Relationship marketing is a form of marketing developed from direct response marketing campaigns that emphasizes customer retention and satisfaction rather than sales transactions. It differentiates from other forms of marketing in that it recognises 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 such as tools for managing relationships with customers that go beyond demographics and customer service data collection. Relationship marketing extends to include inbound marketing, a combination of search optimization and strategic content, public relations, social media and application development.
Development
Relationship marketing refers to an arrangement where both the buyer and seller have an interest in a more satisfying exchange. This approach aims to transcend the post-purchase-exchange process with a customer in order to make richer contact by providing a more personalised purchase, and using the experience to create stronger ties. A main focus on a long-term relationship with customers differentiates relationship marketing from other marketing techniques.
The technique was first proposed by American marketing scholars Berry (1983) and Jackson (1985). Berry (1983) argued in a conference about the field of service marketing that relationship marketing is a marketing activity for enterprises to obtain, maintain and promote effective relationships with customers. After a long-term study on the marketing process of the service industry, it was concluded that the ultimate goal of enterprise marketing is not only to develop new customers but also to focus on maintaining existing customers. Ultimately, the goal is to improve the long-term interests of both parties through cooperative relationships. The study also argues that the cost of maintaining an old customer is far lower than the cost of developing a new customer and that maintaining a relationship with old consumers is more economical than developing new customers.
Jackson (1985) further modified the concept in the aspect of industry marketing. He argued that the essence of relationship marketing is to attract, establish and maintain a close relationship with enterprise customers. Furthermore, other studies have concluded that the essence of relationship marketing is the actual maintenance of existing customers, which creates long-term interest in a product. This research conclusion has been generally recognised since the original proposal for relationship marketing. The research scope, however, is limited to the relationship with old customers, easily ignoring the dynamic development of customers because long-term customers are developed from new customers. If an enterprise is restricted to the maintenance of existing customers, it is impossible for it to achieve any progress or compete in the market since it cannot attract long-term customers in the first place.
From a social anthropological perspective, relationship marketing theory and practice can be interpreted as commodity exchange that instrumentalises features of gift exchange.Rus, Andrej (2008)."'Gift vs. commoditiy' debate revisited". Anthropological Notebooks 14 (1): 81–102. Marketers, consciously or intuitively, are recognizing reciprocity, a 'pre-modern' form of exchange, and have begun to use it.
Thus, relationship marketing revolves around gaining loyal customers. According to Liam Alvey, relationship marketing can be applied where there are competitive product alternatives for customers to choose from and an ongoing desire for that product. Research studying relationship marketing suggests that companies can do this through one of the three value strategies: best price, best product or best service. Hence companies 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, which track and analyze each customer's preferences and activities. For example, an automobile manufacturer maintaining a database of when and how repeat customers buy their products, including data concerning their choices and purchase financing, can more efficiently develop one-to-one marketing offers and product benefits. Moreover, extensive use of such software is found in web applications. A consumer shopping profile can be built as a person shops online and is then used to compute his likely preferences. These curated and predicted offerings can then be presented to the customer through cross-sell, email recommendation and other channels.
Relationship marketing has also migrated back into direct mail. Marketers can use the technological capabilities of digital, toner-based printing presses to produce unique, personalised pieces for each recipient through variable data printing. They can personalise documents by information contained in their databases, including name, address, demographics, purchase history and dozens to hundreds of other variables. The result is a printed piece that reflects the individual needs and preferences of each recipient, increasing the relevance of the piece and increasing the response rate.
Scope Additionally, relationship marketing has been strongly influenced by reengineering. According to process reengineering theory, organizations should be structured according to complete tasks and processes rather than functions. Thus cross-function teams should be responsible for a whole process from beginning to end rather than having the work go from one functional department to another, whereas traditional marketing uses the functional (or 'silo') department approach where stages of production are handled by different departments. The legacy of traditional marketing can still be seen in the traditional four Ps 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, organised around processes that involve all aspects of an organization. Some commentators prefer to call relationship marketing 'relationship management' because it involves much more than that which is included in normal 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 sectorBussell, H., and Forbes, D. (2006). "Developing relationship marketing in the voluntary sector". Journal of Nonprofit & Public Sector Marketing, 15(1–2), 151–174. . and in the public sector.Gillett, A. G. (2015). "REMARKOR: Relationship Marketing Orientation on Local Government Performance". Journal of Services Research, 15(1), 97.Gillett, A.G. (2016). Multiple relationships with multiple stakeholders: the scope of relationship marketing for public services. Journal of Services Research, 16(2), pp. 1–28.
Martin Christopher, Adrian Payne and David Ballantyne at the Cranfield School of Management claim that relationship marketing has the potential to forge a synthesis between quality management, customer service management and marketing.
Approaches
Satisfaction Relationship marketing relies on 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.Gale, B.T., Chapman., R.W. (1994) Managing Customer Value: Creating Quality and Service That Customers Can See New York: Free Press 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 relevance to the customer remains higher than that of direct marketing.
Retention A principle of relationship marketing is the retention of customers in order to ensure repeated trade from preexisting customers by satisfying requirements above those of competing companies through a mutually beneficial relationship. This technique balances new customers and opportunities with current and existing customers to maximise profit and counteracts the leaky bucket theory of business, where new customers in older direct marketing-oriented businesses are gained at the expense of the loss of older customers.Kotler, Philip, Armstrong, Gary, Saunders, John and Wong, Veronica. (1999). "Principles of Marketing" 2nd ed. Prentice Hall Europe.Kotler, Philip, Armstrong, Gary, Saunders, John and Wong, Veronica. (1999)., p482 This process of 'churning' is less economically viable than retaining all or the majority of customers using both direct and relationship management because securing new customers requires more investment.Kotler, Philip, Armstrong, Gary, Saunders, John and Wong, Veronica. (1999)., p483
Many companies in competing markets redirect or allocate large amounts of resources towards customer retention. In markets with increasing competition, attracting new customers may cost up to five times more than retaining current customers because direct or 'offensive' marketing requires much more to cause defection from competitors. However, it is suggested that because extensive classic marketing theories center on means of attracting customers and creating transactions rather than maintaining them, the predominant usage of direct marketing used in the past is now gradually being used more with relationship marketing as the latter's importance becomes more recognizable.
Reichheld and Sasser (1990) claim 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.Reichheld, F. and Sasser, W. (1990) "Zero defects: quality comes to services", Harvard Business Review, Sept–Oct, 1990, pp 105–111 However, Carrol and Reichheld dispute these calculations, claiming that they result from faulty cross-sectional analysis.Carrol, P. and Reichheld, F. (1992) "The fallacy of customer retention", Journal of Retail Banking, vol 13, no 4, 1992 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 normal return.
According to Buchanan and Gilles, the increased profitability associated with customer retention efforts occurs because of several factors once a relationship has been established with a customer: The cost of acquisition occurs only at the beginning of a relationship. The longer a relationship, the lower the amortised 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 products and also tend to be less price-sensitive. This can result in stable unit sales volume and increases in dollar-sales volume. They also may provide free word-of-mouth promotions and referrals. Furthermore, they are more likely to purchase ancillary products and high-profit margin supplemental products.