Definition of Marketing Series: Relationship Marketing

In this installment of the Definition of Marketing Series, we learn about relationship marketing. This is one of the most visited presentations on Slideshare (you can view the entire Slideshare presentation at the end) with thousands of views and hundreds of downloads.

Relationship marketing is important because it focuses on strengthening those elements of your marketing strategy that contribute to retaining existing customers, as well as building fruitful relationships with your channel partners. Research suggests it’s 5X more expensive to replace an existing customer/ client because acquisition costs are so high.

relationship marketing
Image courtesy of Tech Target

The popular notion of CRM (Customer Relationship Management) makes you believe customer retention relies on monitoring customers and managing your interactions with them. This is very much a sales-oriented way of looking at customer retention and CRM products such as Salesforce focus on helping companies manage communication and outreach with customers. This is the part of CRM that we call automation tools from the graphic above.

From a marketing perspective, relationship marketing is much more complex and relies on a variety of strategies, not just communication.

So, what are some strategies to retain existing customers:

Hallmarks for relationship marketing

Relationship management, according to Forbes, involves managing relationships with customers, employees, and other partners that contribute to the success of your business. To better understand relationship marketing, think about how you maintain relationships in your personal life. You know it takes more than simply communicating and the type of communication matters. For instance, insisting everything go your way won’t work. You must convey respect, appreciation, and trust if you want others to act the same way toward you. You must also dedicate resources to maintaining the relationship.

The same thing goes for building and maintaining business relationships. As mentioned, there are different types of relationships such as those with employees and your partners like suppliers. Maintaining those relationships is also critical for your success. For instance, letting suppliers know your needs ahead of time so they can plan their own production schedules makes the partnership more efficient and binds your suppliers to your business.

For today, we’ll focus on customer relationships since each type of relationship requires somewhat different tactics.

Arm’s-length transactions versus relationships

In marketing, we talk about a continuum from transactions to relationships. Transactions are one-time exchanges and the classic example is the service station where you buy gas in a town you’ll never visit again. Relationship marketing, on the other hand, relies on repeat transactions over time that provides additional value over a series of transactions. For instance, there’s additional value gained by shopping in a grocery store week after week; you know where to find your favorite brands, you know the people who work there, and you may gain value from loyalty programs.

social crm

You might encounter relationships that are fairly fleeting, like the “relationship” you have with your bank teller, or extended relationships that may take on the characteristics of a true friendship. For instance, you might have a relationship with your hairstylist that looks more like a friendship since you spend an extended period of time together on a somewhat regular basis. You also share stories about your life and values. You might even invite them to your wedding or other social events and follow them when they move to a new salon.

Some relationships survive mainly because they’re sticky. For instance, you visit the same doctor to gain value from his/her experience treating you over time. You also develop a level of comfort because you understand what the visit will look like.

Relationships benefit both parties

For relationship marketing to work, both parties should gain value over simple transactions. Above we discussed the value customers receive. Companies also benefit because relationships with customers may translate into increased sales in the long run.

  1. Customers who have relationships spread the word about your business, which drives others to buy from you.
  2. Customers who have relationships trust the brand and are more loyal — which translates to buying more from the organization.
  3. Customers who have a relationship defend you when others criticize you or your brand.
  4. Customers who have a relationship may act as partial employees to help other customers understand your products and use them effectively.

This makes relationships look better.  But, that’s not always the case because developing relationships requires time, money, and effort.  So, what kind of exchange should you shoot for? That depends! You must conduct a cost-benefit analysis to determine whether to engage in relationship marketing and WHO you should have a relationship with. In another post, I discuss using customer lifetime value and other tools to decide whether to encourage a relationship with some customers.

Develop customer relationships

Treat customers like people

When I did a faculty internship at Grey Advertising in NY, the VP started a program he called “Customers First”. Many folks working in the agency were confused about what this slogan meant (another key lesson from this is to ensure your employees embrace your company values, understand how their actions contribute or detract from them, and know where they can get support for matching their behaviors to company values).

It’s simple.

Customers are people first. So treat them that way.

improve customer service

Customers matter.

Not only do they buy your brand, but they also recommend your brand, advocate for it, and help other customers when they have problems buying or using your brand.

They’re very valuable.

86% of customers quit doing business with a company due to poor customer service in 2010

How’s that for value? Replacing 86% of your customers is expensive and wasteful. Replacing any measurable percentage of your customers is expensive, needlessly so. To recruit new customers, you must increase marketing efforts and recognize that only a small portion of those efforts will deliver results. Below, you can see the average conversion rate by industry to demonstrate the number of leads needed to convert a new customer. Organic traffic commonly delivers the most conversions of all online marketing efforts (an average of 2.7% conversion rate across industries but up to 70% of your traffic comes from organic search), except for email marketing, which isn’t a first-touch action.

average conversion rate by channel

Delivering customer service

That’s why firms go to great lengths to provide good customer service, highly valuable products, and deliver on their promises. Otherwise, they’re likely to lose customers to a competitor that does a better job.

And, providing a little extra goes a long way to smoothing over any service failures. Walk into some hotels now and you’ll find a little treat (a cookie or some other treat) designed to compensate for any little problems you might encounter during your stay.

Social media and relationship

Relationship marketing is also critical as it underpins successful social media marketing strategy.

Also presented are changes necessary to implement a relationship marketing strategy.

Sometimes we forget that social media marketing is ALL about relationships — that social networks are simply a tool for building relationships with customers and prospects.  It’s not about attracting huge numbers of fans/ followers (in fact a few highly engaged fans are MUCH more important than hordes of disenfranchised fans).  It’s not about creating content; it’s not about SEO; it’s not about design or graphics or widgets.  It’s about relationships.  The rest are tools for building and supporting these relationships.

When to use relationship marketing

What are your goals?

Some people think you can only build relationships if you’re in certain markets. Building relationships is expensive and may not be the most effective way to reach organizational goals. And every organization plans to make money, so wasting time and other resources building relationships that don’t translate into dollars is ridiculous.

If you’re a gas station along a busy highway or off the interstate, spending resources on social media marketing to build a relationship probably doesn’t make sense. Instead, focus on billboard advertising to maximize exposure for the business. Also, look at updating prices frequently on tools like GasBuddy that drivers use to find the cheapest gas. However, a gas station in a neighborhood might want to build relationships if they also offer a service area. That way, when consumers need more profitable services to repair their vehicles, they trust you and are more likely to choose your business.

Lesson 1 – Build relationships with customers when there’s potential to increase your LONG TERM profitability through these relationships.

What do customers want?

While it’s true that not everyone wants a relationship with their brand, people want relationships with some brands. The people who want relationships in one industry may not want relationships in others. For instance, you’re having a great conversation with friends at a restaurant. You don’t want the management or wait staff to interfere in their efforts to build a relationship with you.

Any brand can choose relationship marketing to benefit its strategy. I mean, look at Dove. Is there another category that seems less likely to build relationships with customers? Of course, customers don’t build relationships with soap, they built relationships with a brand’s values. Dove celebrates women of all shapes and colors as promoted in the campaign for real women to demonstrate values held by the market.

corporate social responsibility
Image courtesy of Customer Insight Group

Marketing to baby boomers through social media is considered stupid by some who contend baby boomers don’t use social media. All you have to do is look at metrics for AARP to see the effectiveness of social media marketing to this group.  Baby boomers are a rapidly increasing group of social network users, plus their kids and grandkids are active users of social networks.

Lesson 2 – If implemented effectively, you can build relationships with people regardless of your product or target market

How successful are you with other marketing initiatives?

How’s your quality? Your customer service? Your interactions with customers offline?

If the rest of your marketing efforts stink, efforts to build a relationship will backfire, creating more fodder for the press and problems for front-line employees.  Creating fan pages and other social media channels only acts to give customers another avenue to complain and a way to leverage individual customer complaints against the company.

Lesson 3 – if the rest of your marketing stinks, building relationships with customers will backfire creating more negative sentiment.

Conclusion

I hope this gave you a taste of how you might implement relationship marketing, who to build relationships with, and the value of relationships to your organization.

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Relationship marketing from Hausman and Associates