Rm1 foundations of relationship marketing

FOUNDATIONS OF RELATIONSHIP MARKETING

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• American Marketing Association’s new official definition of marketing released August 2007:

–Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

• Kotler & Keller’s definition of marketing management:

– The art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value.

Value, Value, Value

• Successful products and services deliver value and satisfaction to customers– We make buying decisions based on which

product is perceived to offer the most value– Tangible/Intangible benefits vs. cost

How do we create customers?– Identifying customer needs– Designing goods and services that meet those

needs– Communicate Information about those goods and

services to prospective buyers– Making the goods or services available at times

and places that meet customers’ needs– Pricing goods and services to reflect costs,

competition, and customers’ ability to buy– Providing for the necessary service and follow-up

How do we create VALUE?

• Identify the needs in the marketplace• Find out which needs the organization can

profitably serve• Design goods and services that meet those needs• Developing a marketing mix that will convert

potential customers into actual customers• Providing for the necessary service and follow-up

after the service

“4 Eras” of Marketing

From transaction-based marketing to relationship marketing…

From transaction-based marketing to relationship marketing…

• Transaction–based marketing (Simple exchanges)

• Relationship marketing– Lifetime value of a customer–Converting new customers to advocates

Transaction vs. Relationship MarketingCriteria for differentiation Transaction Marketing Relationship Marketing

World View Managing a company’s product portfolio, setting & modifying marketing mix parameters to achieve optimal 4P configuration

Managing a company’s customer portfolio, building long term business relationships

Assessment horizon Short-duration Long-durationKey concepts 4Ps, segmentation, branding,

etcInteraction, relationships and networks

Marketing Focus Product/service Product, service and customerMarketing goal customer acquisition customer acquisition, customer

retention, customer recoveryMarketing strategy Presentation of outcome dialogueMarketing interaction One-way communication,

formal market studiesInteractive communication, mutual learning & adaptations

Promotion strategy Non personal advertising, brand and image management

Through personal interaction, developing identity as a reliable supplier in a network

Economic profit and control parameters

Profit, profit margin contribution, sales, costs

Additionally, customer profit contribution, customer value

Definition of Relationship Marketing

Berry 1983

attracting, maintaining and enhancing customer relationships

GrÖnroos 1992

The goal of relationship marketing is to establish, maintain and enhance relationships with customers and other parties at a profit so that the objectives of the parties involved are met

Shani & Chalasani 1992

RM is an integrated effort to identify, maintain and build up a network with individual consumers and to continuously strengthen the network for the mutual benefit of both sides, through interactive, individualised and value-added contacts over a long period of time

Definition of Relationship Marketing

MÖLLER 1992

Marketing is of understanding, creating, and managing exchange relationships between economic parties; manufacturers, service providers, various channel members and final consumers

GrÖnroos 1994

Marketing is establish, maintain, enhance and commercialize customer relationships so that the objectives of the parties involved are met. This is done by a mutual exchange and fulfillment of promises

Morgan and Hunt 1994

RM refers to all marketing activities directed towards establishing, developing and maintaining successful relational exchange

Definition of Relationship Marketing

Sheth & Parvatyar 1995

RM is a marketing orientation that seeks to develop close interactions with selected customers, supplier and competitors for value creation through cooperative and collaborative efforts

Gummesson 1996

RM is marketing seen as relationships, networks and interaction

Parvatyar & Sheth 2000

RM is the ongoing process of engaging in cooperative and collaborative activities and programs with immediate and end-user customers to create or enhance mutual economic value, at reduced cost

Dimensions of Relationship Marketing

• Stakeholder orientation• Decision orientation• Time-horizon orientation• Value orientation

Let’s take a step back…

• Although it is very important to try to build relationships with customers to ensure LT success

• But, it is just as important to determine which consumers we want this relationship with!!– Target Market– “Costly” Consumers

Customer Relationship Management (CRM)

The combination of strategies and tools that drive relationship programs, re-orientating the entire organization to a concentrated focus on satisfying customers

Strategies for Building Customer Relationships

• Affinity Programs– a marketing effort sponsored by an organization

that solicits responses from individuals who share common interests and activities

Strategies for Building Customer Relationships

• Frequency Marketing– frequent-buyer or user marketing programs that

reward customers with cash, rebates, merchandise, or other premiums

Strategies for Building Customer Relationships

• Database Marketing– software that analyzes marketing information,

then identifies and targets messages toward specific groups of potential customers

Strategies for Building B2B Relationships

• Strategic alliance– a partnership formed to create a competitive

advantage– These more formal long-term partnership

arrangements improved each partner supply-chain relationships and enhance flexibility

Strategies for Building B2B Relationships

• Electronic Data Interchange (EDI)– involves computer-to-computer exchanges of

invoices, orders, and other business documents• Vendor Managed Inventory (VMI)– is an inventory-management system in which the

seller–based on existing agreement with a buyer– determines how much of a product is needed

Strategies for Building B2B Relationships

• Database Marketing– software that analyzes marketing information,

then identifies and targets messages toward specific groups of potential customers

Evaluating Relationships

• Lifetime Value (LTV)–Refers to the net present value of the

potential revenue stream for any particular customer over a # of years– Starts with current purchase activity then

extrapolates to include potential additions from cross-selling, upgrades, total ownership, etc.

Building Buyer-Seller Relationships• Many customers are seeking ways to simplify their

lives, and relationships provide a way to do this• Customers find comfort with brands that have

become familiar through their ongoing relationships with companies or when they feel like they can relate to a company– Dove’s Campaign for REAL Beauty

• Such relationships often lead to more efficient decision-making customers and higher levels of customer satisfaction

The Value of Customer Retention

• On average, it costs over 10 TIMES more to acquire a new customer versus retain an existing one

• A 5% gain in customer retention can result in an 80% gain in profits.