customers, when access to the data and information to improve the effect of relationship with the customer's cost is low, enterprises will pay the cost to improve relations with customers, at present, due to tell the development of communication technology and Internet technology, makes the information costs have dropped substantially, so the argument that relationship marketing is for database marketing is increasingly valued, this view emphasizes the relationship marketing is through the Internet technology database data lock with the customers, to establish and maintain good relationship with customers.Liker and Klamath(1998) introduced the relationship between enterprises and suppliers into the scope of relational marketing, believing that in the marketing process, manufacturers make suppliers assume corresponding responsibilities, and enable them to give play to their technological and resource advantages in the production process, which can improve the marketing innovation ability of manufacturers.Lukas and Bryan a. Ferrell(2000) believe that the implementation of customer-oriented marketing concept can greatly promote the innovation ability of marketing, and at the same time encourage enterprises to break through the traditional relationship model between enterprises and customers and propose new product Suggestions with technical feasibility.Lethe (2006) through the observation of the benchmarking customer research, to confirm the relationship between enterprises and customers to enterprise's product innovation capacity there is a positive correlation, the enterprise can in the development and in the process of benchmarking customer good relationship, to identify those more market potential for development of new products, it can save a lot of for the enterprise cost of new product development and market acceptance of this kind of product is high.In addition, he also proposed that all the relationships established with relevant parties to enterprise marketing activities are centered on the establishment of good customer relations, that is, the core relationship of relationship marketing is the relationship with customers.Guinness(1994) believes that relationship marketing is essentially a consciousness that regards the marketing process as the interaction between enterprises and various aspects of relationships and networks.According to his research, relationship is the relationship between two or more subjects, network is a larger set of relationships, and interactive interaction between people in the relationship or network process.They found, by further empirical research activities in the enterprise faces four relations including its relationship with macro environment, and micro environment, market relations and relations with special market/in addition, the enterprises in the implementation of relationship marketing is often able to "relationships, networks and interaction" mode to promote all aspects of relationship coordination and progress.
Relationship marketing stresses what it calls internal marketing, or using a marketing orientation within the organization itself. It is claimed that many of the relationship marketing attributes like collaboration, loyalty and trust determine what "internal customers" 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. 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 six markets model
Christopher, Payne and Ballantyne (1991) identify six markets which they claim 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 labor 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. Each market may require its own explicit strategies and a separate marketing mix for each.
Live-in Marketing (LIM) is 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 LIM was developed as a means to reach select target demographics in a non-invasive and much less garish manner than traditional advertising.
While LIM 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 in North America and Europe, as well as the relatively high ROI in terms of advertising dollars spent on experiential marketing compared to traditional big media advertising, industry analysts see LIM as a natural progression.
LIM functions around the premise that marketing or advertising agencies go out on behalf of the brand in question and find its target demographic. From that point forward avenues such as sponsorship or direct product placement and sampling are explored. Unlike traditional event marketing, LIM suggests that end-users will sample the product or service in a comfortable and relaxed atmosphere. The idea behind this technique is that the end-user will have as positive as possible an interaction with the given brand thereby leading to word-of-mouth communication and potential future purchase. If the success of traditional event and experiential marketing is shared with LIM, then it could indicate a lucrative and low-cost means of product promotion. However, this means of advertising is still in its infancy and more research is required to determine the true success of such campaigns. The first company to explicitly offer LIM services was Hostival Connect in late 2010.
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