Tag: relationship marketing

Relationship Marketing Myopia

In the early days of marketing size, the focus of businesses was very much on successful transactions.  The aim of marketing departments was to grow sales.

Today, that focus has changed.  The market is mature. New customers can be hard to come by and expensive to obtain. So the focus of marketers has shifted to creating and maintaining relationships between a business and its customer base.  This is obviously based on the tenet: The longer you keep a customer, the more you earn from them.

This relationship focus has seen the rise of social media as a marketing tool.  Social media in marketing is an unproven and likely poor sales channel. Businesses should not see it as an aid to successful transactions. Social media is about developing relationships, creating brand communities and moving target consumers from prospects to close business partners.  Social media is also about weaponizing your current customer based as part of your marketing team; through the development of E-WOM (electronic word of mouth).

So much of marketing today is about relationship building.

Piercy (1999) warned that businesses need to avoid relationship marketing myopia; the naïve belief that every consumer wants a deep relationship with their suppliers.  This is why I often laugh when necessary but embarrassing products have social media accounts. For example, who wants to become part of the John Smith haemorrhoid cream community?

Piercy goes further and states that different consumers want different forms of relationship with their suppliers.  Piercy states that to ignore this as a reality is an “expensive indulgence”.

In Piercy’s model, there are four types of relationship that consumers have with a business:

  1.  Relationship seekers:  These consumers want long and close relationships with a supplier.  So a local authority will likely want a close relationship with an ICT supplier.
  2. Relationship Exploiters:  These consumers will grab at all free services and offers provided.  They are also fickle and will move their custom when they feel like it.  They may well be ‘zombie customers’; customers who will cost more to service than you will earn from them.
  3. Loyal Buyers:  These consumers are happy with a long-term relationship but they do not want a close relationship with their suppliers.
  4. Arms-length Transactional Buyers:  These consumers actively avoid long-term relationships with suppliers.  This may well be transactions based on price, technical specification or innovation.

What these four categories highlight is that relationship strategies for marketing MUST be based on market segmentation.

Investing in relationships with profitable relationship seekers is a good thing. Relationship development with exploiters and transactional customers is a waste. You need to develop different marketing strategies to suit different relationship needs.

Some argue that there is a link between customer loyalty and customer satisfaction.  surprisingly there is little evidence to support this. As I have often written customers are fickle and so is their loyalty. What is much more likely is that there is a link between customer dissatisfaction and customer disloyalty.

In many markets, such as utility provision and retail banking, there is significant customer inertia.  Who reading this article has been a customer of their bank since childhood?

Today businesses spend billions on customer relationship management. But is a radical rethink needed?  Should we be looking at managing customer relationships with our business or should we be giving customers options as to the type of relationship on offer? Is it time for the customer management of relationships?

Customer management of relationships  represents a new power balance where customers choose the relationship they want based on:

  • What they are interested in,
  • what information they want,
  • what levels of service they want,
  • what way they want to communicate.

In this process you need to recognise the real value of relationship development tactics and target consumers who are interested in those relationships.  For example, what is the point of a loyalty card scheme if everybody can have one regardless of their level of loyalty?

Customer Service is Driving Modern Marketing

In previous posts I have discussed the work of Treacy and Wiersema and their three areas of marketing focus, management efficiency, product and customer focus. The model suggests that a business prioritises one of these three areas and achieves excellence in it. As long as the other two areas match industry average standards, the consumers will ignore them and focus on where the business achieves excellence.

In recent years, particularly in mature economies, a customer focus has become the primary marketing strategy of many businesses. The reasons for this are complex.

In many mature economies, a far greater element of GDP is reliant on services rather than manufacturing.

Some academics argue goods sectors are becoming commoditised. I don’t agree with this assessment. In fact the opposite is true.  Many manufacturers, through the use of mass personalisation, Just in Time supply chains and high tech production facilites, have enabled consumers to have almost limitless choice in the goods they buy. If a consumer can choose almost bespoke products from any manufacturer, those manufacturing businesses have to find other areas of differentiation. This has led to greater emphasis on the product halo and improved customer service. Increasingly consumers are aware of the levels of service offered by all businesses whether they are a manufacturer or a service provider.

Customer service is now an important point of differentiation for businesses who are keen to exploit the logic of the service/profit chain.

  1. Satisfied employees provide better service quality.  Satisfaction amongst employees improves employee retention.  They stay in your business and gain better knowledge of your products and systems. Satisfied employees present themselves better and are more productive.  They are more committed to the goals and values of a firm.
  2. The improved levels of service provided by satisfied employees is noticed by customers. Customers feed on employee satisfaction and you retain customers longer.
  3. Retained customers exhibit loyalty and they buy more.
  4. Loyal customers improve profitability.  They cost less to serve than new customers. They need lower marketing budgets. The costs of retaining loyal customers are lower than the costs of new customer acquisition. Loyal customers are more likely to recommend your firm to others. Retained customers reduce costs, reduce risk and improve revenues.
  5. A positive feedback loop develops.  Satisfied customers treat your staff better.  Employee and customer satisfaction levels reinforce each other. Both measures of satisfaction improve.

This chain mirrors the balanced scorecard approach where improved organisational learning impacts internal process measures, which then impact customer satisfaction measures, which in turn improves financial measures.

There are five key aspects to improved customer service:

  1.  Empathy – a caring individualised level of service.
  2. Tangibility – good standards of equipment and facilities, High standards of personal appearance amongst staff.
  3. Reliability – Staff are dependable and service provision is accurate.
  4. Responsiveness – Staff show willingness to help. Service is prompt.
  5. Assurance – Staff have the ability to inspire trust and confidence amongst consumers.

These are the five pillars of SERVQUAL. You should look to optimise these aspects and measure them through both staff and consumer satisfaction surveys.

Increasingly businesses are looking to move beyond traditional customer service and develop deeper relationships with consumers. This has led to the development of relationship marketing strategies and the development of key account profiles.

Increasingly service provision is through the careful development of customer experiences.

  1.  The process of using a company’s products is seen as part of an overall customer experience and as impacting how a customer thinks about an organisation.
  2. Peer to peer interactions are important to the overall customer experience.  A holistic experience is required where the interactions between individual customers are important.
  3. Relationships are developed across multiple transactions. In business to business markets, the aim is for clients to see your business not as a supplier but as a partner or colleague
  4. Your brand image is developed in the minds of consumers to such a level that it forms part of who they are.  It becomes a statement of how consumers express their personalities and identities.
  5. Customer purchases are not seen as purely rational.  Buying your products becomes an emotional experience.

The development of relationship marketing, the importance of consumer expectations for customer service and the need to create customer experiences should all play an important part in the development of you marketing plan.

 

The Changing Scope of Brand Management

In recent years, with the rise of social media and the recognition that many western markets are mature, we have seen a shift from traditional transactional marketing to relationship marketing.

The focus has shifted from continually increasing sales to new customers to customer retention strategies. This is recognised by the maxim;  The longer you keep a customer, the more you earn from them.

This shift has required marketers to develop new working methods, new marketing tools and to think differently.

The transactional focus required marketers to develop knowledge of why consumers purchase and the choice criteria behind it.  This leads to marketing plans developing mixes wholly reliant on the sacred four ‘P’s of Kotler’s original marketing mix.

However, today most products require a service element and a marketing mix based on the seven ‘P’s (Product, Price, Place, Promotion, People, Process, Physical Evidence).

The shift to relationship marketing has also meant the marketing profession developing new buzzwords:

  • Instead of financial capital marketers speak of Customer Capital.
  • They no longer speak of conquering consumers but in retaining them
  •  They no longer talk of predicting consumer choice and instead focus on classifying the relationships consumers have with a brand and the relationships between individual consumers.
  •  They look to a relationship between consumer and brand beyond achieving a sale. they talk of long-term customer engagement.

As discussed in last week’s blog entry, the best form of loyalty is not based on transactional criteria such as loyalty cards.  It is the creation of internalised loyalty and thus brand commitment.

Brand managers and marketers look to deepen the relationship between the customer and the brand through the creation of emotional connections.

The aim is to move from the emotional high of a purchase to the satisfaction of ownership to the experiential delight of product use and ownership. So products need to deliver the pre-purchase expectations of consumers and deliver an experience which is rewarding.

Many retailers now look to developing more that an opportunity to purchase when a consumer walks through the doors of a store, they should expect a rewarding experience.  Philip Kotler talks of the creation of ‘atmospherics’ which provide consumers with fantasies, feelings and fun.

Bonds need to be created through aspirational values with which the consumer identifies. this means that all brands have to be, in some way, aspirational.  Aspiration goes beyond materialism or hedonism. Aspiration should not simply be short-term highs but long-term satisfaction.  This aspiration should be represented by your businesses vision and mission. Long-term aspiration should be central to your organisational values.

Marketing tactics can be categorized as follows:

  1. Short-term transactional relationship and functional satisfaction:  Product quality, product advantage, trial promotions.
  2. Short-term transactional relationship and experiential enchantment: Advertising, in-store animations, built-in experience products, storetainment, street marketing.
  3. Short-term transactional relationship and aspirational fulfilment:  Image advertising, co-branding, sponsorship.
  4. Re-purchase and functional satisfaction:  Post-purchase promises
  5. Re-purchase and experiential enchantment:  Collectables and systematic additions tied to events
  6. Re-purchase and aspirational fulfilment:  Fanzines, websites, virtual commuities, ehtical growth.
  7. Long-term commitment and functional satisfaction:  Loyalty cards and programmes
  8. Long-term commitment and experiential enchantment:  One to one recognition and service, product co-creation.
  9. Long-term commitment and aspirational fulfilment:  Inter-community groups, disruptive innovations.

So if you are running a business and looking to survive over the longer term it is no longer enough to focus on the acquisition of new customers or sales growth.  You should aim not just to acquire new customers, you should look to continually improve the experiences of existing customers.

The latest advertising from the insurance firm Aviva is a good example. Rather than offering price discounts to new customers whilst existing customers pay more, the price for all customers is the same. And the insurer’s focus has shifted to providing a high level of customer service to both groups.

The Importance of Relationship Marketing

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.

Transactional marketing:

  • 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.

Relationship marketing:

  • 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:

  1.  Focus on the between target and existing behaviour
  2. Identify steps to close any gaps between these behaviours
  3. Formulate a programme of benefits that satisfy the core needs of target customers
  4. 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.