What is Relationship Marketing? Definition, Benefits and Examples.

Relationship marketing is a connection between equal partners, characterized by trust, commitment, communication, and sharing, which results in the mutual achievement of goals. It is basically interaction in networks of relationships.

Relationships require at least two parties who are in contact with each other. The basic two-party relationship of marketing is that between a SUPPLIER and CUSTOMER.

Relationship marketing has the aim of building mutually satisfying long-term relationships with key parties— customers, suppliers, distributors, and other marketing partners— in order to earn and retain their business – P. Kotler and K. L. Keller, Marketing Management , 12th ed. (Upper Saddle River, NJ: Prentice Hall, 2005).

Here’s why Relationship Marketing (RM) is gaining attention.

Technological advances and deregulation of markets have impacted the classical marketing models built around 4P’s and created intensified global competition. Discerning customers are freer than ever to select from their global marketplace.

Initially, relationship marketing focused simply on the development and cultivation of longer-term profitable and mutually beneficial relationships between an organization and a defined customer group.

Relationship Marketing recognises that customer satisfaction and loyalty are built through the creation of superior customer value, that is created throughout the organization and beyond.

Transactional Vs Relationship Marketing

Transactional marketing is focused on volume, emphasis is more on features, primary concern is product quality, has shorter timescale, there is moderate customer contact and less emphasis on service.

Relation Marketing, on the other hand, is focused on profitable customer retention. The emphasis is on perceived customer value, it has higher customer contact and customer service, concern with relationship quality and management.

KUAR model

Wells Fargo developed its KUAR model as a way to standardize and guide its view of the bank–customer exchange.

KUAR is what the customer expects from Wells Fargo:

• Know me
• Understand me
• Appreciate me
• Reward me

Information flows from the customer to the bank through the KU activities. Information flows from the bank to the customer through the AR activities.

Consumers engage in relationships with firms for various reasons:

• Personal factors such as to achieve greater efficiency in their decision making, to reduce the task of information processing, to achieve more cognitive consistency in their decisions, to reduce the perceived risks associated with future choices.
• Sociological Factors such as to adhere to norms of behavior set by family members, to adhere to the influence of peer groups (e.g., social class and reference groups)
• Institutional Factors such as to adhere to government mandates, religious tenets, employer influences, and market induced policies

Relationship marketing makes marketing more effective by enabling marketers to learn more about individual customers leading to the development of customized products and services, allowing customers to help design and develop the product (co-creating) and minimizing opportunities for negative images of marketing.

Relationship marketing makes marketing more efficient by enabling companies to retain customers (retention being the major driver of company profits), reducing mass-marketing wastes, having consumers do much of the marketer’s work, such as order processing and product design.

The Extended Product Model

The Extended Product Model states that a product is much more than simply its physical characteristics. But is the maintenance, service, installation, training, warranties, delivery, and image. These offer companies the opportunities for creating value for the customer over time.

The Extended Product Model can be used to develop strategies targeting commodities.

Three levels of Relationships

There are three levels of relationship marketing and that the level of relationship marketing must match the strength of bond appropriate for each type of customer:

1. Level one – relationship marketing relies primarily on pricing incentives and is most appropriately aimed at customers toward the transactional end of the continuum.

2. Level two – relationship marketing relies primarily on social bonds involving personalization and customization aimed at customers toward the relationship end of the continuum.

3. Level three – relationship marketing is also aimed at customers toward the relationship end of the continuum, but bonds are established by structural solutions as opposed to the personalized and recognition-of-status solutions used in level two. Example: Structural solutions could include providing customers with computer terminals and software to track their orders (FedEx), imaging equipment to customize clothing, and so on.

Choosing A Loyalty Strategy

Typology of customers based on their profitability and their projected duration with a company. Each quadrant determines the amount spent by the company on relationship efforts.

Butterflies: These are high-profit/short-term customers. Most companies make mistakes of investing too much money over too long of a time period in the relationship marketing. The key with Butterflies is to maximize transactional profit through short-term promotional blitzes and not to attempt a long-term relationship.

True Friends: They offer the greatest profit over the longest time period. Companies must foster this relationship more than the others but not overwhelm these customers with constant communications.

Strangers: These are low-profit/short-term customers. Therefore no investment should be made, and companies should seek profit on every transaction. Loss-leaders will not lead them to trade up. They are loyal only to low prices and will not change.

Barnacles: These are long-term/low-profit customers. They may be low profit either because their wallets are small or because you have a small share of their wallet. Companies attempt to increase profits from this group by cross-selling and trading up. If this strategy fails, companies tend to minimize relationship marketing expenses.

Relationship Marketing and the Characteristics of a Relationship

Hunt, in their theory of relationship marketing, state that trust and commitment are essential because they encourage partners to:

1. Preserve the relationship through cooperation
2. Resist attractive short-term alternatives in lieu of expected long-term benefits
3. Take risks, since they are confident their partner will not act opportunistically

Trust: Partners rely on each other because they have confidence in each other’s integrity, durability, and ability to work out problems they will face in the marketplace.

Commitment: Both parties understand that they are in the market together for the long run. They are willing to make sacrifices for their partner because they are mutually dependent on each other in their quest to achieve long-term returns on their psychological and financial investments.

Relationship Marketing and CRM

Relationship marketing and CRM have more similarities than differences. Relationship marketing refers to relationships with both customers and partners whereas CRM refers mostly to customers.

• Relationship marketing: philosophy and orientation towards customer retention
• Customer Relationship Management: identification and selection of target customers
• Customer Management: Proactive management of the customer

Relationship Marketing and CRM a hierarchy (Christopher et al., 2002, p.17)

Six Markets Model

The six markets model recognises the importance of stakeholder relationships and management. The model emphasizes the relationships between the organisation and all its stakeholder constituents in each of six “markets”.

The key assumption is that organisations can only optimise relationships with customers if they understand and manage relationships with other relevant stakeholders.

• Customer market – the central market with a focus on existing and prospective customers, intermediaries, and consumers
• Referral market – relationships with customers and non-customers who pass referrals (sales leads) to the company e.g. accountants to solicitors
• Supplier market – suppliers or vendors are a crucial part of the supply chain for raw materials, components, or products and with others (alliance market) are part of the wider supplier market
• Influence market – a diverse range of stakeholders who are connected to the business, shareholders, banks, local authorities, regulatory authorities, professional bodies, trade associations, e.g for solicitors the Law Society
• Recruitment market – people (staff) are a critical resource for a business, with companies needing to attract and retain the best staff, helped by recruitment specialists, agents, and placement specialists (headhunters)
• Internal market – recognises that all employees are brand ambassadors for the organisation, directly influencing the opinion of the company or business.