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.