What & Why Relationship Marketing

What & Why Relationship Marketing

Relationship marketing is a term that is openly thrown around these days, and indeed it is a strategy that seems to become more popular with every passing year.

In many ways, it is the opposite of the transactional marketing strategies that dominated most of the 20th century. Where transactional (or traditional) marketing is all about a series of single sales events, with no regard of who the consumer is, relationship marketing is about establishing an ongoing relationship between a brand and consumer.

Thanks to the Internet, this approach is gaining in popularity, as it has become easier than ever to stay in touch with customers and build a relationship with them over the long term.  Many companies these days already incorporate at least some elements of relationship marketing in their overall strategy.

Let’s take a look at two examples to better illustrate the difference between transactional and relationship marketing:

Example 1: Transactional marketing

MegaDrinks International learns that energy drinks are becoming more and more popular, so they decide to enter this market with a product of their own. Through research, they learn that students are the number one consumers of energy drinks, so they decide to target that market with their new product.

While their new drink is a lot like other energy drinks out there, even sharing the same basic formula, it has a catchy name related to studying/learning (let’s call it Learning Lava!) and a cool design.

They conduct extensive market research to find the optimal price point for their new drink. Deals are made with supermarkets all over the country, who will sell it to thirsty, tired students. Finally, they launch a big advertising campaign in all mediums to promote it.

After a few months, the results are in: their new energy drink is an overwhelming success! Thanks to the eye-catching name and design, a sizable portion of customers choose their product among the 10- 15 similar drinks on the shelf.

It continues to sell well enough, but after some years a couple of problems appear … due to a malfunctioning machine used to mix the formula, a whole batch has gone out with a less- than- pleasant smell emitting from the cans when opened.

A PR specialist is recruited, and a statement goes out from the CEO that the problem has been taken care of, and it will not happen again. They even pay off a few investigative reporters who threatened to write unflavoring articles about the company. Still, many former customers are now hesitant to buy the Learning Lava brand again.

Also, now the stockholders aren’t too excited with the energy drink venture, as profits from it stay about the same every year. It seems that once students finish their education, they also stop buying the Learning Lava energy drink. Meaning the market for their product isn’t growing.

Finally, a foreign competitor has just launched a competing product called, you guessed it right, Education Energy, at a significantly lower price point.

This situation isn’t easy to recover from. Sure, they could try to lower their prices even further, or even make a new fancy design – – maybe even rename it to wash away some of the bad publicity from the odor incident.

What & Why Relationship Marketing

After debating it back and forth, they decide to just let it go. They had a good run, but it looks like it’s over for this venture. Not to worry though – – since they’re used to the transactional marketing strategy, this is something they had counted on happening since the beginning. So, time to come up with a new product and start over!

Example 2: Relationship marketing.

Just as in example 1, MegaDrinks International decides they want to start selling energy drinks. However, this time they go about it a bit differently.

Instead of treating this as a standalone venture, they decide they’re in the energy drink business for the long haul. They’re not going to get pushed out in 2 years by new, competing products.

So, this time they invent an umbrella brand, for their energy drink products, SuperMegaEnergy(TM). While their first energy drink product will still be marketed to students, the long term strategy is gaining customers that are loyal to the SuperEnergy brand for the rest of their lives. Students who finish their education will start buying SuperEnergy(TM) Job Jolt instead of Learning Lava. When they retire, they’ll move on to the Senior Speed product.

These products will be priced slightly higher than their competitors. MegaDrinks have decided they’re not going to compete on price, as they ‘d just get undercut eventually by a competitor with access to cheaper labor and less regulation.

On to marketing. Instead of a traditional ad campaign, they rely on the viral power of the web and word- of- mouth for most of their marketing. They introduce loyalty programs to encourage repeat buying and regularly hold contests with generous prizes. They make heavy use of Twitter and Facebook and respond quickly, seriously and sometimes comically to customer complaints and questions.

They even put together a couple of free, helpful how-to guides: one that teaches the best study techniques, and one that serves as a companion guide for young people entering the workforce. There is no branding or advertising at all in these guides, just excellent information. To get a copy, however, you have to enter your email address on the SuperMegaEnergy website. Once in a while, they’ll send out emails to these subscribers with a mix of light, fun entertainment, and discount deals/coupons. Open rates are high because they’re quick to read and open very useful.

Then, just as with the parallel universe, transactional marketing version of MegaDrinks, there is an incident at the manufacturing plant. A huge batch goes out with that foul smell, threatening to put an end to the entire venture.

This time, however, they handle it differently. They use all their communication channels to broadcast a message: anyone who’s bought one of these nasty-smelling drinks can send it in, and will in return receive a free 12 pack as a replacement. They’ll also get two free t-shirts with a humorous pun referring to the incident, one for themselves and one for a friend.

Instead of trying to cover it up, they let everyone know that they made a mistake. The CEO even records a heartfelt video apology on his cell phone, which is proudly shown on the homepage of their website for a whole month.

When the results are in after the first year, MegaDrinks International finds that their SuperMegaEnergy brand is growing very nicely, despite that nasty odor incident. Customer confidence is completely restored.

Although, they’re not making as much profit up-front as they would have using pure transactional marketing, but analysts are certain they are going to keep growing year and year as more people are introduced to the brand (and then introduce their friends to it as well).

New, competing products come and go but the SuperMegaEnergy sales remain steady. Even with a slightly higher price, many people simply prefer their brand over the others. They aren’t entirely sure why, but for some reason, the SuperMegaEnergy brand just resonates with them more than other brands.

What & Why Relationship Marketing

The advantages of relationship marketing.

As you’ve seen from these examples, the advantages of relationship marketing are many:

  • You gain a loyal following who would never use another brand.
  • Consumers recommend your products to their friends.
  • You can open charge a higher price since pricing becomes less important as brand loyalty increases.
  • If you want to expand into a new market with a similar demographic, many customers would follow you there.
  • Less money spent on big advertising campaigns and customer acquisition.
  • Ability to turn unhappy customers into lifelong proponents through good customer service

Any disadvantages?

There are a few disadvantages to consider before opting for a full- on relationship marketing approach:

  • First of all, it’s very difficult to measure the effect on sales by individual marketing/customer service initiatives. It’s a holistic approach where there is open no obvious connection between cause and effect, unlike traditional marketing where you can open just look at your numbers and see you’re spending $x on advertising and making $y in sales.
  • It’s also notoriously difficult to implement well for some companies. Consider a company that manufactures toothpaste, who decide they want to take advantage of relationship marketing. They hold contests and tweet like madmen, but still, have a hard time gaining a loyal following. Why? Because, to most people, their product is a commodity, not a lifestyle choice. People might care about the general features, such as the flavor, strength, etc, and the company might gain some brand loyalty just from that, but few will be rushing to add them on Twitter and Facebook.
  • Another disadvantage, mainly for small companies, is the time, money and expertise required to properly set up all the communication channels and marketing efforts. Hiring dedicated staff just to sit on Twitter the whole day may simply be too expensive. Too open this results in one or more channels being neglected, and the overall effectveness suffers as a result. In this case, it’s important to know your limits and doesn’t try to take on more than you can handle.

Note that even if you aren’t the perfect candidate for pure relationship marketing, you may still want to incorporate some of the elements in your overall strategy. Oftentimes, a mix of both strategies can be the best solution.

Top candidates for relationship marketing

Some types of businesses work especially well with relationship marketing.

Here are a few examples:

  • An author who chooses to publish and sell her books on her own, staying in close contact with her readers using social media and live appearances.
  • A computer manufacturer who builds computers for avid gamers, holding contests, sharing gaming tips and tweeting gaming news.
  • A producer of baby food who launches a well-researched blog, educating parents and answering questions about nutrition for children.
  • A web hosting company that publishes high-quality tutorials, and sends their customers a free gig after experiencing downtime.

… and many more!

Takeaways on relationship marketing

  • Relationship marketing can be a great alternative to transactional marketing, but it’s not for everyone.
  • While transactional marketing is straight forward and easy to grasp, relationship marketing can be trickier to get right.
  • Relationship marketing can take longer to deliver results but can lead to much better results in the long run.
  • In many cases, incorporating a mix of both strategies is the best solution.
  • It’s OK to “pick and choose” the relationship marketing strategies you’re the most comfortable with and focus on those.
  • Commodity type products have the least to gain from relationship marketing.

About the Author Stacey Riska

Stacey Riska, aka “Small Business Stacey” is a serial entrepreneur who is passionate about saving small business and rebuilding Main Street. She helps small and local business owners become a #SmallBizMarketingWiz by teaching them marketing strategies that get MORE: MORE leads, MORE customers/clients, MORE sales, and MORE money.

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