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8/2/2019 Realion Practice

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PRACTICE :: MARKETING

Relationship Marketing for competitive advantage

Introduction

Enhancing long term financial performance is a key objective of any marketing strategy. A

competitive marketing strategy achieves it in a manner that delivers sustainable competitive

advantage for the organization. What are the ways for a marketer to build a sustainable

competitive advantage?

Professor N.B. Kanagal of IIMB, has studied the role of relationships in a marketing strategy. He

suggests that an organization's relationship with customers, channel members and competitors

is a key element of a marketing strategy. In this article, he explains Relationship Marketing

comprehensively and identifies some best practices based on his study of the hotel industry.

What is relationship marketing

µRelationship marketing is attracting, maintaining and ± in multi-service organizations ±

enhancing customer relationships¶, as Leonard Berry defined it in his eponymously titled book. It

is the means by which the seller, and in some cases the buyer, tries to move from a single

transaction to a longer term, mutually profitable partnership behaviour. A profitable exchange for

both parties is central to the concept of relationship marketing.

Relationship marketing helps in both customer acquisition and customer retention

A number of terms are used synonymously for relationship marketing. These include direct

marketing, database marketing, customer relationship management, data driven marketing,

micro-marketing, one-to-one marketing, loyalty based marketing, segment of one marketing,

customer partnering, dialogue marketing and interactive marketing as Francis Buttle has noted.



Relationship marketing is applicable to both product and services in consumer and business-to-

business markets. It works equally well for an organization's suppliers, business units,

employees, functional departments, intermediate customers, ultimate customers, competitors,

nonprofit organizations and the government as researchers R. Morgan and S. Hunt have

observed.

Relationship marketing helps in both customer acquisition and customer retention. However,

most marketers use it primarily as a customer retention strategy, driven by the fact that it is less

expensive to retain an existing customer than to acquire a new customer and existing

customers are more profitable in the long run.

There are three levels of relationship marketing. Level one relationship marketing involves

offering price incentives to secure customer loyalty. Level two relationship marketing involves

creating social bonds though personalization and customization of the relationship. Level three

relationship marketing focuses on delivering structural solutions to customer problems. When

Federal Express provides computer terminals in offices of high volume customers, it is an

instance of level three relationship marketing.

What influences relationship marketing

For relationship marketing to work, both parties - the seller and the buyer - must perceive and

acknowledge that a relationship exists. Such a relationship should be substantive, going beyond

occasional contact.

Unlike a discrete transaction, relational marketing involves exchanges that rely on past

agreement. In a discrete transaction, the identity of parties is not important; the agreement is

vital. However, in relational transaction the focus shifts from the agreement to the relationship;

in fact, an agreement may not even exist in such a case. The contractual gaps tend to reduce

as the relationship becomes ber. Trust becomes a prime moderator.

In relational transaction, the focus shifts from the agreement to the relationship; trust

being the prime moderator

The frequency of relational transactions influence the terms of the transaction. For instance,

higher the frequency of travel, better the discounts given to a frequent flier. The extent of



durable transaction-specific investments influence the strength of the relationship. Research has

shown that idiosyncratic investments tend to signal a b commitment to a relationship. Exclusivity

is also seen as a b commitment to a relationship.

When does relationship marketing make sense

Guiding Moments of Truth

Direct contact or service encounter, famously called the Moment of Truth, is central to service

delivery. It makes or breaks a customer's perception of an organization in the service industry. A

relationship marketing based approach helps an organization come out on top in the Moment of

Truth, as it is continually engaged with the customer.

Improving Profitability

Good relationships improve quality and customer satisfaction. b internal relationships with

employees foster better quality of goods and service. Effective customer relationship increases

better understanding of customer needs which are then better met by the organization's goods

and services. Quality and customer satisfaction together increase customer retention and

profitability. This is where relationship marketing shines as a component of competitive

marketing strategy. In cases where switching costs are particularly high such as office

automation systems, relationship marketing helps deliver very high profitability.

Building Partnerships

Relationship marketing helps build and foster partnerships vital for the marketing needs of an

organization. Networks or individual relations, and collaborations or organizational relations can

be built using relationship marketing. These relations are especially useful for management of

the external environment of the organization or mega-marketing.

Addressing Customers Better

Relationship technology helps the marketer understand and therefore address the customer and

his needs better. Customer Relationship Marketing (CRM) applications such as sales and

profitability analysis, customer profile analysis, campaign and loyalty analysis, help uncover

consumer insights. Database Marketing (DbM) and Direct Marketing (DM) are additional



Relationship technologies that are used by marketers to garner insights from customer data and

translate these insights into personalized marketing communications.

Catching Customer Attention

Successful relationship marketing involves at least two parties to come together - the buyer and

the seller which means that the customer is aware of the organization's objective and

functioning to some extent. This makes it easier for the organization to implement competitive

marketing strategies in a cost effective manner, as the customer is tuned into the relationship.

Protecting Customer's Emotional Well-being

Relationship marketing can be used to protect customer's emotional well-being. It is particularly

useful in cases of post-purchase dissonance when customer feels a gap - perceived or real - in

product or service delivery. b relationship with the customer helps address anxiety and

concerns. The customer in turn transfers greater responsibility to the organization, increasing

potential for revenue growth and profit maximization.

Understanding Customer Psyche

Relationship marketing reduces information gap with the consumer. Marketers can leverage this

by gaining insights into customer psyche, detecting trends in consumer behaviour and designing

products and services to address these trends. They can delight their customers through a

better understanding of consumer behaviour.

Building Trust with Customer

Trust is the prime moderator in relationship marketing. When implemented successfully, it helps

overcome doubts in the mind of the customer. It is especially useful in cases of black box

services such as automobile repair.

Relationship marketing in the hotel industry - a case study

Relationship marketing plays a key role in the hotel industry. A survey of 5-star hotels in

Bangalore revealed some best practices in relationship marketing.



Relationship marketing cannot exist in isolation. A good product or service needs to back up

relationship marketing for a mutually profitable relationship to develop.

There is no one way of implementing relationship marketing. For example, one hotel has a

dedicated team of relationship marketing executives, while in another relationship marketing is a

focus area for the entire sales team. In yet another hotel, there is no explicit relationship

marketing. The quality of service is used as vehicle for building relationship, wherein the

customer keeps coming back to the hotel.

Relationship marketing programs in hotels include preferential rates, loyalty programs,

frequency marketing, tie-up with credit card companies, guest relationship program, preferred

partner programs, newsletters and food festivals. Relationships are also driven by rate fixing for

room rent, which goes on a variable rate depending on the business.

Going the extra mile is a great way to build relationships. One of the hotels surveyed went to the

extent of helping a long-term customer settle in a new home, developing a b relationship with

the customer in the bargain.

Conclusion

Increased customer satisfaction and retention improves profitability - one of the key

objectives of a marketing strategy.

Relationship marketing is a critical element of any competitive marketing strategy. A better

understanding of the customer and his needs can be translated into profitable products and

services. Increased customer satisfaction and retention improves profitability - one of the key

objectives of a marketing strategy. Relationship driven transactions increase the switching cost

for customers, which means a sustainable long term advantage for the organization. A good

relationship with customers can also aid in getting valuable and sincere inputs, which can result

in improved selling policies, better pricing strategies and excellent product design and

development.

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