Customer relationship marketing means creating close and long-term relationships with your customers with the objective to secure steady revenues. It is common knowledge that keeping current customers happy is more cost effective than investing in new customer acquisitions. Relationship marketing has become a buzz word a long time ago. However, many companies are going too far and overextend themselves by trying to create too many close customer relationships.
Below are some points to consider:
1) For most companies, 20% of customers provide 80% of revenues. Therefore, prioritization is key and so is a careful calculation of opportunity cost and ROI.
2) It is difficult to sustain close relationships unless all of the following attributes are present: trust, loyalty, commitment and interdependence. Therefore, unless you are fairly confident that these attributes are achievable, do not invest in relationship marketing.
3) Relationship marketing is appropriate only when switching costs for the customer are high. In the presence of high switching costs, the customers tend to have a long-term view, are less price-sensitive, their systems are more integrated and their buying behavior centers around technology and vendor, rather than product or person. In these cases, once the customer switches, she is lost for good. This is a case where investments into relationship marketing is appropriate. Under reverse circumstances (low switching costs, focus on product, modular customer system, short-term customer time horizon), transaction marketing focusing on price and advertising is more suitable.
To sum up this short post, relationship marketing has its esteemed place in both B2B and B2C marketing. However, companies that invest into expensive relationship marketing programs for customers that face low switching costs are exposed to losing customers to low-cost competitors.
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