Last Updated: November 27, 2020
One of the most expensive and difficult tasks facing any business is acquiring new customers. Earning a potential customer’s attention, making a convincing pitch, and then facilitating the accompanying sale can leads to huge expenses when every step is considered. According to business authors Emmett C. Murphy and Mark A. Murphy, acquiring a new customer can cost five times as much as retaining an existing customer.
This presents a serious dilemma for many companies. With finite resources, is it better to attract new customers or try to hold onto the ones they already have? According to those same authors, a 2% increase in customer retention can decrease costs by as much as 10%. No company can survive and grow if they are not constantly adding to their customer base.
Many companies separate the two functions and dedicate different areas of their marketing department to work on one or the other. New customers are considered transactional because the goal is to get them to buy, while existing customers require different strategies.
To retain current customers, businsses engage in relationship marketing strategies to continually attract repeat business. While both types of customer must be acknowledged and respected, the goal, ultimately, is to turn every new customer into a returning customer.
What is relationship marketing?
Relationship marketing is about forming long-term relationships with customers. Rather than trying to encourage a one-time sale, relationship marketing tries to foster customer loyalty by providing exemplary products and services. This is different than most normal advertising practices that focus on a single transaction; watch ad A and buy product B. Relationship marketing, by contrast, is usually not linked to a single product or offer. It involves a company refining the way they do business in order to maximize the value of that relationship for the customer. (See also B2P Marketing)
Relationship Marketing Best Practices
- Conduct regular polls and surveys to solicit feedback from customers.
- Respect that feedback and incorporate it into the company’s business practices.
- Use any and all social media outlets to connect with customers.
- Have effective customer monitoring technologies in place.
- Use clear policies to dictate how all company employees should interact with customers in both positive and negative situations.
- Leverage the value of warm leads – customers who have already expressed an interest in the company.
- Have a comprehensive customer relationship management strategy.
- Conduct regular training sessions for all members of staff.
- Stay on the cutting edge of product offerings.
- Do not sacrifice quality for innovativeness.
- Maintain a high customer satisfaction rate in all areas of the company.
- Make an effort to inform customers how much they are appreciated.
Relationship marketing mainly involves the improvement of internal operations. Many customers leave a company not because they didn’t like the product, but because they were frustrated with the customer service. If a business streamlines its internal operations to satisfy all service needs of their customers, customers will be happier even in the face of product problems.
Technology also plays an important role in relationship marketing. The Internet has made it easier for companies to track, store, analyze and then utilize vast amounts of information about customers. Customers are offered personalized ads, special deals, and expedited service as a token of appreciation for their loyalty.
Social media sites allow business to engage their customers in an informal and ongoing way. In the past, it would have been impossible to keep useful records about every single client, but technology makes it easy for companies to automate their marketing efforts. (See also Analytical Marketing)
Branding is the final component of relationship marketing. A company can form a long-term relationship with a client if that client feels like the brand they purchase reflects who they are or who they want to be. Customers are less inclined to switch to a different brand if they think that switch makes a statement about their identity.
Who implements relationship marketing?
Many types of companies have something to gain from developing long-term relationships with their customers. Smaller businesses often serve a steady stream of regulars, and make little effort to draw in new customers. Imagine a small restaurant that sees a steady stream of business from the morning commute.Their daily presence is a large part of the business that restaurant does every day.
Larger companies typically invest the most in carrying out sophisticated relationship marketing campaigns. In some major companies, relationship marketing is a strategy that affects every department with a client facing purpose (sales, customer service, shipping etc). Industry leaders constantly face competition from new companies who claim to provide similar goods with a higher-quality level of service. Holding onto their existing customers is the only way they can maintain their position at the top of their industry. This is true for businesses in all industries, from cell phones to baby food. (See also Marketing Mobile Phones)
Examples of relationship marketing
- Ikea – The Swedish furniture maker has a worldwide base of intensely loyal customers. When the company changed the font in their ubiquitous catalog, Ikea lovers took to the Internet to air their complaints. Rather than alienate their customers for a trivial reason, Ikea changed the font back in the next catalog.
- Direct Recruitment – The direct mail marketing firm sends out handwritten birthday cards to clients and associates every year. This simple, personal touch helps clients feel like Direct Recruitment cares about them as people rather than simply consumers.
- American Airlines – The airline maintains a comprehensive frequent flyer program that rewards customer loyalty with the promise of free flights, upgrades, and discounts.
- Dell – Dell computers created a special online store for high volume corporate customers. By tailoring the ordering process to the specific customer’s needs, Dell was able to expedite many of the hassles corporate technology buyers face. Providing a higher level of service leads to increased loyalty.
- Vyvanse – The makers of the popular ADHD drug created an extensive online portal that included videos, forums, expert articles, and mobile apps to help those who suffer from ADHD. Rather than relying on the strength of the product alone, the drug makers created a place for users to gather and interact that was linked back to the company.
Why Do People "Like" Things
Social media is one of the most important components of relationship marketing. Sites like Facebook and Twitter make it fast and easy for companies to communicate information to their customers. But in order to make this a long term relationship, the company has to get their customers to become regular followers of their social media profiles. The chart below, based on data from MarketingProfs, illustrates the reasons that customers choose to “like” a company’s Facebook page. As the chart shows, most customers do not elect to follow a company out of mere curiosity. Companies can increase their social media followers if they offer incentives like coupons or insider information.
How is a relationship marketing plan developed?
Relationship marketing can involve revising major aspects of the way a company conducts business. This can be expensive, time consuming, and have serious consequences for both customers and employees. The only way to carry out a relationship marketing strategy in a thoughtful and effective way is to follow a comprehensive marketing plan.
Companies must first look at demographic and historical data about their customers to understand who they are, what they buy, and how to provide for them over the long term. The company must understand why a consumers returns for repeate business. There is the tendency to think that customers return because the company has served them well, but maybe they return to a store because it is the closest to their house, or the only one in the area that stocks the product they want to buy. Analyzing the nature of customer loyalty is the best method develop a working relationship marketing plan.
With a wealth of customer data in place, the company can begin to segment these customers and develop unique marketing strategies for each segment. A customer who appreciates a product’s value has different qualities than one who has had a helpful customer service experience. These customers are loyal for different reasons, and require tailored relationship marketing strategies.
Once the marketing strategy has been implemented, it requires constant evaluation to determine its success. There are a number of hard metrics that companies can use to measure whether they are holding onto their customers. The most obvious is repeat sales, but they can also look at whether customers are spending more, opening up email newsletters, referring the company to friends, or following them on social networks. All of these are indicators of various types of customer loyalty.
Careers in relationship marketing
What do they do?
Average Salaries of Relationship Marketers
- Brand Manager
entry level – $35,000-$65,000
after 10 years – $70,000-$140,000
- Human Resources Manager
entry level – $50,000-$70,000
after 10 years – $80,000-$120,000
- Sales Associate
entry level – $10,000-$35,000
after 10 years – $35,000-$60,000
Brand managers organize and supervise all of the marketing that accompanies a specific brand. They are not focused on marketing a whole company or a single product. Their focus is on brands and their public image. Brand managers will do everything in their power to position their brand as integral to the lives and identities of their customers.
Education and Skills
All brand managers will need to have a degree in marketing. Managers of major brands typically have advanced degrees and years of experience working for a company. Brand managers have to be able to think about advertising abstractly and use a variety of different marketing channels to push the image of their brand.
Human Resources Manager
What do they do?
Human resource managers are responsible for recruiting, hiring, and training all of a company’s employees. A large part of relationship marketing involves training staff on the most effective ways to interact with customers. The human resource manager will lead this training and help instill a company culture that extends out to the customer.
Education and Skills
A degree in marketing is not necessary to become a human resources manager. Most have degrees specifically in human resources or another aspect of business administration. The best human resources managers are effective leaders and trainers that can help mold a model employee without being forceful or patronizing.
What do they do?
Sales associates are the front line sales staff for a company. They will answer questions, address concerns, and recommend other products a customer might like. Since they deal face to face with the customer they are a key part of how that customer perceives the company. Well trained sales associates create exemplary customer experiences that promote customer loyalty.
Education and Skills
Sales associates will not need to have a degree in marketing, but it can be very helpful. There are a number of common strategies shared between selling and marketing. As the face of the company and the representative of a product or brand, the sales associate has to understand what the customer wants and how to best deliver that. This is typically an entry level job available to people with little experience.
How can a marketing school help you succeed?
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Relationship marketing is one of the most consequential forms of marketing there is. Rather than focusing on a specific ad or single campaign, relationship marketing affects every aspect of a company’s business practices.
A comprehensive relationship marketing strategy can involve revising management hierarchies, adding new departments and staff, and significant capital investments. Earning a degree in marketing from a four year institution helps future professionals manage a variety of unique challenges that arise in relationship marketing campaigns.
An education in marketing teaches students more than just how to design attention grabbing ads. A major focus is placed on the way that marketing affects and informs a company’s broader business strategies. Marketing is not treated as a discreet entity, but something that is fundamental to the way a company operates. Students with academic training in marketing gain a better understating of how the marketing decisions they make will affect other departments in the company. Today’s employers are looking for thoughtful marketers like these to help guide their customer retention strategies moving into the future.