ABSTRACT
The fundamental principle of relationship marketing is that the greater the level of customer satisfaction with a relationship – not just the product or service – the greater the likelihood that the customer’s business will be retained. Marketing communications play a central role in developing customer relationships
Definitions:
} Relationship marketing is to establish, maintain and enhance relationships with customers and other parties at a profit so that the objectives of the parties involved are met. This is done by the mutual exchange and fulfilment of promises ~ (Gonroos, 1994)
} Customer relationship marketing (CRM) is a business process which integrates individual customer data from multiple sources in order to create a mutually valuable proposition ~
n High costs of new customer acquisition
n The communications effort to persuade new customers to buy
n It is easier to collect, analyze and use customer information
n Effective relationship development can lead to positive word-of-mouth recommendations and business referrals
The move to a more customer-focused approach reduces the costs associated with high churn rates, with customers receiving a better service as their needs are really understood
The key difference with relationship marketing, as opposed to a transactional approach, is that the objective is achieving long-term customer loyalty
Relationship marketing starts with getting closer to customers and establishing core and peripheral values with a view to closing the expectations gap
The shift from transactional to relationship focus has even been embraced by fmcg producers such as Heinz and Kelloggs, which have shifted from advertising to direct marketing, providing customer helplines and other below-the-line activities as a means of getting closer to the customer
The Shift to Relationship Marketing
n Customers
n Suppliers
n Internal markets
n Stakeholder markets
Source: Hughes and Fill: CIM Coursebook Marketing Communications (Elsevier Butterworth-Heinemann, 2004)
n In organizational markets suppliers try to establish closer links and work towards preferred supplier status by building collaborative relationships and working together to optimize opportunities
n In service markets, whether it is in banking, leisure or mobile telephone network provision, the service providers try to make regular contact with customers, emphasize customer service and look at maximizing the potential of the most valuable customers
n In not-for-profit markets, charities need to establish long-term relationships to sustain donors, volunteers and to gain trust of clients/users
To achieve customer loyalty it is necessary to understand customers, recognizing their changing situations and communicating at significant points. By entering into a more personal dialogue with customers, it is possible to move them, through a series of stages, to loyalty known as the ‘relationship marketing ladder’
Recently the ultimate step on the ladder, that of ‘partnership’, has been added. This occurs in organizational contexts and relates to the strong bonds that can occur when suppliers and clients work closely together
Source: Hughes and Fill: CIM Coursebook Marketing Communications (Elsevier Butterworth-Heinemann, 2004)
n Reliability to perform the promised service n Responsiveness to help customers and provide
prompt service n Assurance that employees will be
knowledgeable and courteous n Empathy with customers n Tangibles – physical facilities, equipment and
appearance of personnel These elements can be used for positioning messages
For relationship marketing to be successful, the quality gap, i.e. the difference between customer expectations and the organization’s perception of what is being delivered, must be filled
Morgan and Hunt (1994) suggest that there are three dynamics to trust within a relationship. The model indicates the benefits of building a relationship on trust to avoid termination costs and to achieve one based on shared values. It indicates that the more inward and outward-bound communication exists, the more knowledge about customers can be gained
Source: Hughes and Fill: CIM Coursebook Marketing Communications (Elsevier Butterworth-Heinemann, 2004)
One simplistic view is that to keep customers it is only necessary to keep them satisfied
In consumer markets, customer retention schemes are mainly focused around loyalty cards, although research has shown that many customers have several loyalty cards at any one time so they are not always necessarily good indicators of loyalty. Loyalty schemes are based on accessing customer database information and using direct mail to communicate with customers. Point of sale activity and in-store recruitment is used to support advertising-based acquisition
In business-to-business markets, key issues for retaining customers are:
n Technical support
n Technical expertise
n Service levels
n Reduction of risk
In not-for-profit markets, key retention issues are:
n Understanding different customer groups’ motivations for donating
n Analyzing acquisition and retention costs
n Established customers tend to buy more n Regular customers place frequent orders n Satisfied customers often refer others n Retaining customers makes it difficult for
competitors to take market share n Acquiring new customers is costly
Employees constitute an internal market and need to be communicated with in a similar way to external stakeholders through effective marketing communications
How internal audience interprets messages has a bearing on the way in which they respond to external audiences
Internal marketing communications have evolved from notice boards to communications based around new technology, such as video conferencing, internal television, e-mail, intranets, bulletin boards and newsletters
An understanding of the organizational identity and culture is the foundation of profile-based communication strategies
It is essential that an organization manages the scope and range of relationships within its marketing environment
Source: Hughes and Fill: CIM Coursebook Marketing Communications (Elsevier Butterworth-Heinemann, 2004)
Key account management is growing in importance as a tool to retain customers in business-to-business marketing
In judging the long-term value of customers, it is necessary to look at profitability, sales volumes, regularity of orders, payment structures and growth potential
Key accounts are usually large customers, with personal sales being a key communication tool. In addition, mail, telephone, e-mail and the use of extranets are all ways to communicate with key customers
Strategy development may be the basis of a key account relationship; therefore it is essential for organizations to create a good understanding of their clients
key accounts:
n Lack of return on investment in the relationship
n Committing to one partner at the exclusion of others
Source: Hughes and Fill: CIM Coursebook Marketing Communications (Elsevier Butterworth-Heinemann, 2004)
Key topics include the reasons why relationship marketing has evolved from transactional marketing and comparisons of the two approaches
It is important to appreciate the scope of marketing relationships and issues relating to specific sectors
Ensure that you are familiar with the concept of customer loyalty and methods used for customer retention and key account management
Internal marketing is also an important aspect of this topic area
Ensure that you are able to provide examples of relationship building strategies in different market sectors to support answers to exam questions on this topic
Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance
