Transactional Marketing versus Relationship Marketing - Assignment Example

?Running Head: Marketing Marketing [Institute’s Table of Contents Table of Contents 2 Transactional Marketing versus Relationship Marketing 3 Introduction 3 Discussion 3 Conclusion 7 Direct Marketing: Every Customer as an Investment 8 Introduction 8 Discussion 9 Conclusion 12 References 13 Transactional Marketing versus Relationship Marketing Introduction During the last few decades of the 20th century, experts have noticed a transition from brand value to customer value. Most of the markets within the Western countries began to quickly mature and due to high level of information and choices available to the customers; they became more mature and sophisticated. It became more troublesome to persuade them as they became more demanding (Gronroos, 2004, p. 102). It became apparent that mass advertising and promotional programs were quickly losing their effectiveness. Several new segments began to appear and it was becoming costly for companies to satisfy these customers with the same approaches. Southeast Asian companies entered the markets and began using their core competency of operational efficiency to lure customers and price competition to beat competitors. However, the same did not translate into sustainable competitive advantage for most of the players as brand loyalty and profit margins continued to decrease (LeSueur, 2007, p. 98). Experts were quick to realise that the rules of the game have changed and companies that wish to survive and prosper will have to differentiate between transactional marketing and relationship because the former only focuses on customer acquisition, whereas, the latter has a more balanced focus on customer acquisition and retention (Nash, 2000, p. 52). Discussion At its very core, the goal of marketing is to generate value for the customers while also maximising the profits of the organisation. However, transactional marketing and relationship marketing take very different approaches to achieve these objectives. The transactional marketing approach views the client solely as a means to an end while, the relationship marketing approach takes the liberty to consider the person with whom the sale is being as the end in himself or herself. The transactional marketing approach places the utmost importance on making as many sales as possible in the shortest span of time. Therefore, transactional marketers do not find themselves in position of spending time and resources at building relationships with their customers (Nash, 2000, p. 52). Also known as the traditional marketing approach, transactional marketing mainly focuses on pushing the product through mass advertising and promotion. There is little or no emphasis on customer services. Organisations that employ a transactional approach are highly likely to follow a pull technique, where the focus would remain on the four Ps of marketing without any focus on the activities that are strategically required once the purchase has been made by the customers (Clow, 2007, p. 47). Relationship marketing, on the other hand, remains focused on building valued and close long-term personal relationships, which are built through highly targeted and personal interactions. Important here to note is that organisations that follow a relationship marketing approach do not consider their brand to be their greatest asset, but rather they take the greatest pride in their ability to satisfy their customers and keep them happy (Spiller & Baier, 2005, p. 75). Furthermore, following relationship marketing is a time consuming and painstaking process because it requires a complete rethink of the entire value chain, business model and operations strategy of the organisation. It requires a top-down shift of the organisational strategy. Relationship marketing, at its very core, represents a strong commitment from the side of the organisation to understand the customers and invest at building relationships with customers (Morgan & Hunt, 1994, p. 25). Customers who feel connected with companies are likely to profit the company in several different ways; something they might not even realise. Relationship marketing transforms customers into a group of evangelists, who would always choose your organisation amongst the competition because they trust you more than other organisation (Roberts, 1999, p. 54). Their fervent dedication would mean that the customers are likely to purchase all other brands, products and services from your organisation, thus increasing organisation’ share of customers’ pocket. Moreover, since the customers are less likely to avail the services of any other company, company can entrust to earn the customer lifetime value, which refers to the revenue generate from a lifetime of purchases from the side of the customer (McDonald, 1998, p. 201). More importantly, when satisfied and delighted, these customers would, consciously and unconsciously, encourage their friends, family members, colleagues and other members following within their social of influence circle to share the same level of dedication and commitment towards the organisation. Therefore, they end up engaging in word of mouth advertising for the company and bring abroad several new customers over their lifetime; thus, saving precious marketing and promotion dollars for the company (Lautman, 2001, p. 417). The point here is that relationship marketing is rooted in the idea that it is cheaper to retain the existing customers than it is to acquire new customers. In fact, there is empirical evidence to suggest that the cost of acquiring a new customer is five times more than the cost of retaining an existing customer. Therefore, relationship marketing argues that being oblivious to expectations, demands and needs of the customers once the sale is made, it would behove the company if it shows willingness to invest in building long term relationship with customers rather than driving the maximum gain from each transaction (Morgan & Hunt, 1994, p. 25). Experts have noted that during economic booms, organisations that are using a transactional approach fare very well as their ample unmet demand to satisfy and customers are willing to spend for the best looking deals within town. However, during times of economic recessions and when business cycles are sliding downwards, it becomes troublesome for such organisations to continue posting the same level of sales and generate the same level of revenue. This is when organisations that are following a relationship marketing do better because they had spent the good times carefully crafting and nurturing relationships with their customers and investing in their customers (Clow, 2007, p. 47). Customers are highly likely to trust these companies there is credit crisis, consumer confidence crisis and spending freeze. Consider the example of the previous of Tesco versus other retailers within the UK market during the current recession. When Sainsbury, Morrisons, Marks and Spencer, Asda and other leading retailers within the UK retail market were struggling to impress their shareholders and critics with their performance, Tesco continued to beat expectations and shut its critics even during the worst times of its recession (Peterson, 1995, p. 281). It would be unfair to sideline or disregard the contributions of Tesco size, geographical scope, economies of scale and other core competencies as contributors to its success but one of the most defining features of its success was its continuous focus on relationship marketing (Roberts, 1999, p. 54). Despite dealing with millions of customers every week, Tesco has been able to come up with loyalty cards and several other similar promotional programs which are aimed at understanding the needs, expectations and demands of their customers and provide with personalised, customised solutions and rewards (LeSueur, 2007, p. 98). Nevertheless, experts do not argue that transactional marketing should be disregarded for relationship marketing altogether. In fact, both of these should coexist within organisations and complement each other. Nonetheless, there is theoretical evidence to argue that in the long term, relationship marketing is more likely to provide with sustainable and long term returns for the organisations (Lautman, 2001, p. 417). Consider the case of how Australia’s ANZ Bank used direct marketing to build long lasting relationships with its customers and converted the same into financial gains for all the stakeholders involved in the process. With extensive marketing research and data mining techniques, the marketers and independent agencies were able to classify the customers into 16 distinct groups (Peterson, 1995, p. 281). The segmentation was followed by direct mailing to these customers discussing their current situation and needs and the possible solutions that the company could offer them. As a result of this direct marketing campaign, the company was able to witness a 3 percent increase in the home applications and an 83 percent year on year increase in the total number of calls received on the home buyers’ line. More importantly, the campaign resulted into more than 4900 new accounts or mortgages with a conversion rate of slightly over six percent (Gronroos, 2004, p. 102). Conclusion Experts have also commented on the link between relationship marketing and direct marketing and their ability to complement each other. Important here to note is that other modes of marketing and promotion, such as advertising, sales promotion, public relations, events and experiences and others fail to provide the much needed stimulus for building relationships (McDonald, 1998, p. 201). Quite understandably, a billboard targeted at thousands of customers, an advertisement for millions, sales pitch that is being repeated for every single customer and a sales promotion which is being availed by every walk-in customer does not provide customers with a personal and customised touch which is the pre requisite for building relationships. On the other hand, direct marketing, has the potential to lay the groundwork for building long lasting relationships with the customers (Clow, 2007, p. 47). Direct Marketing: Every Customer as an Investment Introduction After establishing the shift from traditional marketing to relationship marketing, it is also important here to highlight the fact that in order to build closer and long lasting relationships with customers, it is important to ensure that the company decreases its reliance on mass marketing and promotion tools such as advertising, events, sales promotions and others to focus on direct marketing which has the potential to build closer relationships (Harridge-March, 2008, p. 196). Direct marketing also allows organisations to build customer loyalty through tailoring the marketing communication with the focus of promoting customer to the top of the customer loyalty pyramid. Customer loyalty pyramid has six different stages which begin from prospect, customer, client, supporter, advocate and partner (Shani & Chalasani, 1992, p. 36). As mentioned earlier that one of the reason behind the shift from traditional or transactional marketing to relationship marketing was the growing fragmentation of customers into newer and more sophisticated segments (Harridge-March, 2008, p. 196). With growing options, choices and globalisation, companies found themselves within a market which was diverse in terms of culture, race, religion, age, cast, ethnicity, preferences, demographics, nationality and others which led to development of new segments (Parvatiyar & Sheth, 2000, p. 47). On the other hand, growing competition and squeezing margins meant that these organisations had to appeal to these segments at all costs. This is what fuelled the growth of direct marketing as it allows organisations with considerable degree of freedom in terms of appealing to a diverse group of customers. Messages, offers and deals could be customised and personalised for as many segments of sub-segments of customers as possible (Shani & Chalasani, 1992, p. 36). Discussion Direct marketing is an investment primarily because it represents the first step in building relationships with customers. Empirical studies reveal that an average person is finds himself or herself bombarded with more than one thousand different advertisements and promotional activities in every day and he or she is only able to recall a small percentage of them. More importantly, even more smaller and minute percentage ends up resulting in generating revenue for the organisation (O’Malley & Tynan, 2000, p. 799: Moller & Halinen, 2000, p. 30). The same allows us to conclude two important aspects. First, an average consumer is cluttered with a plethora of advertisement and promotional activities, most of which he or she does not even notice, which seriously raises questions over the effectiveness of promotional and advertising tools which are geared towards the masses (Parvatiyar & Sheth, 2000, p. 47). Second, people do not pay attention to these promotional and advertising activities because they feel that they are not targeted at them but towards the masses (Spiller & Baier, 2005, p. 75). In a world where customers find themselves with several options, it becomes troublesome to catch their attention when they perceive the messages sent to them were not actually written for them or directed at them. The point here is that customers are more likely to respond to personalised messages, which are addressed to them and allow them to feel that they are relevant to their situation, thoughts, needs and experiences (Shani & Chalasani, 1992, p. 36). Direct marketing is also deemed an investment because its use is not restricted to making sales and sealing deals but at the same time, it can also be used for gathering feedback, testing new products and even gathering competitive intelligence. Customers can be contacted to solicit responses regarding other aspects of business, as well (O’Malley & Tynan, 2000, p. 799: Moller & Halinen, 2000, p. 30). One of the most used methods of direct marketing is through direct mail and according to the United States Postal Service, 98 percent of the people who receive mails bring in their mails the day it is delivered. Furthermore, more than 77 percent of these people also take the liberty to sort out this mail immediately. Unlike other forms of communication and advertising which customers are likely to block, direct marketing is a medium which is certain to reach the customers and deliver results (Parvatiyar & Sheth, 2000, p. 47). Not only that direct marketing is an investment on customers, but at the same time, it also provides the organisation with very quick, measurable and apparent metrics to calculate the return on investment (Spiller & Baier, 2005, p. 75). For example, if an organisation sends out 500 direct mails and it receives 100 replies, out of 50 deals or sales are finalised then the organisation would easily conclude that the campaign had a 20 percent response rate a 10 percent conversion rate (Reutterer, et al., 2006, p. 45). Such quantitative and clear figures allow marketers to calculate the return on investment and then take measures to maximise the ROI and conversion rate in the future through targeting the weak aspects and areas of improvement (O’Malley & Tynan, 2000, p. 799). Whereas, in case of other modes of marketing and promotion, it is extremely difficult for the organisation for measure it effectiveness and returns such as billboards, sales promotions, advertisements and events. In fact, even if there is any rapid increase within the sales revenue after the use of these promotional methods, it is almost impossible for the organisation to conclusively determine that whether or not it was that certain advertisement, billboard or sales promotion which brought about the increase in sales or was it any other environmental factor (Stone & Jacobs, 2007, p. 447; Moller & Halinen, 2000, p. 30). It was mentioned earlier that the cost of attracting a new customer is five times more than the cost of retaining the existing customers. Over the course of operations, an organisation is likely to lose several customers due to different reasons, who might become disillusioned with the organisation and end up selecting the offerings of competitors over that of the organisation (O’Malley & Tynan, 2000, p. 799). With targeted direct marketing, organisations can reach such individuals and bring them within the circle of influence. Furthermore, the organisation might solicit responses from them regarding different aspects of the business (Reutterer, et al., 2006, p. 45). The philosophy of direct marketing argues that it is not the number of people that a brand targets but it is the quality of the targeting within itself which marks the success of targeting itself. Makino, which is an automotive and aerospace machine tool manufacturer, understands the same and follows the approach of laser-focused targeting to advance its brand (Parvatiyar & Sheth, 2000, p. 47). In order to achieve this goal, the company turned its attention towards International Manufacturing Technology Show (IMTS), which is also the largest manufacturing trade show attended by more than 0.1 million people. However, the company did not intend to target all those people but only 1400 profitable VIP accounts (Moller & Halinen, 2000, p. 30). Quite understandably, this focused targeting meant that company had to choose direct marketing as its approach to reach these high value clients. The company provided the customers with an impressive offer which was to make an appointment to visit the company’s booth, discuss the offer with a sales representative and receive noise cancelling headphones. Furthermore, these individuals were targeted with custom publications, case studies, video testimonials, leaflets, brochures (Stone & Jacobs, 2007, p. 447; Harridge-March, 2008, p. 196). The results were overwhelming as 23 percent of the VIP targets responded to the direct mail with more than 300 prospects. More importantly, none of these 300 prospects were existing customers before the show. The organisation had conducted promotional activity previous year at the same event but due to inclusion of direct mail, there was a 135 percent increase in the captured leads (Reutterer, et al., 2006, p. 45). The example of Makino highlights the importance of focused and targeted communications to certain customers. This allows communication to be effective as well as efficient. Rather than spending billions of dollars on advertisements, which are seen by a significant portion of irrelevant customers and are filtered actively by many customers, it is better and understandable to send targeted and interactive messages to a small but profitable group of customers (Morgan & Hunt, 1994, p. 25). Conclusion Conclusively, there is empirical evidence to prove that when customers receive messages that are customised and personalised, they are more likely to remember those messages for a longer period of time and hold the brand and the organisation in good image. The points being that even if a direct marketing campaign fails to generate results instantly, it is likely to increase profits and revenue in the long term as customer engage in word of mouth advertising and bring in more business (Reutterer, et al., 2006, p. 45). Therefore, direct marketing is an investment because it does not result in immediate results or return on investment, however, it does benefit the organisation in the long term through maximising the customer lifetime value and introducing new customers through word of mouth advertising (Stone & Jacobs, 2007, p. 447). References Clow, K. E. 2007. Integrated Advertising, Promotion and Marketing Communications, 4/e. Pearson Education India. Gronroos, C. 2004. The relationship marketing process: communication, interaction, dialogue, value. Journal of Business & Industrial Marketing, Volume 19(2), pp. 99-113. Harridge-March, S. 2008. 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