Customer Relationship Marketing

  1. Introduction

      1.1. Back ground

  • Demand of RM today

Times are changing and consumers today demand products with higher quality and lower prices, and also they concern on loyalty to the brands that they choose at a high rate. A big difference between now and a decade ago is how information technology enables producers as well as retailers to boost the revenue by storing and using a significantly vast amount of data about their customers, as well as their consumers. This change enables the producers to use different marketing measures to create long-term, reciprocal relationships with the end consumers through, for instance, sharper segmentation, digital communication with consumers through one-to-one marketing and novel market offerings (Peppers & Rogers, 1993; Payne & Frow, 2005; Vargo & Lusch, 2004).  Furthermore, long-term relationships with the consumers will get more profitable than to repeatedly attract new ones.

Traditional marketing research has always tried to understand why the consumer acts like it does and try to manage the price to stimulate demand or by developing new and different products appealing to different segments of the market at different price point, whereas Journal of Marketing in 1983. Berry (1983), who brought the concept of Relationship Marketing into life, argued that the seller should not simply focus on penetrating markets, but to also build strong relationships with the consumer.

Also the world is getting smaller and smaller and customers have many alternatives to choose in the market so services these days play an important role in the whole process of product offering. Therefore marketing has changed from emphasis on revenue to profit, from price to consumer value, from products to consumer needs and preferences, from traditional bureaucratic, functional structures to networked organizations, from function to process and from ‘make and sell’ to ‘sense and respond.’

All the above mentioned reasons of the decline of traditional mass marketing techniques as customers become more demanding, the appearance of technological development that provides new solutions and products and the changing nature of markets, particularly the increase in competition and development of fragmented, regional, and global markets and companies will lead to the shift from “Transaction – Orientation” to “Relationship – Orientation”. It means marketing is focusing on the relationship between the organization and its markets.

Why we need to enhance relationship with clients

Clients are our business – they are what allow you to get a paycheck every month so if your client is happy and satisfied with your product and response, then it is a sure way to not only grow your business but maintain a lasting customer relationship. They are always at the top of our priority list. If you’re not building a strong relationship with your clients you are going to be left behind. Building a strong relationship with your clients allows for individual attention and also the ability to differentiate customers and their needs. By interacting with your customers you can learn to customize your products and services to what your client needs or moreover you can also change the behavior of your customers.

1.2. What benefits of relationship marketing are?

  • Benefits to service providers:

Relationship marketing aims to create customer loyalty and secure life time of customer. The biggest threat every company face is the fear that their customers could switch to its competitors. But, if an organization follows a good relationship strategy, their customers are less likely to switch to the competitors. Some of the benefits of relationship marketing include:

  • The value of work of mouth: Loyal customers will help expand your business by referring your services or products to their friends and family and colleagues – this effect is invaluable. Because people trust the opinions of friends and family more than any form of advertising. If you get a customer to like your brand enough to refer it to others, you have just recruited a marketer more effective than anyone on your staff – and you don’t even have to pay him – it’s word-of-mouth.
  • Improve profitability: Loyal customers are more willing to try your new products or accept your price increase, because they trust you. Many businesses fear of raising their prices for the reason of that they’ll lose customers as a result. However, as the material is increasingly from time to time so your product’s price should go up respectively – it’s a big issue that should be considered. A solid relationship marketing strategy can help make a price increase much smoother. That’s because when you’ve tried hard all the time to keep and build up relationships with your customers, the resulting loyalty will make them less likely to leave when a price change. The benefit of relationship marketing is keeping the customer happy then it helps you attract more customers and increase your revenue accordingly.

Good Internal Quality -> Satisfied Employees -> Employee Retention -> Good External Quality -> Customer Satisfaction -> Customer Retention -> High Profitability

Return on Relationship Model (Gummesson, 1999)

  • Protect emotional well-being: Relationship marketing help to foster emotional well-being of customer. Customers are made to feel important with the success of your business, their private information is kept and handled well for customer care purpose. Customer care should be taken to preserve the prestige and well-being of the customer. In turn, the customers give more responsibility and increase the value of your product or services. Then the seller can improve his service and maximize his profitability.
  • Improve product and service: Loyal customers can provide positive feedback quite often which enables you to find opportunities for improving your product and services or even support innovation by finding out your gaps or disadvantages in the market. Organizations that are always sharing information and working together with customers will assure the customer’s need with minimum cost, quickly resolve issues and improve customer satisfaction.
  • Address customer better: As for internal point of view, the advantages of customer relationship marketing is that it focus to identify the customers who are more likely to be of higher value or to be of long term account to a company and eliminate the customer who are too costly to maintain relationships with, as well as opportunities for growing underdeveloped potential. This saves the company time and money in terms of its marketing cost and also reduces pressure put on employees to get new clients each year.
    • Benefits to clients

Relationship marketing offers powerful benefits to customers as followings:

When the clients can provide their feedback, concerns and open communication with the providers, they can use the better services or product as their expectation with sustainable service quality. We know that there is two-way interaction between the provider – who want to sell and keep the client stay longer and the client – who want to buy and satisfy their needs over time. Customer relationship management helps to provide the assurance to the loyalty clients such as loyalty discounts to a long term clients. So it builds up a win-win relationship.

As for the word of mouth we’ve shared above, the referrals boost the customers’ quality and the sales revenue then it leads to the slow changing of price and vice versa you have more power to adjust the services to the most suitability for you..

1.3. Literature

  • The history of RM definition and method

The Production Orientation Era: Enter the industrial age. Since goods were scarce, businesses focused mainly in manufacturing. As long as someone was producing, someone else would want to buy it. This orientation rose to popularity due to shortages in the market, hence creating the foundation of Jean-Baptiste Say’s famous remark: “Supply creates its own demand.” (http://morethanbranding.com/2012/04/30/the-evolution-of-marketing/)

The Sales Orientation Era: After the Industrial Revolution, competition grew and focus turned to selling. Communications, advertising and branding started to become more important as companies needed to sell the increasing outputs of production in an increasingly crowded market. Companies began to get more aggressive in their search for a competitive edge. Sales campaigns were devised to persuade customers or the advantages of the specific product over others. The customer’s wants and needs became important and distribution networks were developed.

The Marketing Orientation Era: From the second half of the 20th century onward, the saturation of markets (the size of the market remains the same) led companies to be stow upon marketers the opportunity to perform on a more strategic level. Marketers are involved at a strategic level within the organisation and therefore inform an organisation about what should be produced, where it should be sold, how much should be charged for it and how it should be communicated to consumers. Modern marketers research markets and consumers. They attempt to understand consumer needs (and potential needs) and allocate organisational resources appropriately to meet these needs. Modern marketers are particularly interested in brands. They are also increasingly interested in ensuring that employees understand marketing, i.e. that everyone within the organisation involves themselves with marketing activities. (Defining Marketing – Bournemouth university website)

The Relationship Marketing Era: The focus of companies shifts towards building customer loyalty  and developing relationships with clients. Authors such as Don Peppers, Martha Rogers and Philip Kotler were instigators of the importance of creating bonds, considering that “the cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy.” (Kotler, 1997). Starting in the 1990s, a new stage of marketing emerged called relationship marketing. The focus of relationship marketing is on a long-term relationship that benefits both the company and the customer.[13] The relationship is based on trust and commitment, and both companies tend to shift their operating activities to be able to work more efficiently together.[14] One of the most prominent reasons for relationship marketing comes from Kotler’s idea that it costs about five times more to obtain a new customer than to maintain the relationship with an existing customer.[15]

Sales in relationship marketing should encompass the following: open communication, employee empowerment, customers and the planning process, and teamwork.[14] First, communication is essential in figuring out what the customers need and determining how the firm can satisfy those needs. With open communication, both sides can express what they are trying to do and can work out a way to make it work together. Second, employee empowerment is important so that the employees are able to satisfy customer needs. Without empowerment, they may be limited in their solutions and cannot creatively satisfy needs. Third, customers must be involved in the planning process. Customer input is invaluable, as the customer is the one who will be using the product. If the customer is not satisfied from the beginning, there is no way to gain approval after the product is incorporated. Lastly, relationship marketing must emphasize teamwork. Several people who can help solve customer problems should work together and use their talents to best serve the customers.[14]

While relationship marketing is largely held as the most recent stage of marketing, there is speculation that we are now entering into a new era of marketing called the social/mobile marketing era where companies are connected to customers 24/7 (https://en.wikipedia.org/wiki/History_of_marketing)

  • Purpose and issue

This study aims to examine the role of Relationship Marketing for producers in the current market, and to discuss the implications of Relationship Marketing in regards to the producers remoteness to the end consumer in Vietnam, and by doing so develop the understanding of how producers can improve their relationships with the end consumer.

2. Definition

  • What’s Relationship Marketing

Relationship Marketing is “to identify and establish, maintain and enhance and, when necessary, terminate relationships with customers and other stakeholders, at a profit so that the objectives of all parties are met; this is done by mutual exchange and the fulfillment of promises.” (Gronroos 1994)

“Thinking in terms of having customers, not merely acquiring customers” (Berry 1983)

 Relationship marketing is a strategy designed to foster customer loyalty, interaction and long-term engagement. It is designed to develop strong connections with customers by providing them with information directly suited to their needs and interests and by promoting open communication.” (Steve Olenski 2013)

Relationship marketing is about forming long-term relationships with customers. Not only obtaining a one-time sale, relationship marketing tries to build up customer loyalty by providing consistent satisfaction on 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. (http://www.marketing-schools.org/types-of-marketing/relationship-marketing.html)

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.

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.

Difference between Relationship Marketing and Transactional Marketing

Transactional marketing is a traditional marketing approach that focused on a single objective, and that is making the sale. Transactional marketing tactics include advertising and promotions exclusively geared towards immediate sales. It is based on short period of time, with little or no emphasis on customer service. It is a theory that includes low-price competition, cost cutting, promotion, return on investment etc. They also believe that they can gain market share with only price strategy.

Relationship marketing has broader, longer-term goals than transactional marketing. Relationship marketing focuses on developing long-lasting relationships with clients to secure sales well into the future. Some relationship marketing strategies including branding, customer service training, community and media relations, social media, newsletters, blogs, referral programs and frequent buyer incentives. These marketing efforts are investments in the promise of long-term sales. When an organization seeks to establish and maintain a long-term relationship with its customers, it is known as Relationship Marketing. Because of constant contact with customer, the employees get to know the customer better, and having understood his expectations, offer improved service when he comes to them for repeat service

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