Relationship Marketing Helps to Understand the Customer Characteristics - Essay Example

Relationship marketing is an old concept but the importance of relationship marketing is growing as people look towards retaining existing customers. The concept of relationship marketing is been used since the 80s (Berry, Shostack & Upah, 1983). The importance of relationship marketing has grown as intensifying competition has resulted in business taking decisions to retain customers. This is highlighted by the fact that businesses have to spend six times the money they spend on acquiring new customers (Gruen, 1997). This has resulted in more enterprise paying higher attention to relationship marketing so that customers can be retained. The importance of relationship marketing can be seen by the fact different industries are looking towards having different departments so that customers can be retained. This can be seen by the fact that banks have relationship manager for customers, airlines look towards loyalty program from travelers who use the flights frequently, bonuses for customers using credit card and hotels and tourism sector providing specialized services to customers. Thus, the different industries look towards having different tools so that they are able to retain customers and ensure growth of the business in the future. Organizations look towards relationship marketing as an important constituent of the business as slowing growth rates, intensifying competition and technological advancements has resulted in devising strategy so that customers can be retained. This is witnessed by a study which shows that different factors have resulted in the manufacturing cost to fall from 55% to 30%, management cost to fall from 25% to 15% and has increased the marketing cost from 20% to 55% (Sheth, 1998). The rapid increase in cost and development of strategies to retain customers has resulted in relationship marketing gaining more importance. Relationship marketing is used by different business to retain customers but the importance of relationship marketing is limited in case of mass marketing. This has resulted in business adopting the concept of relationship marketing only if the benefit exceeds the cost associated with it. This helps to benefit the business as it results in low retention cost and better profits as the defections of the product reduces (Reichheld & Sasser, 1990). This is primarily due to the fact that customers who have entered into a relationship look towards limiting the options so the customers chooses the company with which they are doing business. This will thereby ensure that the risk for the business reduces and the decisions taken by the business provides the required return the business is looking for (Sheth & Parvatiyar, 1995). Organizations look towards the concept of relationship marketing because the concept of 80-20 rules applies here and provides benefits that the business is looking for. The importance of this multiplies in case of service industry like the banks where they look towards developing relationship with the customers. This is evident from the fact that 20% of the customer helps banks to get 80% of the business while the other 80% helps banks to get 20% of the business. This has resulted in banks looking to develop relationship marketing so that they are able to multiply the business opportunity and ensure growth and business especially in case of downturn and growing competition. An example in a similar direction which highlights the growing importance of relationship marketing is seen from the Club Card by Tesco and Nectar Card by Sainsbury (Relationship Marketing, 2012). These are loyalty cards which helps the customer gather points on the quantity of purchase. These cards enable and tempt the customer to purchase from the same company again and again. This helps the organization to ensure that they have a regular flow of customers and also help to understand the insights related to the customers. This thereby enables organization to use customized marketing strategy and ensure that customers are retained over longer period of time. Businesses thereby based on the different benefits provided by relationship marketing look towards this concept as an important aspect of business. This is seen by the increase in relationship marketing in case of mass marketing as banks are using it as a medium to have prospective customers for the future. This is evident in case of Citibank which looks towards providing rewards to loyal customers in the form on Saturn picnics (Aaker, 1994). This has ensured that banks have a regular flow of customers and the different benefit which relationship marketing provides has increased the dependence on it. Relationship marketing helps organizations as it helps to understand the customer characteristics. This thereby helps to understand the customers better. This helps organization to identify the markets based on purchasing ability, the frequency of purchase and volume of purchase (Mughal, 2011). This is seen in case of airline industry where they look towards providing loyalty programs to the loyal customers so that the business is able to grow. This thereby transforms into understanding the customer requirements better. This helps the organization to ensure that the customers are satisfied and the business doesn’t have to work on trial and error method (Mughal, 2011). This is evident as the usage of JIT has ensured that customers are provided the required resources at the correct price and strategies developed to ensure that their satisfaction maximizes. The most important part of relationship marketing is that it helps to ensure repeat purchase from the customers. This thereby helps to reduce the cost associated with looking for new customers. Being able to supply products to the same customers ensures development of plan which is customized according to the requirements of the customers. This can be witnessed from the Club Card by Tesco and Nectar Card by Sainsbury (Relationship Marketing, 2012). These are loyalty cards which helps the customer gather points on the quantity of purchase. These cards enable and tempt the customer to purchase from the same company again and again. His thereby enables the business to ensure that minimum efforts they are able to gather maximum return from the business. Relationship marketing helps to ensure that the attrition rate of customers to other competitors gets reduced to a large extent. It has been identified that around 50% of the customers go through the transition phase and look towards competitors in a period of 5 years (Mughal, 2011). Being able to devise a strategy which looks towards supplying quality products and reducing the attrition rate of the customers helps the business to take important decision and have products matching the requirements of the customers. This thereby transforms into advertising as customers who are loyal to the products speak about the quality and spread word of mouth regarding the product. This will help the company to ensure that they are able to sell more products with little expenditure made on advertising as word of mouth helps to spread awareness about the product (Mughal, 2011). This can be witnessed in case of Amway which has looked towards relationship marketing. This has helped to develop a strategy where the word of mouth is helping the company sell more products. This will help the company in building their business and will thereby ensure that the money spend on relationship marketing pays huge dividend in the future. Relationship marketing also helps to increase the customer base as retaining the same customer base at the same time ensuring those new customers’ purchases the product helps to develop the customer base. This helps the business in case of downturn as having a large customer base reduces the fluctuations that the business will face and helps to ensure steady sale (Mughal, 2011). This is further sated by a finding which states that a satisfied customer which is retained by the business is 107% more likely to recommend others the same product or services (Ganesan, 1994). This will thereby transform into increase customer base and will benefit the business in conducting their daily affairs easily. Relationship marketing also helps organization to thereby reduce the cost on marketing. Organizations that have been able to develop healthy relationship with the customers are able to ensure that they are able to sell the products again and again and at the same time attract more customers towards the product. This translates an opportunity for the business to reduce the marketing cost as customers spread awareness about the product and helps the business to develop strategies which will help to increase the revenue for the business. Relationship marketing also benefits business as it helps them to develop a strategy which enables the business to introduce a new product easily. Since, the business has already identified the needs and requirements of the customers so developing a product or services based on it reduces the chances of failure. This helps business in placing new products as seen in case of Starbucks. Starbucks was able to identify the requirements of the customers and as a result was able to launch different variants of coffee. This ensured easy acceptability and helped the business to gain maximum advantage from it. Relationship marketing apart from helping the company also benefits the customers. This is primarily a two way activity as relationship marketing looks to benefit both the company and the customers. This is seen by the different benefits which the customers get. Customers due to relationship marketing are able to identify themselves with the company. The customer understands that they are a valuable part of the company and the organization at the same time looks towards satisfying their needs so that customers remain loyal. This makes the customer to associate themselves easily with the company and helps them to feel a part of the organization. This makes the customer perceive that they are treated differently as compared to the treatment provided by the competitor. This also makes the customer perceive that the company looks towards delivering special quality as it helps to develop a long term relationship with the supplier (Vishwanathan, 2012). This makes the customer perceive that the services have been tailored as per the requirements of the customer and increases his satisfaction level. This makes the customer look for the same service again and again thereby ensuring better business for both. The customers as a result of relationship marketing are able to ensure that they have a company which looks towards providing quality products matching his requirements. This makes the customer more satisfied and ensures that they are able to develop trust towards a company. This helps the customer to ensure proper facilities and products which helps to take care of their requirements. Customers as a result are able to ensure that by providing the company with the details pertaining to the product or services changes can be done so that it improves the quality. This makes the customer feel part of the organization and thereby looks to develop a strategy where the customer can trust on the company. This will thereby transform into better business opportunity and ensures growth for the business. Relationship marketing is thus a very important concept in this modern world as businesses have to ensure that that maximum benefit is provided due to it. Relationship marketing has thereby resulted in a change in which business is conducted so that the business is able to grow and achieve better return for the business. This is seen from the following diagram which has resulted in a change in which business is carried out. The above chart shows the manner in which relationship marketing has altered the way in which business was conducted. This makes it important that business of all sizes look towards using relationship marketing in a manner that helps to develop their business. Relationship marketing has thereby become important in this competitive world. With decreasing purchasing power due to the recent economic condition and high cost associated with acquiring new customers it has become imperative that business all around the world look towards relationship marketing. Since, it provides benefits to both the customers and the business it is important that businesses look towards using relationship marketing as an important rule. Organizations that are able to use relationship marketing have grown and in the modern time it has become important that businesses look towards developing a strategy to retain customers and ensure growth for the business. References Aaker, D. 1994. Building a Brand: the Saturn Story. California Management Review, 36 (2), 114 Berry, L., Shostack, G.L. and Upah, G.D. 1983. Relationship Marketing. Emerging Perspectives on Services Marketing, Proceedings Series, American Marketing Association, Chicago, IL, pp. 25-8 Gruen, T. W. 1997. Relationship Marketing: The Route to Marketing Efficiency and Effectiveness. Business Horizons, November – December, pp. 32-38 Ganesan, S. 1994. Determinants of Long-Term Orientation in Buyer-Seller Relationships, Journal of Marketing, 59, 1-19 Mughal, H. 2011. Benefits of Relationship marketing. Retrieved on March 8, 2012 from http://newsatspot.com/?p=4026 Relationship Marketing. 2012. Relationship Marketing vs Transactional Marketing. Retrieved on March 8, 2012 from http://marketing-and-branding.factoidz.com/relationship-marketing-vs-transactional-marketing/ Sheth, J. N. 1998. Creating Value through Relationship Marketing: A New Business Model. Paper presented at the 1998 Conference on Relationship Marketing : Creating Partnerships that Enrich Customer Value and Boost Marketing Productivity, Atlanta, GA. Sheth, J. N. and Parvatiyar, A. 1995. Relationship Marketing in Consumer Markets: Antecedents and Consequences. Journal of the Academy of Marketing Science, Vol. 23, No. 4, pp. 255-271. Viswanathan, G. 2012. Relationship Marketing. Retrieved on March 8, 2012 from http://ezinearticles.com/?Relationship-Marketing&id=1134632 Read More