Chapter 13 Relationship Marketing -Sales and Distribution Management

Copyright © 2010, S L Gupta

Excel BooksSales and Distribution Management Text & Cases (2nd Edition) S L Gupta13-1

Relationship Marketing

New Techniques of Sales Management

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Chapter

13Relationship Marketing





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Introduction

The use of the term relationship marketing suggests that deliberate efforts are

being made to retain customers, provide effective communication with them and

use different approaches to marketing that are:

Based on development of two way communication between suppliers and

customers

Affordable by technology

Usually guided by highly technical analysis of customer purchasing and

profitability.





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Definition of Relationship Marketing

The term relationship marketing was first coined in America in the early

1980s.

It has no single, agreed meaning, most definitions have common factors

defined in the dictionary of marketing terms of American Marketing

Association (1995).

“Relationship Marketing is marketing with the conscious aim to develop and

manage a long-term and/or trusting relationship with customers, distributors,

suppliers, or other parties in the marketing environment”.

Pathmarajah (1993) has defined relationship marketing as “the process

whereby the seller and the buyer join in a strong personal, professional and

mutually profitable relationship over time”.





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Why Relationship Marketing?Because of the deregulation policies of the government and competition because of internationalization, many industries have faced far reaching effects on the competitive environment like: The ability to replicate physical products at lower and lower costs has facilitated price undercutting by domestic and international competitors. This encouraged many manufacturers to augment their physical products with services in order to compete and even to survive. Many large firms have been transformed from predominantly manufacturing organizations into predominantly service organizations by bundling services with products. The need to keep existing customers became a priority in the face of intense

competition and the higher comparative marketing costs of acquiring new customers. Increased competition and deregulation in many service-dominated industries has resulted in emphasis on service quality as a means of achieving a competitive advantage.





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5 Es of Relationship MarketingRelationship marketing is characterized as having the following properties:

Effective

Efficient

Enjoyable

Enthusiastic

Ethical.

Companies which are genuinely committed to the 5 Es are far less common than one may expect, but those who are aim to

Offer the most value, personally and professionally

Become a unique source in helping the buyer build something better, e.g. better peace of mind

Become a partner with the buyer in his or her objective and establish a long-term trusting relationship with the buyer.





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Levitt has opined that sale transaction should be regarded as a start rather than an end of relationship. As shown in the table below, even now, many firms’ reaction to a sale is the exact opposite of the customer.

Seller Buyer

Objective achieved Judgement postponed; applies test of time

Selling stops Shopping continues

Focus goes elsewhere Focus on purchase; wants affirmation that expectations

have been met

Tension released Tension increased

Relationship reduced or ended Commitment made; relationship intensified.





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In fact, even today, many firms still practice transactional marketing rather than relationship marketing. Pathmarajah has provided a summary of the key differences in two approaches

Transactional Marketing Relationship Marketing

Do the deal and disappear Negotiate a win-win sale situation and stay around, being a

resource for better result

Push price Promote value

Short-term thinking and acting Long-term thinking and acting

Building the business on deals Building the business on relationships

Getting new customers Keeping all customers and clients

No structure for on-going

business

Structure created to support business relationship; special

club and memberships for frequent users/buyers

Selling focused Relationship focused for results

Short-term empathy Long – term empathy and rapport





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Short-term empathy Long-term empathy and rapport

Incentive for doing the deal Incentive for long-term relationships and revenue

Foundation of sale telling and selling

Foundation for revenue trust selling

Race for a sale result Swift, strong, safe and enduring in results through relationship building

After-sales support and service poor — seen as cost

After-sale support and service’ seen as an investment in the relationship

Product-service focused People expectations and perception focused

Rewards-incentive for’ doing deals’

Rewards incentives for maintaining and growing relationship and revenue

The deal is the end. Pursuit of deals.

The sale just the beginning. Pursuit of long-term relationship and result.





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Application of Relationship Marketing

The relationship marketing concept varies with the customer, as some are more

disposed towards it than others. Jackson’s identification of three type of

customers was based on ‘the time horizon within which a customer makes a

commitment to a vendor and also the actual pattern that the relationship follows

over time’. The three types of customers identified are:

The lost-for-good customers

The always-a-share customer

The intermediate type.





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Marketing Strategy Continuum

Transaction marketing is common to the consumer packaged goods sector but as

a company is forced to become more service oriented in approach, relationship

marketing increasingly displaces transactions based marketing. The driving force

behind this displacement are

Better or more diverse technologies

Growing consumer satisfaction

Customers’ access to more options

Competition.





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Marketing Strategy Continuum

Marketing strategy continuum

Transaction Marketing Relationship Marketing

Dominating marketing function

Traditional marketing mix dominated

Interactive marketing dominated

Quality dimension mostimportant for competitive advantage

Outcome-related technical quality dominating

Process-related functionalquality dominating

Price sensitivity Customers very price sensitive Customers less price sensitive

Interface between marketingand other functions e.g.operations and personnel

Limited or nonexistent; interface of no significant strategic importance

Substantial interface of strategic importance

Typical marketing situations continuum

Consumer packaged marketing

Consumer durables marketing

Industrial goods marketing

Services marketing





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Customer Relationship Management

Customer Relationship Management is mainly oriented towards customer loyalty.

CRM helps customers to get information at any time from any source.

Implementation of CRM helps in getting feedback from customer whether it is

positive or negative. Providing all the information to the customers is a

complicated process but essential part of CRM.

Customer Services Capabilities

Call Center Management:

Provide automated, end-to-end call routing and tracking

Capture customer feedback information for performance

Measurement, quality control, and product development





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Field Service Management:

Allocate, schedule, and dispatch the right people, with the right parts, at

the right time

Log materials, expenses, and time associated with service

Orders

View customer history

Search for proven solutions

Help Desk Management:

Solve the problem by searching the existing knowledge base

Initiate, modify, and track problem reports

Provide updates, patches, and new versions





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Objectives of CRM

The main objectives to increase the volume of business between seller and

buyer for the performance of marketing strategies and tactics. CRM is a business

strategy that goes beyond increasing sales volume.

Its objectives are to ease profitability, sales volume, and customer loyalty.

CRM is a business process strategy which is use to achieve the greater

customers satisfaction and loyalty.

CRM consists of three components:

customer,

relationship

management

CRM

Relationship Management

Customer





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Basic questions that CRM tries to answer are:

1. Customer Identification

2. Customer Differentiation

3. Customer interaction

4. Customization/Personalization





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Principles of CRM

The Applications of CRM are based on the following basic principles.

Treat Customer Individually: CRM is based on philosophy of

personalization. Personalization means the 'content and services to customer

should be designed based on customer preferences and behaviour.

Acquire and Retain Customer Loyalty through Personal Relationship:

Continuous contacts with the customer especially when designed to meet

customer preferences - can create customer loyalty.

Select "Good" Customer instead of "Bad" Customer based on Lifetime

Value: Find and keep the right customers who generate the most profits.





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Customer Relationship Marketing

Customer Relationship Marketing (CRM) is the foundation of relationship

marketing. In Extension, the goal of CRM is to convert the target audience into

loyalists and loyalists into enthusiasts, advocates, and donors. Here is a useful

strategy:

Step 1

Identify the diverse customers to whom you would like to establish a

relationship.

Step 2

Find out the customers who are favourable towards your organization then

you will have to keep maintaining a good relationship with that customers by

keeping in touch with them through impersonal marketing techniques like

mailings, etc.





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Step 3

Actively solicit the increased participation and involvement of community

members, which will foster greater loyalty to the program.

Step 4

Encourage greater support from community members. Loyal individuals are

more likely to advocate for the program and/or donate resources to the program.

Each of these steps takes time and attention, Relationship marketing must be

nurtured.





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Customer Relationship1. There are higher marketing costs associated with generating interest in new customers.

2. Close and long-term relationships with customers imply continuing exchange opportunities with existing customers at a lower marketing cost per customer (Gronroos, 1990b). Reichheld and Sassier observe:

3. Viewing customer exchanges as a revenue stream, as opposed to a compendium of isolated transactions.

4. Strong customer relationships with a high degree of familiarity and communications on both sides can generate more practical new product ideas from customers and contact personnel (Kiess-Moser and Barnes, 1992).

5. Good relationships with customers can result in a good word-of-mouth from successful exchanges and minimal bad word-of-mouth in the event of unsuccessful exchanges.

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Chapter 13 Relationship Marketing -Sales and Distribution Management