Topic 1 – The nature of relationship marketing
Chapter 1 – The nature of relationship marketing and Customer Relationship
Management
Study unit 1 – The traditional marketing approach
Explain the concepts of customer relationship management (CRM) and relationship marketing (RM)
Customer relationship management (CRM) is a domain that continuous to evolve. It encompasses
practices, strategies and technologies that organisations use in order to analyse and manage customer
interactions throughout the customer lifecycle. The goal is to improve customer service relationships, to
retain customers and to drive sales growth.
Relationship marketing (RM) is the process of building and maintaining profitable customer relationships
by delivering superior customer value and satisfaction. Satisfied customers are more likely to be loyal
customers and to give the organisation a larger share of their business.
Relationship marketing is particularly relevant when a customer has alternative service providers to choose
from, when the customer makes the selections decision and when there is an ongoing desire or need for a
product or service, such as in the banking industry.
Describe the marketing concept and give practical examples relating to the three principles of this
concept.
Marketing is a business function and can be defined as a process that satisfies consumer needs by adding
value through the provision of appropriate products or services, at reasonable prices, through acceptable
distributions channels, using promotional strategies and marketing communication, in the ever-changing
business environment.
The essence of the marketing concept is an understanding of customer needs and wants. The focus is thus
on the consumer.
To implement the marketing concept successfully, three principles must be practised:
- Consumer orientation
- Profit orientation
- Organisational integration
,Explain in detail the four components of the traditional marketing approach
The marketing mix
The original marketing mix comprises the product or service, price, distribution (or place) and
promotion. In terms of the marketing mix, a business would make all the key decisions regarding
the research that would be conducted, the product concept and the value that would provided, the
advertising message and the service that would be delivered to a segment of the market.
Customers in each segment would be treated as though they all wanted the same products or
services.
The 4Ps / elements of the marketing mix
- A product or service: Is anything a customer might acquire to satisfy a need or a want.
Ex. Coca-Cola soft drink or having a haircut from the hairdresser.
- A price: Is the amount of money one must pay to acquire a product or make use of a service.
Ex. Paying R10.99 to acquire a Coca-Cola soft drink
- A place or distribution: Is the place from where the product is to be sold or from where the service
is rendered.
Ex. A Pick n Pay outlet from where a Coca-Cola soft drink is bought
- A promotion: Is a marketing communication method used to inform and persuade the customers to
buy a product or use a service. It encompasses the use of advertising, sales promotion, personal
selling, publicity, public relations and direct marketing to communicate a certain message to the
target market.
Ex. A newspaper advertisement that gives information about the availability of the Coca-Cola soft
drink at various retailers and the recommended price to be paid by customers.
Traditional/Transactional marketing
The major focus of marketing programmes has been to make customers buy, regardless of whether
they are existing or new customers.
In implementing traditional marketing, the main aim of the organisation is to generate a transaction
or a sale. As a result, transactional marketing involves an exchange between business and customer
without regard to retaining future sales from existing customers. Here the focus of business is to
generate revenue quickly and to make possible an exchange process that is not sustainable.
Marketing segmentation
Businesses cannot use the same marketing strategy for all their products and services as customers
have unique needs; this implies that each customer is potentially a separate market. The traditional
approach to market segmentation focuses on dividing the heterogeneous market into fairly
homogenous subsets of customers.
Consumer segmentation can be divided into three main types:
- Behavioural segmentation (for example, grouping buyers on the basis of their buying behaviour
such as benefits sought, loyalty status and attitude towards the product)
- Psychographic segmentation (for example, by means of categories such as social class, lifestyle and
personality)
- Profit segmentation (for example, consumer groups classified in a manner that group-specific
communication media can target them, such as geographic, demographic and social-economic
segmentation)
,Study unit 2 – The relationship marketing concept.
Explain the concept of relationship marketing
Relationship marketing (RM) is the process of building and maintaining profitable customer relationships
by delivering superior customer value and satisfaction. Satisfied customers are more likely to be loyal
customers and to give the organisation a larger share of their business.
Relationship marketing is particularly relevant when a customer has alternative service providers to choose
from, when the customer makes the selections decision and when there is an ongoing desire or need for a
product or service, such as in the banking industry.
Relationship marketing means attracting, maintaining and enhancing customer relationships.
Example is that of a retail bank and its clients. Consider a client who has a problem with the banking fees
his/her bank charges. The client wants to sort out the fees and therefore must make an appointment with
an employee of the bank known as a relationship manager or a relationship consultant. The client would
like to see this manager in person and wants to continue dealing with the same person in future years to
avoid repeatedly discussing confidential banking issues with a stranger.
Relationship marketing entails the following dimensions:
- It seeks to create new value for the customer. The creation of values is the core purpose of
economic exchange between individuals, business and countries.
- Relationship management recognise the key roles that individual customers have, both as
purchasers and in defining the value they want to achieve.
- Businesses that practice relationship marketing are seen to design and align their processes,
communication, technology and people in support of customer value.
- It represents a continuous co-operative effort between buyers and sellers.
- Relationship marketing recognises the value of customers purchasing lifetimes (i.e. their lifetime
value)
- It seeks to build a chain of relationships both within the business and between the business and its
main stakeholders, including suppliers, distribution channels, intermediaries and shareholders.
- One of the principles of relationship marketing is to identify the most profitable customers so that
the business can focus on customer appropriate to its core strategy.
, Focus areas of relationship marketing
1. Individual customer approach
The individual customer approach involves the application of segmentation, customisation and one-to-one
marketing.
Customisation can be defined as tailoring some future of a product/service so that the client enjoys more
convenience, lower cost or some other benefit.
These segments can be described and quantified in terms of their value and potential value to an
organisation. Appropriate communication strategies can be designed for each segment.
A business`s success increasingly hinges on using customer-level information and interaction to create
long-term, profitable, one-to-one customer relationships
2. Customer knowledge
Employees should have the required product/service knowledge and expertise in order to effectively
address or respond to the needs of the client.
The most successful businesses on a wide variety of industries are those that have succeeded in developing
and maintaining long-term relationships with customers and more importantly, that embrace principles pf
one-to-one marketing
3. Reconsidering traditional market segmentation and the traditional marketing approach
Traditionally the objectives of segmentation strategies focused on identifying groups of potential
customers, for example, profiling prospects for product development, identifying appropriate prospects for
marketing campaigns and classifying groups according to potential response to specific pricing strategies.
4. Reconsidering the traditional marketing mix
According to the new focus on customer relationships, a fresh approach to the traditional 4 Ps of
marketing (Product (service), price, promotions and place (distribution) is necessary. Technology can also
assist in combining the 4 Ps in numerous ways, thereby offering customers many choices so that they can
obtain precisely what they want (product or service), when and how they want it (place or distribution),
and at a price that represents the value they wish to receive. Technology also enables the business to
engage individual customers with whom they wish to communicate (promotion).
Product (Service)
Traditionally, the marketer developed product (service) concepts, researched the customers and
then developed the product or service that would yield the desired profit margin for the business.
For products and services where the lifetime, volume and margin warrant it, individual customers
should be considered in every aspect of the business, including the processes that drive new
product and service design. This recognises that customers are different – they want different
things in different amounts at different times - and the profit from derived from each customer may
therefore vary.
The key challenge for the marketer is to identify the core strategic value that will be delivered to
the customer and the elements that the customer can change, allowing the buyer to be firmly in
charge, assembling the value he/she wants.
Price
Traditional marketing sets a price (value given) for a product and offers the price of the product in
the market in exchange for something else (money). The price seeks to secure a fair return on the
investment the business has made in its product.
With relationship marketing (RM), the product varies according to the preferences and dictates of
the customers, with the value varying commensurately. So when customers specify that a product
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