Christine Ennew is Professor of Marketing in the School of Management and of Strategic Information Systems and Sloan Management Review and regularly. Reflections on Relationship Marketing in Consumer Markets, Journal of the Academy of Robust Adaptive Strategies, Sloan Management Review, Spring, pp. Industrial Marketing Management However, the issue of implementing relationship marketing within an organization Sloan Management Review ( ), pp.
However, true understanding involves more than just developing insights that are specific to purchase and consumption. Yet Virginie also harbored concerns about privacy and safety: The fact that strangers were picking out her groceries, coming into her home and sometimes making comments about items she purchased made her uncomfortable. When a deliveryman asked to use her bathroom, that was the last straw.
Recognizing the inherent risks of being in the dark about things customers care about, some leading companies employ innovative market research methods to probe hidden concerns. Harley-Davidson, the Wisconsin-based motorcycle manufacturer, has professional ethnographers on contract who live the Harley lifestyle. But in basing market segmentation on costs and lifetime values, companies fall into the trap of building strategies on relationship outcomes rather than on the inputs that create customer value in the first place.
Research has shown that people form many different types of relationships with brands. Some address emotional or social needs; others are more utilitarian. Relationships can be hierarchical or equal in terms of power; they can be positive or negative in tone.
The Landscape of Brand Relationships View Exhibit We have found that there is profit potential in many different types of relationships; the trick is to understand the specific relationship contract. Relationship contracts establish both the norms and the terms for the relationship, and they also signal what companies must do and not do to keep the relationship sound.
Contracts also govern the potential economic rewards, as different types of contracts require different amounts of time and resources. We studied contracts of nine commercial relationships.
A marriage is a socially supported contract to stay together regardless of the circumstances; a best friendship, by contrast, is based on mutual interests and is voluntary. Marriages turn on commitment, love and fidelity; best friendships are built on intimacy and reciprocity. Marriage partners erect barriers to exit and consider it within bounds to try to change the other — actions that violate the core principles of friendship.
For many years, Harley-Davidson attempted to nurture brand loyalty through marriages with its customers. Never convey that you do not know or understand the other, as this calls into question the very intimacy upon which the friendship is based….
Never share information with others that the friend shares in privacy with you…. Be there when you are needed, for whatever reason. Our research has helped us develop a clearer understanding of the guiding norms for other categories of relationships as well. Given the array of relationship categories, what can leading companies do to negotiate and manage more profitable relationships with customers?
First, managers need to have a good picture of the types of relationships in their customer portfolios.
CRM software and the customer data that feed it offer limited guidance on how to maximize value creation across different types of relationships: Most companies simply end up shifting resources away from customers with less revenue potential or high costs to serve to their more profitable customers. But that is far too simplistic. To achieve real impact, managers need to know the types of relationships in their customer portfolio and the relative number of each type.
This information will allow them strategically to select relationship segments, design programs and interaction protocols sensitive to the rules of each governing contract and allocate resources appropriate to maintenance and growth. But motivating good customers and firing bad ones is just one aspect of relationship marketing — in our view, the easy part.
Putting the ‘Relationship’ Back Into CRM
The more difficult part involves improving relationships when they are strained. In our experience, a high proportion of commercial relationships today are conflict-ridden, and when relationships become troubled, most companies are quick to blame the customer. Effective CRM systems should help companies understand their own roles in shaping relationships, for good or for bad.
Whether companies are willing to admit it or not, many unwittingly encourage bad customer behavior. The telecom industry, for example, is famous for offering customers cash incentives to change providers. At Peapod, delivery scheduling protocols and a growing customer base encourage customers to lock in delivery times, even if it means canceling at the last minute; that creates operational challenges for the company and increases costs to serve.
Mindful of these biases, Best Buy, the large U. Best Buy management realized that blaming customers for these actions was unfair; after all, its own price promotions, store policies and sales tactics played an enabling role.
Its response was to revamp its product mix to deemphasize low-margin loss leaders and to redesign sales promotions to deter customers who were fixated on the deal. It also curtailed offers to so-called abusive customers, purging them from promotional mailing lists. Best Buy revised return policies to make it harder for people to game the system. Rather than helping unscrupulous deal seekers take advantage of loopholes, it now tries to nurture more profitable partnerships with a broad customer base.
Unfortunately, accepting responsibility for bad relationships is unusual; blaming the customer remains the norm. Its view is that the customer should have traveled the day before. When managers decide to crack down on high-maintenance or opportunistic customers, we found that in many cases the individuals they decide to target are the very people the company worked hard to cultivate through its CRM.
They are created when companies reward good customers with discounts, shower them with attention and special treatment and permit them to break rules.
Over time, as their demands and expectations increase, they often become more costly to serve, and, taken to the extreme, they become a profit drain. This feature encouraged customers to purchase items they liked when they saw them, in hopes that they might find the other pieces in another store; if not, they would return what they bought.
A pricing system that featured automatic markdowns on a preset schedule encouraged frenzied buying even further. Then one day she received a call and official letter from a manager saying she was no longer allowed to come into the store. Norma received special offers and invitations to presale events.
Relationship marketing - Wikipedia
Most employees knew her by her first name, and several became personal friends; she knew their families and bought them baby presents; she consoled them in tough times. But when management analyzed the data about Norma, they saw something different.
Even though she made hundreds of purchases and spent thousands of dollars a year, she also returned many of the things she bought. Based on our research, there are a lot more bad customer relationships than there are bad customers. Over time, due to the special attention employees gave her, Norma came to expect recognition and attention. She was granted sale prices in advance of sale periods. She got special peeks at merchandise before it arrived on the floor.
Managers responded to her ideas on how to improve store operations. The company that built Norma into a platinum-level customer slowly transformed her into a high-maintenance customer who was increasingly expensive to serve.
There was a problem providing the content you requested
Norma was not a bad customer because she was unprofitable: In fact, management created an expectation that contributed to the problem, then failed to negotiate a new, more realistic relationship.
It failed to communicate that the relationship had become abusive and that a new relationship contract needed to be forged. By attending to the evolving rules of a relationship, managers can prevent bad relationships from forming and set troubled relationships on the right course. Unlocking the Value in Customer Relationships: A Blueprint In the s, many companies began to focus on building brand equity to create sustainable advantage.
In the s, when companies such as banks, telecommunications and credit card companies gained access to reams of customer data, the priority shifted to finding better ways to increase customer equity. If companies are to maximize the value of their customer relationships in the future, they will need to redefine how they think about customer value and how they measure it. Rather than maximizing revenues on individual customers and minimizing their costs to serve, companies may find it more profitable over the long term to focus broadly on managing relationship equity: Managing relationship equity involves four distinct steps: Analyze the portfolio of customer relationships.What Is Relationship Marketing? A Beginners Guide
The first step is to catalog the different types of relationships people currently have with their brands. These predicted offerings can then be shown to the customer through cross-sell, email recommendation and other channels.
Relationship marketing has also migrated back into direct mail, allowing marketers to take advantage of the technological capabilities of digital, toner-based printing presses to produce unique, personalized pieces for each recipient through a technique called " variable data printing ".
Marketers can personalize documents by any information contained in their databases, including name, address, demographics, purchase history, and dozens or even hundreds of other variables. The result is a printed piece that ideally reflects the individual needs and preferences of each recipient, increasing the relevance of the piece and increasing the response rate.
Scope[ edit ] Relationship marketing has also been strongly influenced by reengineering. According to process reengineering theory, organizations should be structured according to complete tasks and processes rather than functions. That is, cross-functional teams should be responsible for a whole process, from beginning to end, rather than having the work go from one functional department to another. Traditional marketing is said to use the functional or 'silo' department approach.
The legacy of this can still be seen in the traditional four P's of the marketing mix. Pricingproduct managementpromotionand placement.
According to Gordonthe 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 marketing. It is organized around processes that involve all aspects of the organization. In fact, some commentators prefer to call relationship marketing "relationship management" in recognition of the fact that it involves much more than that which is normally included in 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 sector  and also in the public sector.
Satisfaction[ edit ] Relationship marketing relies upon 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. Although groups targeted through relationship marketing may be large, accuracy of communication and overall relevancy to the customer remains higher than that of direct marketing, but has less potential for generating new leads than direct marketing and is limited to Viral marketing for the acquisition of further customers.
Research by John Fleming and Jim Asplund indicates that engaged customers generate 1. According to Buchanan and Gilles,  the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer.
The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized 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, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume. Long-term customers may initiate free word of mouth promotions and referrals. Long-term customers are more likely to purchase ancillary products and high margin supplemental products.
Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share. Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.
Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle.
Relationship marketers speak of the "relationship ladder of customer loyalty ". It groups types of customers according to their level of loyalty. The ladder's first rung consists of "prospects", that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of "customer", "client", "supporter", "advocate", and "partner". The relationship marketer's objective is to "help" customers get as high up the ladder as possible.
This usually involves providing more personalized service and providing service quality that exceeds expectations at each step. Customer retention efforts involve considerations such as the following: Customer valuation — Gordon describes how to value customers and categorize them according to their financial and strategic value so that companies can decide where to invest for deeper relationships and which relationships need to be served differently or even terminated.
Customer retention measurement — Dawkins and Reichheld calculated a company's "customer retention rate". This is simply the percentage of customers at the beginning of the year that are still customers by the end of the year.
This ratio can be used to make comparisons between products, between market segments, and over time. Determine reasons for defection — Look for the root causes, not mere symptoms. This involves probing for details when talking to former customers. Other techniques include the analysis of customers' complaints and competitive benchmarking see competitor analysis. Develop and implement a corrective plan — This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company's reward and recognition systems, and the use of "recovery teams" to eliminate the causes of defections.
A technique to calculate the value to a firm of a sustained customer relationship has been developed. This calculation is typically called customer lifetime value. Retention strategies may also include building barriers to customer switching. This can be done by product bundling combining several products or services into one "package" and offering them at a single pricecross-selling selling related products to current customerscross promotions giving discounts or other promotional incentives to purchasers of related productsloyalty programs giving incentives for frequent purchasesincreasing switching costs adding termination costs, such as mortgage termination feesand integrating computer systems of multiple organizations primarily in industrial marketing.
Many relationship marketers use a team-based approach.
The rationale is that the more points of contact between the organization and customer, the stronger will be the bond, and the more secure the relationship. Application[ edit ] Relationship marketing and traditional or transactional marketing are not mutually exclusive and there is no need for a conflict between them. In practice, a relationship-oriented marketer still has choices, depending on the situation.
Most firms blend the two approaches to match their portfolio of products and services. Social bond refers to the relationship established through the collective blood relationship between people. Relationship marketing is to establish and strengthen these two kinds of bonds, especially the structural bond, so as to strengthen the relationship with clients and lock them in.
Morgan and Hunt made a distinction between economic and social exchange on the basis of exchange theory and concluded that the basic guarantee of social exchange was the spirit of the contract of trust and commitment.