Relationship marketing

Back ground

In the context of integration and globalization, distances in geography, space and time as well as cultural practices of countries are gradually shrinking. Enterprises business environments are not confined within their country but reach out regionally and worldwide. The opportunities, challenges and competition among businesses are therefore also rise significantly.

Besides, today the world becomes flatter, information is shared more transparently and openly or stolen easily, almost things can be copied including forms of products and services, their specification and quality, and the way enterprises promote and sell the product and service to market. But there is one thing that cannot be copied. It is relationship. Enterprise can learn from each other how to build and maintain relationship but the relationship cannot be copied. Thus, relationship and networking are very powerful nowadays in business environment.

Also, recent studies show that the behavior of customers during making purchase decision relies on emotional factors increasingly and is impacted by lot parties. Internet and active approaches of enterprise give them much information of the product and service and make them smarter. Thus, business opportunities are shared quite equally among enterprises but only the one who can effectively attract clients, build relationship with them, continuously engage them with updated and innovative information and product/service will win.

In such changing business environment, enterprise’ marketing is also developed and updated to better serve for business strategy and operation. Besides traditional marketing models and in recent years there are more new marketing models focused on building relationships. Relationship marketing does not focus on mutual relationship with clients but with parties that involve in the whole lifecycle of a product or service. Relationship marketing is the factors that create difference to the enterprise and help them standing out of other competitors.

So, what is relationship marketing?

Relationship marketing is about building long-term relationships with clients rather than trying to close a one-off deal with clients. Relationship marketing tries to boost customer loyalty by providing exemplary products and services.

Among marketing expert and activist there are lot definitions of customer relationship marketing and below are some:

 “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) 

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. I view relationship marketing as a brand’s ability to create an emotional connection with the consumer” (Steve Olenski 2013)

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

 ”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)

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Generally, relationship marketing is a marketing method that serves for the purpose of building and managing relationships and long-term trust with customers, with suppliers as well as with all other agents in the market. The goal of the relationship marketing is to bring long-term value for customers to earn their consistent satisfaction that is the measure of the success of the business. This approach also aims to build stronger relationships with existing customers, to strengthen their faith in the quality of products and to encourage reuse of enterprise’s products.

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.

What are benefits of the relationship marketing?

So, why we need to build and retain trustful and long term relationship with clients? The reason is that relationship marketing will create customer loyalty and will secure life time of customer. Besides, any parties involved in the business process will some way enjoy benefit from this marketing approach.

Some of the benefits of relationship marketing for company include:

  • Loyal customers will get more clients for you 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. Then more revenue is generated for you and on the other hand you will save much cost for advertising activities.
  • Loyal customers will repeat transaction with you and even are willing to try your new products or expand existing service with you. Then you will have chance to retain and increase your revenue with existing customers. Furthermore, with existing clients you will save much cost for selling products to new customers or setting up your service to new customers. According to business authors Emmett C. Murphy and Mark A. Murphy, acquiring a new customer can cost five times as much as retaining an existing customer. Thus, you will save a huge cost if you successfully retain your exist customers.
  • 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. 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.
  • If you can retain lot of your customers long, the pressure to acquire new customers will reduce, your organization will have more time and effort to put on innovating your products and services, improving your customer service, product’s and service’s quality.
  • Loyal customers will not abandon you to find new partners, they will not give your competitors an opportunity to increase market share and boost revenue from services to them. Besides, loyal clients will share with you any information about the market, about your competitors or any information that relates or benefits to you.

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Some of the benefits of relationship marketing for customer include:

For customers, relationship marketing also brings important benefits, such as a peaceful mind in the quality of service and enjoyment of the preferential service, product price and promotion.

Also, customer will not have to spend time and effort on looking for new vendors/suppliers or running on test of new products and services before they fully meet their requirements and expectation.

Deference of Traditional Marketing and Relationship Marketing images-4

To understand more clearly the relationship marketing valves, let’s find out the differences between transactional marketing, one of the traditional marketing approaches and relationship marketing.

In terms of time focus and organization’s goal, transaction marketing expects they can quickly sell their products and services, thus they meet customers, introduce their products, negotiate the prices and close the deal. That is end of process and they quickly switch to other potential customers. For relationship marketing, organizations do not only want to sell products or service but they also want customers to be delighted about their products and services and intent to sell more to the existing customers. Thus, those type of organization target to not only sale but also a long-term and trust relationship with these customers in order to accompany them in a long journey and sell products and services during the long journey.

Due to the difference in targeting, the priorities for customer service are also put differently. Transaction marketing does not focus on making customer satisfaction after purchase and during the use of services, products. Meanwhile, relationship marketing regards customers service a key component in the business chain. As a result, the customer engagement is much higher for relationship marketing methods because customers are asked to provide feedbacks, they are understood, and they play important roles to making the products and service better and fitter to their needs.

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.

Characteristics Transactional marketing Relationship marketing
Time focus Short term Long term
Organization goal Make the sale Emphasis on retaining customers
Customer service priority Relatively low Key component
Customer contact Low to average Frequent
Level of customer commitment Low High
Basis for seller – customer  interactions Conflict manipulation Cooperation, trust
Source of quality Primarily from production Companywide commitment

The history of RM definition and method

 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 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 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.

 

Some of well-known Relationship Marketing Models

Based on the analysis and synthesis documents on the relationship marketing and business environment today, we introduce five models of typical relationship marketing that has the ability to apply the business environment.

1. Manso and Speece Model

In this model, marketing relationships is built through four specific groups of activities to maintain relationships with customers, including:

Social activities: inviting customers to participate in social activities besides the business, such as parties, meals; organizing seminars to customers to do networking; visiting customers frequently.

Information exchange activities: regularly sending publications of research, of new relating regulations and law, and advertising products to customers, providing information, data immediately upon demand; regularly updating customer information; monitoring and examining the customers’ financial and credit situations.

Sales activities: regular assessing quality of product and service; actively introducing new products and services to customers; providing everyday services to guests; and assessing the level of relationships to customers.

– Managing and monitoring activities: Having a strategy to track the relationship with customers, track customer transactions (Man In comparison & Speece 2000).

This marketing model is evaluated to be suitable to enterprise in service sector. Service enterprises who apply this model aims to build relationships with customers quickly, to strengthen long-term relationships with its customers. In addition, this model also focuses on the situation of customer’s financial activities, so the model is suitable to banks and financial institutions.

2. The 5-level relationship marketing model

Based on research on after-sale enterprises’ attitudes and relationship with their customers Kotler built a relationship marketing model with 5 levels that reflecting customer satisfaction. These five levels of relationship marketing are as follows

Basic marketing Group – Enterprises have NO relations with the customer after the sales are classified as Group

Reactive marketing Group – Enterprises ENCOURAGE the customers to Enterprises that encourage customers to make comments raise questions, comments about their products

Accountable Marketing Group – Enterprises call the customer ONE SINGLE TIME to make sure that the products work well and that there is no issue after sale. Furthermore, customers are asked for suggestions and feedback to improve the services and products. Thus, the enterprises take responsibility for the sale.

Marketing Group – Enterprises take regular feedbacks from their large customers.

Partnership Marketing Group – Enterprises keep constantly and continuously contact with their customers.

3. Ndubisi’s relationship marketing model

In 2007, Ndubisi introduced relationship marketing model that focuses on customer loyalty. With that model, development of relationship marketing consists 4 fundamentals:

– Trust is defined as the trust in others in cooperation. This is considered as fundamental and most important in the relationship marketing model.

– Commitment is a measure of degree of customer loyalty and predication the frequency of customer transactions in the future.

– Communication plays an important role to keep in touch with customers, providing timely information and reliable information on the changes in demand and proactively communicate with customers

– Monitoring of the conflict: the adjustment of any estate plan between the two sides during the operation of the relationship, as well as the improvement and adaptation of products and services that enterprises implement best to meet requirements of customers.

According to this model, enterprises should do 4 elements well to build and maintain strong relationships with customers. However due to do asynchronous fundamentals factors should this model is only suitable for enterprises already have organizational structures available and has enough financial resources required for the synchronous implementation.

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