Relationship Marketing appeals to companies in that it allows them to directly communicate with customers and as such removes reliance on intermediaries. Although some say Relationship Marketing is based on hype there are however a number of important factors which will continue to drive it’s growth.
Consumer angle
Marketing secondary brands is increasingly more difficult secondly the fragmentation of media makes it increasingly more difficult to get customers attention. With the customization of media particularly the growth of internet, increased television channel and specialist magazines means there’s a need for tightly targeted Relationship Marketing. So why exactly is there a need for this form of marketing?
1. Growing sophistication of consumers – As every marketer knows today’s consumer is very much in the driving seat. They are often overwhelmed with surplus choice and have great bargaining power as a result. In the recession years consumers also want to be treated as individual not anonymous numbers, they seek superior value with their dealings.
2. Response by Marketers to consumer trends – the days when customers were treated as ‘one off selling’ opportunities is becoming a thing of the past consumers are no longer considered as ‘one off selling opportunities. The cost of generating a single sale is highly uneconomical and the success of a brand depends on generating repeat sales. However, most companies through short term strategies fail to translate this into logic by price driven promotions which just aim to mainly attract price sensitive ‘brand switchers’.
3. Categories such as eating out, retailing, software and telecom and even insurance have led the way in relationship marketing. Through developing high quality databases containing customers information on demographics, life stage, previous purchase history lifestyle (including their preferred holiday locations, size of the house and neighbourhood they live in, number of pet5s etc) marketers can effectively build relationships. Loyalty cards and club cards have also been used by relationship marketers to provide incentives and also gain further information.
Technical Angle
Not surprisingly, marketers are seeking proven operational platforms in today’s uncertain market as well fact based strategies that enable companies to capitalize on opportunities while also building shareholder value and growth for the future. Even more reasons to adopt this tool relates to the:
1. Falling Cost of IT: Over the last few years the cost of holding consumer databases has become more popular and telecoms costs are declining.
2. Relationship Marketing provides a feasibility of Building high – quality databases can be developed by companies through questionnaire and promotions or buying them in from specialist operators (most companies do both). The data included often contains detailed information such as the age, car, size and neighbourhood of house, buying their own mailings, number of pets owned, holiday location preferences, etc.
Measuring Effectiveness: Calculating the retention of a customer with Relationship Marketing
It’s nowadays imperative to understand how profitable your customers are and how long you’re likely to retain a particular customer. Relationship marketing is a valuable tool in assessing the long term profit and share of a customer. Long term customer profit involves calculating how long a business is likely to retain a customer through estimating the value they will generate through purchase minus the cost it would take to retain them over that period and adding on referrals they may generate. These calculations are often referred to as ‘Life Time Customer Value’ (LCV). Knowing LCV can guide a business on how much they are spending on customer retention and how much on getting new customers. As a result achieving a high customer retention rate or ‘share of customer’ is another good measure of effective Relationship Marketing. It indicates the depth of commitment each customer has to the company and as such provides a wealth of opportunities to increase revenue with existing customers.
Why should your company get involved with Relationship Marketing?
Relationship Marketing represents a future opportunity not just for marketers who deal with high ticket items such as cars, credit cards and other financial services. Leading by the examples of Proctor and Gamble followed by Kraft however it’s also imperative that fast moving consumer goods marketers also have a consumer data base.
A number of qualities in the database may be varied and questionable however this is a fairly emerging area. Numerous studies have demonstrated existing customers are more profitable than new ones yet companies repeatedly under invest in existing customers. One such study suggests a 5% increase in annual customer retention can increase total company operating profits by over 50%. In general existing customers are by far more valuable because they:
• Involve no business acquisition cost
• Customers are also more likely to buy a broader selection of the company’s product range due to familiarity with their total product line
• Customers also understand the company’s business system and as a result use it more efficiently.
According to Don Peppers and Martha Rogers authors of The One to One Future most businesses lose 25% of their customers annually yet most companies spend 6 times as much on generating new customers as on retaining existing ones. Alongside through effective Relationship Marketing customers are more likely to recommend a company’s products to other customers. For more useful advice and tips read 'Offensive Marketing' by Hugh Davidson.
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