Customer relationship marketing theory

Relationship marketing - Wikipedia

customer relationship marketing theory

RM does notfonn a general theory of marketing, and that actually two types of relationship theory exist. Market-based, more consumer-oriented. RM, and. management, not customer relationship marketing. Management . The theory consists of three main strategies (cost leadership, differentiation and focus) which . Originality/value – As relationship marketing theory and practice are developed further, the authors hope customers, as implemented in “customer relationship.

Although groups targeted through relationship marketing may be large, accuracy of communication and overall relevancy to the customer remains higher than that of direct marketing, but has less potential for generating new leads than direct marketing and is limited to Viral marketing for the acquisition of further customers.

Research by John Fleming and Jim Asplund indicates that engaged customers generate 1. According to Buchanan and Gilles, [18] the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer. The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost.

Account maintenance costs decline as a percentage of total costs or as a percentage of revenue. Long-term customers tend to be less inclined to switch, and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.

Long-term customers may initiate free word of mouth promotions and referrals. Long-term customers are more likely to purchase ancillary products and high margin supplemental products. Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share. Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement.

Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle. Relationship marketers speak of the "relationship ladder of customer loyalty ".

customer relationship marketing theory

It groups types of customers according to their level of loyalty. The ladder's first rung consists of "prospects", that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of "customer", "client", "supporter", "advocate", and "partner". The relationship marketer's objective is to "help" customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step.

Customer retention efforts involve considerations such as the following: Customer valuation — Gordon describes how to value customers and categorize them according to their financial and strategic value so that companies can decide where to invest for deeper relationships and which relationships need to be served differently or even terminated.

Customer retention measurement — Dawkins and Reichheld calculated a company's "customer retention rate". This is simply the percentage of customers at the beginning of the year that are still customers by the end of the year. This ratio can be used to make comparisons between products, between market segments, and over time.

Determine reasons for defection — Look for the root causes, not mere symptoms. This involves probing for details when talking to former customers. Other techniques include the analysis of customers' complaints and competitive benchmarking see competitor analysis. Develop and implement a corrective plan — This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company's reward and recognition systems, and the use of "recovery teams" to eliminate the causes of defections.

A technique to calculate the value to a firm of a sustained customer relationship has been developed. This calculation is typically called customer lifetime value.

customer relationship marketing theory

Retention strategies may also include building barriers to customer switching. This can be done by product bundling combining several products or services into one "package" and offering them at a single pricecross-selling selling related products to current customerscross promotions giving discounts or other promotional incentives to purchasers of related productsloyalty programs giving incentives for frequent purchasesincreasing switching costs adding termination costs, such as mortgage termination feesand integrating computer systems of multiple organizations primarily in industrial marketing.

Many relationship marketers use a team-based approach. The rationale is that the more points of contact between the organization and customer, the stronger will be the bond, and the more secure the relationship. Application[ edit ] Relationship marketing and traditional or transactional marketing are not mutually exclusive and there is no need for a conflict between them.

In practice, a relationship-oriented marketer still has choices, depending on the situation. Most firms blend the two approaches to match their portfolio of products and services. Social bond refers to the relationship established through the collective blood relationship between people. Relationship marketing is to establish and strengthen these two kinds of bonds, especially the structural bond, so as to strengthen the relationship with clients and lock them in.

Morgan and Hunt made a distinction between economic and social exchange on the basis of exchange theory and concluded that the basic guarantee of social exchange was the spirit of the contract of trust and commitment.

The traditional marketing concept of one-time transaction begins to transfer to the concept of relationship marketing. This is the transition from economic exchange theory to social exchange theory. The theoretical core of enterprise relationship marketing in this period is the cooperative relationship based on commitment.

They define the concept of relationship marketing from the perspective of exchange theory, and emphasize that relationship marketing is an activity related to the progress, maintenance and development of all marketing activities.

Shows that trust and commitment is a trading enterprise and the basis of marketing activities to establish a long term good relations, also is the factors affecting the basis of cooperation for both sides, moreover the relationship effect of other factors include: Coptics and Wolf believe that relational marketing is the marketing of databases. They think, the enterprise want to be able to continue to improve the effect of relationships with customers, when access to the data and information to improve the effect of relationship with the customer's cost is low, enterprises will pay the cost to improve relations with customers, at present, due to tell the development of communication technology and Internet technology, makes the information costs have dropped substantially, so the argument that relationship marketing is for database marketing is increasingly valued, this view emphasizes the relationship marketing is through the Internet technology database data lock with the customers, to establish and maintain good relationship with customers.

Liker and Klamath introduced the relationship between enterprises and suppliers into the scope of relational marketing, believing that in the marketing process, manufacturers make suppliers assume corresponding responsibilities, and enable them to give play to their technological and resource advantages in the production process, which can improve the marketing innovation ability of manufacturers. Lukas and Bryan a. Ferrell believe that the implementation of customer-oriented marketing concept can greatly promote the innovation ability of marketing, and at the same time encourage enterprises to break through the traditional relationship model between enterprises and customers and propose new product Suggestions with technical feasibility.

Lethe through the observation of the benchmarking customer research, to confirm the relationship between enterprises and customers to enterprise's product innovation capacity there is a positive correlation, the enterprise can in the development and in the process of benchmarking customer good relationship, to identify those more market potential for development of new products, it can save a lot of for the enterprise cost of new product development and market acceptance of this kind of product is high.

In addition, he also proposed that all the relationships established with relevant parties to enterprise marketing activities are centered on the establishment of good customer relations, that is, the core relationship of relationship marketing is the relationship with customers. Guinness believes that relationship marketing is essentially a consciousness that regards the marketing process as the interaction between enterprises and various aspects of relationships and networks.

According to his research, relationship is the relationship between two or more subjects, network is a larger set of relationships, and interactive interaction between people in the relationship or network process. It is claimed that many of the relationship marketing attributes like collaboration, loyalty and trust determine what "internal customers" say and do.

According to this theory, every employee, team, or department in the company is simultaneously a supplier and a customer of services and products. An employee obtains a service at a point in the value chain and then provides a service to another employee further along the value chain.

Relationship marketing deals with customer by considering a long term perspective rather than a short term one.

The Commitment-Trust Theory of Relationship Marketing

Relationship marketing looks to deliver a robust customer service which includes pre-sales, sales and after sales activities.

Relationship marketing puts emphasis on understanding customer expectation. After understanding company shows high commitment in delivering to that expectation. Relationship marketing is committed towards total quality management. This commitment towards quality is displayed at each level and across functions.

Relationship Marketing – Background and Theory

Relationship marketing believes pricing of product should not be determined by the competitive forces but through negotiation and consensus.

Relationship marketing encourages marketing campaign to focus on the target customer market, tailoring to the specific needs of the individual. Relationship marketing prepares the company to launch products which serve problem solving capability addressing current as well as future needs. Relationship marketing- A Collaborative Approach From above it is clear that relationship marketing overlaps with other marketing strategies like service marketing, branding, channel marketing etc.

However the differentiation comes in focus of other strategies for example service marketing focus is on intangible services, channel marketing looks at the interaction between channel partners. But relationship marketing looks at enhancing company performance by focusing on improving various relationships.

It includes people, process and groups. Satisfied customer, professional advisors, etc. The satisfied customers are motivated bunch who through word of mouth promote the company. They play a significant role in determining the success of the company.

The above mentioned markets form basis various relational exchanges around which relationship marketing is developed.

customer relationship marketing theory

Conflict and Relationship Marketing The existing and unresolved conflicts between the various markets and company play a pivotal role in determining long term success of the company.

If any conflict remains unresolved it can lead to complete breakdown of commercial interactions between all market players.