Customer Relationship is a common practice around the world, but we will try to discuss the concept of “Relationship Marketing” though similar, but not as popularly used. In this piece, you will come across some case studies of companies which cut across countries like India, Japan, France and USA. As I did during my MBA in Marketing Management, perhaps more people can, from this post, learn how to market their products through relationship building.
The term ‘relationship marketing’ entered the business lexicon during the 1980s. The concept is relatively new and still in the process of evolution Though the idea of building a relationship with customers is not entirely new, the way it is being extended to cover other relationships (with the suppliers, middlemen and influence groups) as also researched extensively, especially in the West, it is poised to revolutionize the overall pattern of marketing just as the theory of marketing concept did in the 1960s.
The idea is not new because the neighborhood grocery-store owner has always known the value of this approach. Likewise, all industrial-marketing firms know the 80/20 rule - 20 per cent of customers accounting for 80 per cent of revenue - and they try to keep these 20 per cent customers happy so as to retain them longer. Perhaps only the big companies practicing mass-marketing methods for decades have forgotten such basics.
An early definition by Berry (1983) says, ‘Relationship marketing is the attraction, maintaining and enhancing of customer relationships.’ Attracting new customers is merely the first step in the process of relationship marketing According to Payne (1995), relationship marketing has three contemporary perspectives
1.) The way companies look at their customers is changing. The emphasis is moving from a transaction-based marketing to a relationship-centred marketing, meaning that companies are now striving harder to retain their customers for long.
2.) A broader view is emerging of the internal and external markets with which the company interacts. In addition to their relationships with customers, firms are also getting concerned about the development and enhancement of more enduring relationships with other external markets such as suppliers, middlemen, stakeholders and influence groups. The internal marketing focus emphasizes that every employee and every department in the organization is both an internal customer and a supplier. The optimal operation of the organization is ensured when every individual and department provide and receive excellent service.
3.) The relationship-marketing orientation focuses on bringing the three elements, namely quality, customer service and marketing activities, together so that the synergetic impact is felt by the customer.
Till recently most business firms in India had been concentrating only on individual transactions, hence the short-durational interaction ended with the ringing of the cash register announcing the close of a sale. The leather shoe market in India had been dominated by Bata India Limited for decades. But Bata failed to exploit its strength of contact with millions of customers. The company had not even made a provision for evaluating customer feedback from its own retail outlets. It is not that Bata was not aware of the basic principles of marketing, but neither the management nor the marketing people ever thought of building a relationship with customers. The result is obvious; Bata lost its number one position to new entrants in the market.
Bata is not the only example of missed opportunities. In the late 1980s, Eureka Forbes pioneered the concept of direct marketing in consumer durables in the country. With the help of its highly trained and motivated salesmen, the company was soon in a position to contact millions of households and turn many of them into buyers of vacuum cleaners. However, despite its apparent success, the company missed an opportunity to leverage its database and its personalized relation with customers to multiply its business through similar products and services. Even for its existing products, the company could have profiled at least the usage pattern in different places and then motivated buyers to use the product more frequently. This could have generated some additional business, at least for the accessories and spares.
In transactional marketing, customer service and commitment to quality are often ignored, whereas in relationship marketing, the focus is on retaining the customer and getting the repeat business. Hence, the quality of products, service and direct contact with customers receive a high priority. Retaining the customer is considered to be the responsibility of the entire organization and not of the marketing department alone. A sales deal is viewed as a beginning rather than an end of a company’s interaction with the customer.
The scope of building relationships is not restricted to only customers. In a competitive market it is equally important to establish enduring relationships with the vendors, intermediaries and influence groups. The relationship between an organization and its suppliers has undergone dramatic changes during the last 10 years or so mainly due to the influence of Japanese management practices. At AT&T they call it ‘Vendorship partnership’ and at Philips in Europe they term it as ‘Co-makership’. Whatever the term, the aim is to promote close cooperation between the firm and its suppliers from a very early stage and mutual concentration on quality, customer service and long-term relationships.
In the automobile industry, it is now largely believed that establishing long-term relationships with vendors can lead to substantial reduction in inventory holding and control costs. Toyota has persuaded all its suppliers to set up exclusive warehousing facilities close to its production plants. Instead of buying from a large number of indifferent suppliers, firms now prefer to buy from a few committed and quality-conscious vendors who have the capacity to supply the desired quality and quantity at short notice. Firms are also helping vendors in upgradation of technologies and quality. In Japan, it is not uncommon for firms to go in for equity participation in a couple of ancillary units.
Back in India, Marutti Udyog has followed the same policy. They have reduced the number of suppliers drastically and developed a strong and dependable network of about 400 vendors, capable of supplying the desired quality and quantity any time. Maruti Udyog has equity partnership in about 12 supplier firms.
Developing close relationship with channel members is very essential to strengthen the distribution network. Every small and big firm in the business of consumer goods is now trying to reinforce its relationship with dealers and distributors to maintain its grip on the market.
Influence groups such as public representatives, policy makers, press, trade unions, consumer organizations, opinion leaders and financing institutions are gaining more and more importance due to the rise in awareness as well as competition in the market. Firms are more conscious of the fact today that to grow and prosper it is necessary to have good relations with the various influence groups.
The scope of relationship marketing is therefore not restricted only to the customers of the firm. The web of relationship is expanding to include all those who are directly or indirectly related to the firm or matter to its business.
The third aspect is to bring quality, customer service and marketing activities together A US-based research and consultancy firm Bain & Co. studied in 1989 the correlation between customer retention and company profitability. They found that even a 1 per cent improvement in the retention rate of customers in the credit card business in the USA can yield a 15 per cent rise in the volume of business. Keeping customers is therefore a key strategic issue for all business firms.
In order to retain customers firms are required to keep them interested through better (perceived) quality of products, satisfactory service and innovative marketing programmes. For example, in France, people take off in their cars for a long vacation in the summer. But if a family is travelling with a baby still in diapers, it could get uncomfortable for the baby as well as the parents to travel long distances. Nestle, therefore, came out with a way to dramatically improve the life of both the baby and the parents on the road.
Nestle now provides rest-stop structures along the highway where parents can feed and change their babies in eight locations along the main travel route. A sparkling clean ’Le Relais Bebe’ awaits and welcomes the family. Each summer, 64 hostesses at these rest stops welcome about 120,000 baby visits and dispense 600,000 samples of baby food. There are free disposable diapers, a changing table and high chairs for the babies to sit in while dining. Nestle, through its hostesses, keeps itself in direct contact with the mothers. Moving into the lives and activities of prospects and customers Nestle has successfully built a strong bond of emotional relationship with them. A market research survey of 1,000 mothers in 1992 showed a 94 percent approval rating for Le Relais Bebe.
Relationship marketing does not stop at merely meeting the present needs of the customer, but extends to also anticipating and servicing the future requirements. In subsequent posts, we shall be looking at the benefits of Relationship Marketing to firms, then we will look at it benefits to customers before we go into the basic steps required to set up an effective Relationship Marketing system.
Reference: National Institute of Business Management – Marketing Management