Relationship Management

What is relationship marketing?

Marketing designed to create, maintain, and enhance strong relationships with customers and other stakeholders Relationship Marketing can be practiced on multiple levels, depending on the type of bonds used to faster customer loyalty. The higher the level ,at which relationship marketing is practiced ,the greater its potential for sustainable competitive advantage

4 Eras of Marketing

From transaction-based marketing to relationship marketing

Transactionbased marketing (Simple exchanges) Focuses on sales to anonymous buyers Salesperson is the interface between the buyer and firm Quality is the responsibility of all departments Relationship marketing
 

  

Lifetime value of a customer Converting new customers to advocates

Relationship Approach


Track and focus on sales to identifiable buyers Multiple level of relationships between the buyer and firm High level of customer commitment Emphasizes that quality aspect is the sole responsibility of the production department

From transaction-based marketing to relationship marketing

Transaction vs. Relationship Marketing

Why is it important?
It costs five times as much to attract a new customer as it does to keep a current one satisfied. It is claimed that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent depending on the industry Likewise, it is easier to deliver additional products and services to an existing customer than to a first-time buyer.

Improves customer satisfaction and longevity Reduces marketing expenses Provides competitive edge Barriers to competitive edge Brings stability and decreases uncertainty As the number of purchases from a customer increases operating costs declines (due to less information being required for each encounter)

As the company gains experience with its customers it can serve them more efficiently Eg: Banks Companies with long-term customers can sometimes charge more for their services as the customers value benefits other than price Eg: Experienced doctor Eliminates the search and startup costs of frequently dealing with new customers. Economizes on learning costs and experience effects Allows the firm to offer a customerised services to the client and from customers point of view the switching cost for the client increases due to their adjustment problem

In case when the services is important, complex in nature ,the customers seek to prolong its attachment to the organization. Eg: Medical,banking and insurance Confidence benefits- Feeling of security and trust which customer develops towards the sellers Customers can reap social benefits. It addresses the human nature of customers to feel needed .Familiarity creates social rapport and customers become loyal. Eg: Hairdresser, Gym instructor

Customer Lifetime Value

Losing an existing customer means losing the entire revenue stream that customer represents not just that single encounter or sale.

Attracting, retaining and growing customers

Customer delivered value the difference between total customer value and total customer cost.
 

Value includes product, services, personnel and image value. Cost includes monetary, time, energy and psychic costs.

Customer satisfaction
The extent to which a product or services perceived performance matches a buyers expectations. What are expectations based on?
   

Past buying experiences Friends, family and other associates Information about the competition Promises made in marketing materials (your brand)

Customer loyalty & retention

Highly satisfied customers are:
   

Less price sensitive More likely to talk favorably about you More likely to refer you to others Remain loyal for longer

Growing share of customer

Increasing the share of the customers purchasing in your product category Best way is through cross-selling


Getting more business from current customers by selling them additional or complementary services

Managing your customers

Relationship marketing is designed to create, maintain, and enhance strong relationships with profitable customers and other stakeholders First need to define what your profit is on specific services

How to calculate profit

In most business:
Gross income (cost of goods + expenses) = net profit

In healthcare:
Reimbursement income (cost of goods + expenses) = net profit

Calculating profit
Reimbursement rates of 55% of dollars billed. For every $1 billed to a payer, only $.55 is collected. The cost to provide the service is approximately 50% of dollars billed. This cost is the sum of the cost of goods and total expense. So, for every $1 billed to a payer, it costs $.50 to provide the service.

Calculating profit
Reimbursement income ($.55) (cost of good + expenses) ($.50) = net profit ($.05)

Delivering customer value & satisfaction

Not just the people in charge of marketing are in charge of marketing. Must have an effective value chain focused on serving the customer. Employees need to be trained and understand what expectations are for customer service and Need to be empowered to address certain situations.

Customer satisfaction
Satisfaction surveys
  

Available at the end of the appointment or included in the billing statement or online Dont forget your referral sources
One-on-one interviews are best

So what do you do with the data?

Third party reports are best (dont shoot the messenger) Turn the results in to meaningful changes Follow-up on specific complaints or incidents no matter how trivial especially with referral sources

Strategies Of Relationship Management

Berry and Parasuraman had developed a 6 strategic elements for practicing relationship marketing are:
     

Developing a core service around which to build a customer relationship Customizing the relationship to the individual customer segmentation, personalization and customization Augmenting the core service with extra benefits- value added services Pricing services to encourage customer loyalty Marketing to employees so that they in turn will perform well for customers The building of trust between the customer and the organization

Company should pursue niche marketing strategy to identify gap Should build up a database includes demographics and customer purchasing behaviour,then one have to focus on relationship marketing activities Marketing strategies should satisfy and motivate customers through 4 stagesa) Awareness b) Exploration c) Expansion d) Commitment

Choose the right customer i.e. the profitable ones, then deliver superior value to these customers Add new products and services to meet customer needs To reduce transactional costs and add value is to get customers to partake in the delivery of the service To personalize the relationship between the company and customer

Four Levels of Relationship Marketing Strategies

Characteristic Primary bond Level 1 Financial (Price) Level 2 Level 3 & Level 4 Social Customization Bonds & ( Price+Social & Structural Bonds Interpersonal Bonds) Low & Medium to high

Degree of customization

Low (Lower Price Medium for greater volume & Lower Price for customer who have been with the firm for long time) Low Moderate

Potential for sustained competitive advantage Eg.

High

Frequent flier Programs, Bulk SMS

Lawyers, Accountants & teachers, Counselors & healthcare

Structural bonds are created by providing customized services to the client that are technology based

Tools Of Relationship Marketing

Customer Database (Marketing warehouse /Data Warehouse) Data Mining OLAP (Online Data Processing) RFM Model