Transaction-based Marketing Vs. Relationship Marketing

As marketing has entered the 21st Century, a significant change is taking place in the way companies interact with customers. The traditional view of marketing as a simple exchange process—a concept that might be termed transaction-based marketing—is being replaced by a different, longer-term approach.

Traditional marketing strategies focused on attracting consumers. The goal was to identify prospects, convert them to customers, and complete sales transactions. But today’s marketers realize that, although it remains important, attracting new customers is truly an intermediate step in the marketing process. Marketing efforts must focus on establishing and maintaining mutually beneficial relationships with existing customers. These efforts must expand to include suppliers and employees, as well.

The concept, called relationship marketing, refers to the development, growth, and maintenance of long-term, cost-effective exchange relationships with individual customers, suppliers, employees, and other partners for mutual benefits. It broaches the scope of external marketing relationships to include suppliers, customers, and referral sources. In relationship marketing, the term customer takes on a new meaning. Employees serve customers within an organization as well as outside it; individual employees and their departments are customers of and suppliers to one another. They must apply the same high standards of customer satisfaction to inter-departmental relationships as they do to external customer relationships. Relationship marketing recognizes the critical importance of internal marketing to the success of external marketing plans. Programs that improve customer service inside a company also raise productivity and staff morale, resulting in better customer relationships outside the firm.

Relationship marketing gives a company new opportunities to gain a competitive edge by moving customers up a loyalty hierarchy from new customers to regular purchasers, then to loyal supporters of the company and its goods and services, and finally to advocates who not only buy the  company’s products but recommend them to others. by converting indifferent customers into loyal ones, companies generate repeat sales. The cost of maintaining existing customers is far below the cost of finding new ones, and these loyal customers are profitable ones.

Effective relationship marketing relies heavily on information technologies such as computer databases that record customers’ tastes, price preferences, and lifestyles alongwith the increase of electronic communications. This technology helps companies become one-to-one marketers that gather customer-specific information and provide individually customized goods and services. The firms target their marketing programs to appropriate groups, rather than relying on mass-marketing campaigns. Companies who study their customers’ preferences and react accordingly gain distinct competitive advantages.

Firms in service industry, from retailers to hotels to airlines, are among the leaders in relationship marketing. Their staff members have many opportunities to meet customers personally and build loyalty and repeat business. Rewards for frequent buyers of a firm’s goods or services, such as hotel programs that reward frequent visitors with free room stays and other travel documents, are another form of relationship marketing.

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30 Comments (+add yours?)

  1. Alastair Digby
    Aug 19, 2009 @ 13:35:58

    It may sound obvious but spending a little more time ensuring your clients feel loved and valued will help to improve your bottom line and combat decreased levels of new business. You may have heard the maxim that the cost of attracting a new client is five times the cost of keeping a current client. With this in mind and taking into consideration marketing budgets are being squeezed to a minimum then it makes sense to focus more attention on hanging on to your current clients than attracting new ones. A small increase in customer care can radically improve your retention rate helping to improve sales forecasting, planning marketing activity and most importantly profitability. It has been said that a 5% improvement in customer retention can lead to a increase in profitability of between 25% – 85% dependent on the industry. These figures can make your finance director sit up and take notice and think twice about assessing the value of the marketing function and its affect on the company.

    Adopting a relationship marketing approach will further increase your retention rate by increased customer collaboration, personalisation of service and continually deepening communication with multiple contacts. The more you interact with your clients at various levels throughout the organisation the more you are demonstrating your value to the client and the importance of your product or service. You need to embrace the idea that marketing and customer service are inseparable and should be treated as single activity. This will also have wider implications such as helping to improve recommendations and word of mouth referrals which are usually easier to close than a cold prospect. Your brand will become attributed to offering good customer service as well as the products are services you supply.

    The ultimate aim is to create long term relationships with clients and not view them as a one off sale shifting focus from attaining new clients to keeping your current ones. Moving away from one-way short term transactions and shifting towards two-way ongoing relationships with your clients is the first step. Closing a sale should be viewed as the starting point of your relationship and be sustained by increased marketing to ensure they stay with you. Sounds simple in theory, but in practical terms for this approach to be successful everyone in your business must be heavily marketing orientated and realise the importance of why. Some businesses will tell you that they are already doing this however research has shown that 80% of companies believe they provide a superior client experience but only 8% of their clients agree! It can be easy to become complacent with your clients when in actual fact they should be the main focus of your marketing efforts. The longer a client stays with you the less inclined they are to switch to a competitor because that have become accustomed to how you work and the services you provide. Other strategies to help keep your client churn to a minimum is by offering loyalty schemes and incentives, product bundling and cross promotions. Bear this in mind, increased customer retention will make your employees jobs easier and more satisfying meaning happy employees and better customer satisfaction.

    Reply

  2. ostrov
    Dec 02, 2009 @ 13:40:01

    Thank you,
    very interesting article

    Reply

  3. annette w coxall
    Nov 09, 2010 @ 18:17:37

    Hello,

    I googled a topic on relationship marketing and was directed to your website. Currently, I am s student pursuing a course in Business Management. Would you allow me to post my essay or piece if I net an A ? My next project for week 9 is to build my website.
    Thanks for the information, my paper is on marketing on the web and I wanted to explore relationship marketing. Your article was insightful. Thanks!

    Please respond.

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  4. annette w coxall
    Nov 09, 2010 @ 18:19:09

    Hello,

    I googled a topic on relationship marketing and was directed to your website. Currently, I am s student pursuing a course in Business Management. Would you allow me to post my essay or piece if I net an A ? My next project for week 9 is to build my website.
    Thanks for the information, my paper is on marketing on the web and I wanted to explore relationship marketing. Your article was insightful. Thanks!
    I like your website did you use Dreamweaver?
    Please respond.

    Reply

  5. frangebeine
    Jan 19, 2011 @ 18:45:57

    Hi there, just became aware of your blog through Google, and found that it’s truly informative. I’ll be grateful if you continue this in future. Many people will be benefited from your writing. Cheers!

    Reply

  6. Alex
    Mar 08, 2011 @ 04:45:33

    Nice article, but I still feel that relationship marketing is a current hype and everyone wants to jump on the bandwagon. Since Kotler got popular there is the general misunderstanding that every business needs to transform their marketing efforts towards relationship marketing. This is a dangerous notion companies buy into out of fear not being able to sustain competitive in the long run. Relationship marketing is just applicable to a specific type of venture. Many companies these days function remarkably well in the transaction marketing environment and only belong there. A great example is the case of Aldi, resulting in two of the richest entrepreneurs in Europe and an amazing success story. The company would lose its market leadership if it were wasting resources on relationship building. It’s 100% transaction marketing, no special service, no brand products, no promotion, simply the lowest priced products at a satisfactory quality. You only pay for what you take home, no extras that increase the cost and prices. This philosophy has also developed tremendous customer loyalty.

    Reply

  7. Contact Center Services
    Mar 09, 2011 @ 10:32:41

    Great post, I especially found it usefull where you started

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  8. Satyam Gambhir
    May 08, 2011 @ 08:09:09

    Well, I made a small graph here to comprehend what is relationship marketing. It is when we involve customers in the process or creation of products/services.

    http://marketinomics.com/digital-marketing-2/ever-evolving-marketing/

    Hope this will make it easier!

    Reply

  9. Solomon Adewale
    Sep 15, 2011 @ 12:52:39

    Please can you help me with a detail answer to this question?

    What is the relationship between transaction and exchange in respect to marketing.

    Reply

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