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.
Relationship marketing has been strongly influenced by re-engineering. According to re-engineering 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 4 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 he is going to perform his task. 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.
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 term relationship marketing as relationship management in recognition of the fact that it involves much more than that which is normally included in marketing. 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. It involves the application of the marketing philosophy to all parts of the organization. Every employee is said to be a part-time marketer. 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 purer form of marketing than traditional marketing.
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 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 programmes (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 organizations, the stronger will be the bond, and the more secure the relationship.
According to Leonard Berry, relationship marketing is an old idea but a new focus now at the forefront of services marketing practice and academic research. The impetus for its development has come from the maturing of services marketing with the emphasis on quality, increased recognition of potential benefits for the firm and the customer, and technological advances. Accelerating interest and active research are extending the concept to incorporate newer, more sophisticated viewpoints. Emerging perspectives explored here include targeting profitable customers, using the strongest possible strategies for customer bonding, marketing to employees and other stakeholders, and building trust as a marketing tool.
The management of customer relationships is critical in services marketing for three reasons.
First, many services by their very nature require ongoing membership (such as insurance, cable television).
Second, even when membership is not required, customers may seek on-going relationships with service providers to reduce the perceived risk in evaluating services characterized by intangibility and credence properties.
Third, customers are more likely to form relationships with individuals and with the organizations they represent than with goods. Because services are performances where the employee plays a major role in shaping the service experience, the service setting is especially conducive to customers forming relationships with individual service providers. Consequently, there have been calls for greater attention to the role of relationships in services.
The goal of transaction marketing is to get customers, whereas the goal of relationship marketing is to get and keep customers. Keeping customers becomes more important because it is normally less expensive to make a satisfied existing customer buy more compared to what it costs to get a new customer. The more standardized the process is, the more dominating the core service and the technical quality of the outcome of the production and delivery process and less difficult it is to manage the personnel from a marketing point of view.
However, a few service firms apply a pure transaction marketing strategy. Even highly standardized service operations include direct contacts with customers, and the customers do perceive the production and delivery process. It is important to create information systems where the firm is managing its customer base directly and not relying on market shore statistics and ad hoc customer surveys.
The core outcome of the definition has recently been presented as a specification of 30 relationships, the 30Rs of RM. In the 30R approach, a distinction is made between four types of relationships.
The first two are market relationships which are relationships between suppliers and customers. They constitute the core of relationship marketing, they are externally oriented and apply to the market proper. Some of these are classic market relationships – the supplier-customer dyad, the triad of supplier-customer-competitor, and the physical distribution network which are treated extensively in general marketing theory. Others are special market relationships such as the customer as member of a loyalty program and the interaction in the service encounter.
The next two types are non-market relationships which indirectly influence the efficiency of market relationships. Mega-relationships exist above the market proper. They provide a platform for market relationships and concern the economy and society in general. Among these are mega-marketing (lobbying, public opinion and political power, mega-alliances, such as the European Union, setting a new stage for marketing), and social relationships (such as friendship and ethnic bonds).
Nano-relationships exist below the market relationships, i.e. they concern the internal operations of an organization. All activities inside on organization influence the externally directed relationships. Examples of nano-relationships are the relationships between internal customers, and the internal markets which arise as a consequence of the increasing use of independent profit centers, divisions and business areas inside organizations.
The boundary between the externally and the internally directed relationships is fuzzy; it is a matter of emphasis. For example, the physical distribution network is part of a logistics flow, involving internal as well as external customers. Therefore an R can belong to more than one category, depending on the purpose for which it is used. As each R has several properties, other and more composite grounds for classification could be deployed. After comparing several options and taking readability into account, the above core categories have been retained.
One-to-one marketing involves gearing the organization to deal with valuable customers on an individual basis. This is not unattainable, but the effort should be worth the benefits that accrue.
One-to-one or relationship marketing means the change in one’s attitude towards individual customer on the basis of customer interaction and customer information. The mechanics of one to-one marketing are complex. Training one’s sales staff to be attentive an warm is not adequate because it requires identifying, tracking and interacting with customers and then developing products and services that meet their needs.
The idea behind setting up of a relationship with the valuable customers based on learning is the essence of relationship marketing. With each customer interaction, the company gets to know him better and the customer becomes more priceless for the company. The customer in the process expresses his need for a product or service. The company designs a product or service to meet that need. Better communication and alteration improves the company’s capability to customize the product for the customer. Ultimately, even if the competition comes up with a similar product and communication level, the customer may not share the same attitude without investing time in teaching the other player the messages the company has already deciphered.