There is a new marketing method that has caught everyone’s eye recently, especially in the service industry. Here are the benefits of employing this type of marketing, called "relationship marketing".
Relationship marketing refers to a strategy-based form of marketing that is designed mainly with the aim of retaining existing customer relationships by promoting customer loyalty, satisfaction and building mutual trust through personal interaction to understand their needs and meet expectations. It also called Multilevel Marketing or Network Marketing. The main motto of this customer-oriented approach is “developing – maintaining – enhancing”. You very well know that customers can make or break your business. If you do not cater to their needs and make them unhappy, you will lose out your business to your fierce competitors. Perhaps, the reason this type of marketing is your best ladder to success, because unlike other forms of marketing, this one focuses on all customers irrespective of the size of business acquired. This is a smart move in today’s world because it enhances your sales through the word-of-mouth. In turn, you build a bigger customer base on minimal investment! The best way to summarize is:
“Put people first, the money will follow.”
Since this marketing emphasizes more on communication with the existing customers of an organization, it fosters business development. No people, no business. You need to give your customers a reason to return to you. If they don’t, you will forever be caught in high marketing costs to attract new customers, resulting in lower profits than you could make. It diverts the focus from the number of sales transactions that take place to the number of existing customers willing to maintain their relationship with the company in long-term.
What are the Benefits of Relationship Marketing?
According to latest statistics from CRM magazine, in the world of business and management, the cost of retaining a customer is at least 8 times lesser as compared to acquiring a new one. Thus, this marketing capitalizes on the same fact and is beneficial to the company in several ways. It is a simple policy – “a bird in hand, is better than two in the bush”.
Understanding Customer Characteristics
Relationship marketing helps you understand your customers better. You can segregate your customers into groups based on their characteristics like purchasing power, frequency and volume of sale transactions. It also helps you get valuable feedback from your customers and understand their needs and expectations. This subsequently helps in value addition to products and services based on these demands and leads to happier customers as they get involved into the value creation process.
Delivery and Meeting Expectations
If you know what your customers need, it will help reduce wastage due to trial and error methods. When required product features and specifications are known, it is easier to make modifications that will please your customers and increase sales turnover. It also helps reduce costs incurred from the research and development process.
Would you be interested in getting involved in any business transaction with a seller who appears rude or indifferent to your needs? No. People who buy from you wouldn’t feel any special need to resist switching sellers if you do not give them an incentive to stay bound to you. Here, relationship marketing steps in and provides a positive reinforcement for them to make a repeat purchase.
Prevents Negative Transition
Trust and loyalty go hand in hand and it is super beneficial for your business. It will help prevent customers from turning to your competitors. Enhancing and maintaining your relationship with existing customers will prevent the tendency of customers to switch to other products/services for a better offer. Did you know? That an average business is likely to lose over 50% of its existing periods in a 5 years transitional phase. It also helps to reduce your company’s customer attrition statistics.
A happy customer will always promote your business by telling ten other people about the amazing services or performance received from your company. They will be excited to recommend your business to other people around them so they can try it too. Also, research suggests that people are more motivated to try a product/service based on reviews from an existing customer they know than they will be from persuasion by advertisements. Hence, this marketing is an effective strategy beyond expensive advertising campaigns that create product/service awareness but do not promise a remarkable rise in sales.
Increasing Customer Base
It is no secret that a happy customer will bring you new ones. In fact, a satisfied existing customer is 107% more likely to recommend a product/service to a prospective customer. Apart from customer referrals, there are several other ways to increase customer satisfaction by employing methods of utilizing social networking websites, blogs, informal surveys, benefits on loyalty cards, timely response to complaints and requests as a constant reminder of your presence around customers through consistent communication. Your company’s value equity and retention equity is improved by enhancing customer satisfaction. This type of marketing benefits, especially, in the creation of new customers apart from maintaining existing ones.
Reduced Marketing Costs
Benefits also include lesser marketing costs and more value creation. This can be explained by stating the following statistics:
- Every 5% increase in customer retention can increase a company’s annual profits from at least 25% to as much as 125%, while simultaneously leading to a reduction of 10% in marketing costs.
- An existing customer will spend 33% more than a new customer to buy your product/service.
- Most businesses spend as much as 80% of their budget for marketing expenditure to make new customers.
Minimization of Customer Price Sensitivity
A happy customer will be willing to pay more for your product if there is a guaranteed satisfaction of products and after sales services attached to the price. Hence, you will gain repeat business from your existing customers in the long term even if there is a rise in prices at which you sell your products and services. However, quotation for a premium price must come with benefits of value addition. Customer loyalty and satisfaction are proven major contributors to profit maximization.
Identification With the Company
The benefits are reaped both by the company and the customers. It helps your customers identify more with your company. Staying in touch with your customers makes them feel like they are important to the company. Now, who doesn’t enjoy that? It will keep your customers coming in and build brand equity for your company in the long run. Also, familiarity with your company and the fact that you understand your customer’s need better due to the time period of your association as compared to that with a new company, play as de-motivators for your customers to make a switch.
Product Market Expansion
This one is tricky and most companies fail to recognize this benefit. Are your employees ready to deliver beyond the company’s boundaries on customer demand? As pointed out earlier, customers play an important role in value generation process. They are the ultimate consumers of your products and services, thus, they can help you identify potential profitable fields for expansion and diversification. A company that is willing to venture outside its set boundaries, can constantly grow with the support of its customers through this marketing.
Relationship Marketing: Today
The benefits are most likely to be observed in companies engaged in providing services, manufacturing industrial goods or high-end products like credit card companies, retail banking providers, automobile manufacturing companies, airlines, insurance, health care and pharmaceutical companies. These companies require higher employee involvement with customers and more customer participation in production. Companies like Delta Airlines, Continental Airlines, Barclaycard (UK), Cisco Systems, IKEA, Toyota and Starbucks have reaped these benefits of relationship marketing.
Customers have greater assurance of the organization’s fulfillment of its commitments by delivering promised product or service performance. The concept of relationship marketing was introduced to service marketing as recently as 1983 by Leonard L. Berry. Companies have now come to realize that their survival and success are not dependent on just one element of the business process cycle, but entails bi-lateral involvement of customers. A one-time purchase order can assure increase in current profits. However, for long-term growth, companies must adhere to customers needs and expectations. The benefits help ensure accomplishment of these long term goals. Your business is run by the money your customers spend on your products. If you out-do their expectations, you will surely make an impression on their minds and they will be encouraged to suggest your business to others around them so they can reap the benefits of your services too. This builds a customer referral network and increases your sales turnover.
Taking a step beyond business and showing your customers that you care will create feelings of happiness and satisfaction every time they make a purchase. You instantly build a connection with them. At times of unsatisfactory performance of your goods and services, this marketing will help in damage control and your customers will be more than willing to forgive such mistakes from your end. You wouldn’t have to lose repeat business from them and they will be happy with the compensation provided.
Customer interaction and communication of most companies is restricted to marketing campaigns and promotional strategies. But, will your customers remember you after the campaign is over? Have you left your mark? Every visionary businessman and entrepreneur knows that customer relationship building is an ongoing process. Simply put, relationship marketing is an assurance and insurance of future business from your customers.