Blog : Relationship marketing

Relationship Marketing: 4 things you need to know

Relationship Marketing: 4 things you need to know

The concept of relationship marketing is gaining traction here in Quebec and the world over. More and more, we understand the importance of creating sustainable customer relationship. Of becoming more customer centric. But what exactly is relationship marketing?

This video will help to understand and clarify the concept. It will also help you answer the three fundamental questions that you must address when implementing a relationship marketing strategy.

After a recent discussion with a few colleagues, I was shocked to discover how misunderstood the concept of relationship marketing really is. I suspect that this might be the case elsewhere in the world as well. Apparently, many marketers here confuse relationship marketing with email marketing. Or more specifically with the use of newsletters to communicate with customers. In France, relationship marketing is synonymous with multi-level marketing or network marketing.

So here’s my attempt at clearing up some of the confusion (and hopefully not contributing to it). Relationship marketing is a form of marketing that focuses on creating, maintaining and growing business relationships between an organization and its customers.

Relationship marketers focus on the quality, longevity, depth and value of the relationship with customers. And it does this on an individual or personal level. This form of marketing is an offshoot of Customer Relationship Management, commonly referred to as CRM. I use the term to designate the CRM marketing vision and practices, as opposed to the management software platforms that make CRM possible.

Relationship marketing versus transactional marketing

The expression relationship marketing is used in contrast with transactional marketing. The objective is not simply to generate discrete sales of goods and services. It also includes — but is not limited to — building loyalty and optimizing customer value.

In transactional marketing
, the marketing communication activities have one simple objective: to close a sale. This vision is the basis of classic direct marketing. Oddly enough, here in Quebec, Canada’s French-speaking province, the term direct marketing is generally confused with direct mail. This is quite odd since mail is but one of the many media commonly used in a direct marketing campaign. Transactional marketers strive to increase response rates, conversion rates and to minimize the cost per sale.

In relationship marketing, the goal is to create, maintain and grow a business relationship between an organization and its customers. And to extend the lifetime of those relationships as long as possible. Armed with that long-term vision, marketers think in terms of customer lifecycle rather than in terms of discrete isolated activities and campaigns. The objective is to move the customer along a journey. From prospect to customer, from occasional shopper to active patron, from customer to brand ambassador.

Targeted media that stimulate a conversation

In both transactional and relationship marketing, marketers use the same targeted media. These include email, social media, web, direct mail, telesales, text messaging and mobile applications. In both cases, marketers strive to identify each customer and create a profile.

The key difference is in how you use those media. But also what content you deploy through them. In relationship marketing, communication with the customer goes beyond the use of promotional messages designed to sell, and include informative communication. This can often take the form of newsletters, video clips, buyers guides and more. This content is designed to help build the marketers credibility. And also to provide a positive experience in order to strenghten the customer relationship.

The purpose of the content is to help customers make better, more informed choices. To help them find the right product or service based on their behavior, priorities, preferences, characteristics, etc. Marketers can also help customers learn how to use their products appropriately in order to get the most out of them.  This will increase customer satisfaction and provide a positive customer experience.

Historically, one of the main characteristics of relationship marketing is some form of response. With the advent of social media, the concept of response is being transformed into that of a conversation. Today, customers can interact with marketers in real time and in a very public way. They can share their experience — positive or negative — with others. And directly influence the brand perception and appreciation of others.

Identify, know and understand your customers…

However, in relationship marketing, marketers not only want to identify their customers. They also follow and understand their behavior. That sometimes means looking at their demographic profile, but most often examining their engagement and their purchase history.

When the objective is customer acquisition there is no purchase history to analyze. Marketers will then focus on a person’s engagement behavior as well as their interest in the product or service category deduced from website visits and email clicks.

 …and keep them as long as possible

Customer loyalty is the foundation of relationship marketing. However, that does not mean that a loyalty program – offering incentives in exchange for greater patronage – are absolutely necessary.

Loyalty programs are useful in the sense that they allow marketers to identify their customers and to capture transactional data. But if you can identify your customers and track their purchases, such programs are not essential. You can also build loyalty through more relevant communication, a positive customer experience and better timing.

So that is in a nutshell, my vision of relationship marketing. What is yours? What else would you have added to this one? Your comments and suggestions are more than welcome.

Here’s some additional reading to learn more:

Related content

Multi-channel CRM explained

What’s a customer worth?

When recommendation engines go terribly wrong

When recommendation engines go terribly wrong

One of the most popular forms of personalization used on eCommerce sites is the “people who bought this, also bought that” recommendation. The assumption is that people have similar tastes and so if other people are buying the same things, so should you. Sometimes, the intention is to ensure that someone who buys an item requiring additional accessories be reminded of all that is needed before checking out their shopping cart.

Some sites use an algorithm to predict which products should be paired with each other. Others simply tag products and bucket them into groups. Now the latter can same time and money, but sometimes leads to some strange recommendations as seen below on the Tiger Direct website.

Read More

Do you and your customers speak the same language?

One of the guiding principles of B2Me is to use simple language and familiar terms in order to clearly communicate what you need to say to your customers. Get rid of jargon and marketing speak — Make it a priority!

American insurer Cygna clearly understands the importance of simple and effective communication. The company prides itself on systematically simplifying the language it uses in its marketing communication and more important, in its contact between their employees and customers.

If you’re trying to persuade people to do or buy something, it seems to me you should use the language they use every day. -David Ogilvy

To help achieve this goal, they created a program for first-line staff that dictates what words should be used to describe insurance concepts, products, terms and conditions. The program is called “Let’s be clear”, and is designed to help employees “translate” the obscure language of the insurance industry into plain English.

Here are a few examples: “you” instead of “claimant”, “process your claim for payment” instead of “adjudication” and “start date” instead of “activation”.

The goal is to make customers feel comfortable, to create a climate of trust and allow the customer to feel valued – not diminished by the use of language they don’t understand.

Cigna even created a website that provides a dictionary of common insurance terms and their translation into plain English in order to be clearly understood by a customer.

At the end of the day, it simply a question of respect for “me”, the customer. Do you speak the same language as your customer? Or are you forcing your customers to speak yours?

Five benefits of B2Me™ on

There’s an interesting article on B2Me™ on the Retail Experience Blog, by Paul Flanigan, former director of brand communications for Best Buy.
Here are a few lines from his post:

We have all heard B2B (business to business) and B2C (business to consumer). But this has now evolved into B2ME. The simple definition is the practice of marketing to the individual based on the desires of that individual. It’s not about closing a sale, it’s about developing a relationship with every single unique individual.

This doesn’t (or shouldn’t) seem like a new way to market. We have been doing this all along, right? Well, the advent of personal technology has quite a bit to do with it. Marketing has had to catch up with individuals who are mobile, savvy, and in control of the sales cycle in pretty much every type of buyer/seller relationship.


How much is a customer worth? Probably more than you think!

How much is a customer worth? Probably more than you think!

When you look at marketing from a purely transactional perspective, you often lose sight of an important dimension: the long-term value of a customer. Or more precisely, the cumulative net revenue that a customer provides during the “lifetime” of the relationship between the customer and a business, or a brand.

This transaction perspective focuses on the immediate sale of good and services through marketing campaigns of all nature. From that point of view, the customer value is equal to the amount of the sale produced as a result of that campaign. Transactional marketers will work to reduce the cost per transaction in order to maximize short term revenue. Nothing wrong with increasing revenue… far from it. But this narrow vision often forces us to make choices that as purely short-term.

More often than not, when the focus is purely on short-term revenue, marketers will discard any initiative that produces a customer acquisition cost that is deemed to high when compared to the value of the transaction, without taking into account the future value of a customer. Such decisions do not take into account differences in customer quality, potential loyalty and future purchase value. Why pay ten dollars to sell a five dollar item? And yet…

Customer lifetime value

From a relationship marketing perspective however, we will take into account the actual value of a customer — what is known as Customer Lifetime Value (CLV) – in order to better understand how much we can afford to invest to acquire a new customer with whom we can engage and maintain a long-term relationship over the course of several years.

In fact, when you think about it, this value is often much greater than we suspect. Calculating CLV is based on three variables: gross revenue per average transaction, average frequency of purchase and the average lifetime of a customer relationship. Regardless of your industry, when you start to look at what a customer is worth, you quickly understand why it is so critical to retain customers and increase loyalty.

In the infographic show below, KissMetrics looks at the lifetime value of a Starbucks customer. That Grande Latte you buy from the little mermaid from Seattle starts to look even more expensive than you ever imagined. According to KissMetrics, the average lifetime value of a Starbucks customer is $14,099 over a 20 year period. This value is based on an average purchase value of $5,90 and a purchase frequency of 4,2 purchases per week. Now imagine the coffeeholic who shows up twice or three times a day, at break time, for lunch or an afterwork snack. The value goes through the roof!

Acceptable acquisition cost

Rather surprizing isn’t it? So now, if I ask you how much Starbucks could afford to spend in order to acquire and retain a new customer, you would start to see that it is much more than the cost of a single Latte. Instead, you would use the CLV as a basis to set this amount. All of a sudden, you would probably be tempted to invest a little more. Now imagine you’re Second Cup — how much would you spend to win over a Starbucks customer?

Now think about your own customers. What is the CLV of your average customer? Better yet, forget the Average Joe. Think about your best customers—the top 15% to 20%. Your most active, loyal and profitable customers. Now thank about what you are doing to keep them loyal… If your answer is nothing, what are you waiting for? It’s a matter of survival!

This infographic was created by KissMetrics

How To Calculate Customer Lifetime Value
Source: How To Calculate Lifetime Value

Where all those choices got started… according to Malcolm Gladwell

Where all those choices got started… according to Malcolm Gladwell

As a fan of all things Gladwell, I would like to share with you this excellent video produced by TED TV that chronicles the history of how Howard Moskowitz changed the way we shop for groceries — a change that led to the avalanche of choices that we face in our lives, day-to-day. Presented in typical Gladwellian style, this is a fascinating tale of innovation that began in the ’80s.

The unexpected impact of choice on customer satisfaction

The unexpected impact of choice on customer satisfaction

In this video from TED TV, american social psychologist Barry Schwartz, author of The Paradox of Choice explains how too much choice has a negative impact on our level of satisfaction with the things we buy in our day-to-day lives.

Unrealistic expectations, or persisting doubt over the choices we make: these are the reasons why we must limit the number of products and services we offer our customers. By personalizing content and product recommendations, B2Me allows us to reduce the number of products suggested to a limited set or a single item that best suit the customer’s needs… One customer at a time!