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
REPEAT
BUSINESS
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.
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.
BRAND
BUILDING
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
@TywoAkintoye
