We started this topic about two month ago when I posted CUSTOMERRELATIONSHIP Part 1: The Concept of Relationship Marketing. In that post, we analyzed Relationship Marketing as it is being practiced by various organizations around the world, while we also tried to introduce the concept to those who may not have been familiar with it before now. Here, we have the second part of the series where we are able to begin examining the benefits of Relationship Marketing.
Relationship marketing yields several benefits to the firms that practice it, as also to the targeted customers, but we will examine both of these groups separately starting now with the firms. It is advisable for firms not to expect the full benefits of Relationship marketing immediately; rather it is a practice you imbibe in your organizational culture such that the benefits begin to come to fruition in the long run. These benefits which we will discuss are summarized into four, namely:
- Repeat business
- Enhanced brand loyalty
- Increased long-term profitability
- Brand building
There are several excellent examples of firms using relationship-marketing programmes to gain the repeat business. The Air Taxi Operators (now given the status of an airline) started in India in 1992. Other private airlines like Damania Airways, Jet Airways and Modiluft were also for the first time allowed to compete with the Indian state Airlines. The target segment chosen by these ATOs (Air Taxi Operators) for example was the business and upper class traveller. Their in-flight service was tailored to attract this segment. So, in order to counter the threat to its business, Indian Airlines went in for a new promotional scheme termed as frequent-flier scheme. The scheme was to focus through direct marketing on the class of buyers who were defecting to private airlines. Both Air India and Indian Airlines had a database of regular fliers. They also used secondary sources like Diners Club to start a marketing campaign targeting about 15,000 such prospects all over the country.
The campaign was that as fliers start accumulating points either on IA (Indian Airlines) or AI (Air India) or both, they become eligible for free trips. The threshold was 3 000 points after which free trips could be claimed. There was an entry fee of 1,000Rupees (NGN5,500; U$D15) to join the programme. This was necessary to avoid people who don’t travel by air all that often. The time limit for accumulating the required number of points was three years. From about 1,000 members initially, the membership increased to 20,000 by April 1995.
The move was initiated as a promotional tactic to save the fledgling market share of the airline, but inadvertently this also marked the beginning of a new era of relationship marketing for the airline. The scheme continues to expand till date because the members themselves suggest the names of friends and colleagues who could be involved in the programme.
In case of business-to-business marketing, where firms scramble for new recipes to retain existing customers, relationship marketing can help in reducing the number of lost customers by enhancing customer satisfaction.
The marketing function in any organization is expected to perform the job of turning an unaware person into a satisfied user through the following successive steps.
Aware but not knowledgeable
Satisfied regular user
Relationship marketing goes one step beyond this and converts satisfied users into life-time customers by sustaining their interest in the product and satisfying their needs more effectively. Little wonder that DHL Worldwide gets its 90 percent business from relationship marketing alone.
ENHANCED BRAND LOYALTY
Marketing programmes of firms are often aimed at identifying prospects and turning them into customers. In order to expand business and achieve growth, firms are required to perpetually design and launch new marketing programmes. This involves a huge cost. However, if a firm is able to retain a certain percentage of customers, the efforts as well as cost of marketing can be reduced substantially.
Relationship marketing takes over from where conventional marketing leaves a customer. Maintaining direct contact with the customer and taking care of his problems to deliver satisfaction may turn an occasional customer into a regular client, and a client to a strong admirer of the firm. Finally it may turn an admirer into an advocate and opinion leader giving positive word-of-mouth to the firm and its products. A positive word-of-mouth from a satisfied customer often works better than the best advertisement, especially in case of high-involvement products and services.
INCREASED LONG-TERM PROFITABILITY
Firms may increase their long-term profitability by extending the concept of relationship marketing to their suppliers, channel members and influence groups. Vendor relationship may help in reducing the number of suppliers and in bringing down the level of inventories. It may save the firm in terms of inventory and warehousing costs as also transportation and material handling costs. The cost of placing orders and paperwork may also get reduced substantially. This is why firms like Xerox, Motorola, General Electric and Ford are reducing their supplier bases and looking for a few select vendors to help them achieve a stronger competitive position.
Research studies in the USA indicate that apart from being able to harness the strengths and skills of suppliers to their advantage, manufacturers in long-term relationships with them may also benefit from improved quality, process performance and continuous cost reductions
Long-term relationship with channel members may ensure better channel support, higher volumes of business and reduced cost of marketing. Strong channel support may also act as hedging against competitors’ marketing efforts. Long-term relationships with various stakeholders and interest groups such as financing institutes, public representatives, trade unions, press or media people, consumer protection groups and environmental groups may help in improving the public image of the firm. This may indirectly contribute to higher volumes of business, improved productivity and profitability of the firm.
In a competitive environment relationship marketing may be used as an effective tool for brand building. Till the early 1990s, cement was largely regarded as a commodity. Availability and price dictated the purchase decision more often than any other factor. Several players had an equally good quality image and few customers insisted on buying only from a particular company. The customer base for cement is also not homogeneous. There are different categories of cement-buyers in the market—the mason, civil engineer, contractor and institutional or large-scale buyers. In mid-1993, Indian Rayon, makers of Birla brand cement, decided to upgrade certain dealers to become “Birla supershoppes” because the company wanted to change the way it interacted with the customer. The ‘supershoppes’ were to become a hub of relationship with the customer.
The company wanted to guide and educate buyers for using a specific product for specific application. Based on the type of construction, the aim was to recommend the right type of cement to the customer. Each ‘shoppe’ thus employed a civil engineer and a task force to assist him. If necessary, the team visits the sites to demonstrate or to solve the construction-related problems. Advice is also given on the size of the beam to be used or the kind of steel reinforcement needed in the column.
To consolidate the relationship further, each ‘shoppe’ organizes a regular customer meet, where the actual users are invited and given technical advice and practical solutions. Results of this relationship approach have been spectacular. Each ‘shoppe’ is doing on an average; double the business a normal dealer does anywhere. As at 1995, Indian Rayon had 50 shoppes and 20 more were to be set up by the end of 1996.
Multinational brands such as Reebok, Seagram, Citibank, DHL Worldwide Express, and Indian firms such as Mafatlal, Ceat tyres, Lakme are now taking the relationship route to strengthen their brand equities
Reference: National Institute of Business Management – Marketing Management – Module II