Relationship Marketing

One of the things of most value to a company is its relationships— with customers, employees, suppliers, distributors, dealers, and retailers. The company’s relationship capital is the sum of the knowledge, experience, and trust a company has with its customers, employees, suppliers, and distribution partners. These relationships are often worth more than the physical assets of a company. Relationships determine the future value of the firm.

Any slips in these relationships will hurt the company’s performance. Companies need to keep a relationship scorecard that describes the strengths, weaknesses, opportunities, and threats in regard to the relationship. Your company needs to move fast and repair any important but weakening relationships.

Traditional transaction marketing (TM) tended to ignore relationships and relationship building. The company was viewed as an independent agency always manoeuvring to secure the best terms. The company was ready to switch from one supplier or distributor to another if there was an immediate advantage. The company assumed that it would normally keep its current customers, and it spent most of its energy to acquire new customers. The company neglected the interdependence among its main stakeholders and their roles in affecting the company’s success.

Relationship marketing (RM) marks a significant paradigm shift in marketing, a movement from thinking solely in terms of competition and conflict toward thinking in terms of mutual interdependence and cooperation. It recognizes the importance of various parties—suppliers, employees, distributors, dealers, retailers—cooperating to deliver the best value to the target customers. Here are the main characteristics of relationship marketing:

• • It focuses on partners and customers rather than on the company’s products.
• • It puts more emphasis on customer retention and growth than on customer acquisition.
• • It relies on cross-functional teams rather than on departmental level work.
• • It relies more on listening and learning than on talking. Relationship marketing calls for new practices within the 4Ps (see box).

The shift toward relationship marketing does not mean that companies abandon transaction marketing altogether. Most companies need to operate with a mixture of the transactional and the relational marketing approaches. Companies selling in large consumer markets practice a greater percentage of TM while companies with a smaller number of customers practice a higher percentage of RM.

Relationship Marketing and the 4Ps

Product

• • More products are customized to the customers’ preferences.
• • New products are developed and designed cooperatively with suppliers and distributors.

Price

• • The company will set a price based on the relationship with the customer and the bundle of features and services ordered by the customer.
• • In business-to-business marketing, there is more negotiation because products are often designed for each customer.

Distribution

• • RM favors more direct marketing to the customer, thus reducing the role of middlemen.
• • RM favors offering alternatives to customers to choose the way they want to order, pay for, receive, install, and even repair the product.

Communication

• • RM favors more individual communication and dialogue with customers.
• • RM favors more integrated marketing communications to deliver the same promise and image to the customer.
• • RM sets up extranets with large customers to facilitate information exchange, joint planning, ordering, and payments.

Article added at: 11.16.2006 by Emanuel Julo