The traditional view of marketing is activities designed to promote transactional activity: the physical act of selling goods and services. Little thought was applied other than to creating transactions.
In recent years however, the focus of marketing has shifted from transaction marketing to building relationships. Increasingly marketing is about developing customer loyalty and creating the most effective long-term relationships with customers.
This makes sense in mature economies where the number of new customers is limited and additional market share is obtained by taking it from competitors.
- Has a focus on single sales
- Has a short timeframe
- Makes little effort to retain customers
- Has limited customer commitment
- Has moderate customer contact
- Quality is the concern of production managers and no-one else.
- Has a focus on customer retention and building customer loyalty.
- Has an emphasis on product benefits meaningful to target customer groups.
- Focuses on the long-term: You accept high costs in the short-term because they lead to larger long-term profits.
- The emphasis is on high service standards; often tailored to individual customers
- Has high customer commitment
- Has high customer contact (to gain information not just building relationships).
- Product quality is a concern for all stakeholders in an organisation. The attitude is that minor mistakes can lead to major problems.
In mature markets the costs of obtaining new customers can be far greater than the costs of servicing existing customers. Relationship marketing and long-term relationships offers greater opportunities for cross-selling, up-selling, strategic partnerships and other alliances. The focus is on creating significant customer lifetime value. Relationship marketing can allow the ability to charge price premiums. Relationship marketing is also a way to develop word of mouth and create customer referrals. There can be lower marketing costs over the longer term with relationship marketing tactics and greater value can be created from higher order volumes.
To develop a relationship marketing strategy you need to focus on four steps:
- Focus on the between target and existing behaviour
- Identify steps to close any gaps between these behaviours
- Formulate a programme of benefits that satisfy the core needs of target customers
- Formulate a communications plan which aims to modify the behaviour of target customer groups.
Before taking these four steps you need to:
- Identify key customers where the most profitable long-term relationships can be developed.
- determine what customers want from a relationship. Some customers will only want a transaction.
- categorise customers in terms of current and future potential
- Tailor goods and services offered to those potentials
- Examine the expectations of each market segment from both sides, customer and seller.
- Identify how these two sides can work together in a cost-effective and profitable way.
- Appoint relationship managers whilst changing operational processes on both sides of the relationship so cooperation is easier. For example, a logistics firm may offer bespoke computer software which ties customers to their systems.
- Develop small wins in the first instance and gradually strengthen the relationship.
- recognise from the outset that different customers will have different expectations that will need to be satisfied if a relationship is to develop.