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Textbook: Relationship marketing and Customer Relationship Management (4th Ed. M Tait)
The marketing concept is a management orientation that focuses on researching the customers’ needs and
wants and then advocates the manufacturing of appropriate product or service that will satisfy the identified
customer needs.
That said, this concept is a function of marketing and largely customer-oriented by attempting to cultivate an
understanding of customer needs and wants.
To implement the marketing concept successfully the following three principles, need to be applied:
However, traditional marketing has been criticized for being a functional approach due to:
lacking innovation
using defensive coping strategies
marketers practice marketing management instead of market-oriented management.
Therefore, the more knowledgeable the marketer is about traditional marketing and the criticism levelled against
it, the more likely it is that effective CRM strategies will be implemented by the business.
THE MARKETING MIX
Marketing is a process that directs the flow of products and goods from the manufacturer to the customer with
the purpose of achieving a reasonable profit.
The traditional Marketing Mix model is used as a tool to assist in defining the organization’s marketing strategy by
blending the 4P’s of the Traditional Marketing Mix and the 3P’s of the Extended Marketing Mix together in an
optimal way.
4P’S OF THE TRADITIONAL MARKETING MIX 3P’S OF THE EXTENDED MARKETING MIX
Product Price People Physical Surroundings
Place (distribution) Promotion Processes
A business would make all the key decisions regarding research that would be conducted, the product concept
and the value that would be provided, the advertising messages and the service that would be delivered to a
segment of the market.
Meaning that each element of the mix is interrelated and cannot operate in isolation
A decision taken in the context of one element will impact the others.
Customers in each segment are treated as though they all wanted the same goods and services
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, Main Problem - finding the optimal mix between the 4P’s that would generate a superior response in the market
while creating profits.
Traditional marketing strategies do not perceive the actual needs, wants and expectations of their
customers as being of paramount importance.
The marketing mix is too restrictive for B2B and service marketing
The outdated concept of consumer goods marketing due to the rising importance of intangible service
characterizes and customer service considerations that have become a prime differentiating factor
between products.
The original marketing mix possibly represented the seller’s view and would need to be shifted to a
customer-oriented perspective.
4P’S OF THE TRADITIONAL MARKETING MIX – EXTENDED DEFINITIONS
Anything a customer may acquire to satisfy a need or a want.
PRODUCT
A soft drink or haircut
The amount of money one must pay to acquire the product or use the service.
PRICE
Paying R10 for a bottle of water
From where the product is sold or service is rendered.
PLACE
Ok minimart, Checkers, Pick ‘n Pay
Marketing communication method used to inform and persuade customers to buy
products or make use of services.
Makes use of the following elements to communicate a certain message to the
target market:
o Advertisements
PROMOTION o Sales promotions
o Personal selling
o Publicity
o Public relations
o Direct marketing
TRANSACTIONAL MARKETING
The main aim of the organization had been to generate revenue quickly by means of a transaction or sale
without regard to retaining future sales from existing customers, which is an unsustainable process
Customers within a marketing segment are exposed to multiple competing products and are required to
make independent decisions among the available options.
The starting point is that the customer does not want to buy; they need to be persuaded to do so
Thus, this has become an outdated practice
Difference between transactional marketing and relationship marketing:
Mature markets are limited in product differentiation, which stresses the importance of customer
retention over attracting new buyers
RELATIONSHIP MARKETING
Relationship marketing is the process of building and maintaining profitable customer relationships by delivering
superior customer value and satisfaction.
Customer retention generates continuous support from an existing group of customers which utilizes
their cost-saving potential.
Acquires the customer only once which saves money.
3
, MARKET SEGMENTATION
Traditionally segmentation entailed the division of the heterogeneous market into homogenous sub-markets of
customers.
This assumes that each segment of the market has similar needs and will respond in a similar way to the market
offering and targeting strategy that has been implemented. Which means the business picks which sub-market
they can best satisfy and develop a product offering for.
Market Segmentation moves away from marketing to anonymous masses of customers to segmentation that is
based on profitable individual customers – a necessity because a customer’s wants and needs evolve
continuously.
3 TYPES OF CUSTOMER SEGMENTATION
Behavioural segmentation – grouping through buying behaviour and brand loyalty
Psychographic segmentation – social class, lifestyle and personality
Profile segmentation – group specific media communication such as geographic, demographic and
socio-economic segmentation
It is important to note that customer segmentation does not operate effectively in a more modern market. The
following two factors serve as proof:
It is difficult to group customers into segments and categories → thus require the move away from
marketing to the faceless masses divided by demographics.
The only true categorization that is meaningful is actual buyer behaviour, rather than the underlying
drivers of that behaviour, then there are no more market segments, only individual customers.
PARADIGM SHIFT
Transforms marketing from a narrow set of functional skills based on the conventional marketing mix to a
broader business orientation where delivery of superior customer value is a key objective.
Shifts from marketing to anonymous masses of customers, to developing and managing
relationships with more or less well-known customers.
New Focus of segmentation is based on profitable individual customers (with continuously evolving
needs)
Businesses cannot use the same marketing strategy for all their products and services as customers
have unique needs, implying that each customer is potentially a separate market.
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, UNIT 2 – THE RELATIONSHIP MARKETING CONCEPT
THE RELATIONSHIP MARKETING APPROACH
Focus areas of New Capabilities
Relationship Marketing
Relationship Marketing Required by Business
CONCEPTS
Relationship marketing
Customer relationship management
Individual customer approach
Reconsidering traditional market segmentation
Reconsidering the traditional marketing mix
Support at the executive level
Processes
People
The value of CRM capabilities
Relationship marketing is about establishing and maintaining long-term relationships with all stakeholders. Thus
an organization’s main focus would be on customer retention, high commitment to customers and building those
long-term relationships with their stakeholders.
2.1 RELATIONSHIP MARKETING
Relationship marketing 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 organization a larger share of their
business.
The complete aim of relationship marketing is to retain and satisfy customers:
Customer Retention places the focus of the marketing-related activities of the business on its existing
customers.
Customers are retained through Customer Satisfaction, such as customer care and after-sales
services, to ensure future transaction with these customers by delivering what they want.
Objectives of relationship marketing:
Identify and Establish
Maintain and Enhance
Terminate Relationships
CUSTOMER LIFETIME VALUE (CLV)
Customer lifetime value can be defined as the present value of the stream of future profits expected over the
customer’s lifetime purchases.
5
, RELATIONSHIP MARKETING DIMENSIONS
It seeks to create new value for the customers.
Relationship marketing recognizes the key role that individual customers have, both as purchasers
and in defining the value they want to achieve.
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.
Recognizes the value of customers’ purchasing lifetimes. (Customer Lifetime Value)
It seeks to build a chain of relationships both within the business and between the business and its main
stakeholders.
Identify the most profitable customers so that the business can focus on customers appropriate to its
core strategy.
2.2 FOCUS AREAS OF RELATIONSHIP MARKETING
FOCUS AREAS OF
RELATIONSHIP
MARKETING
Reconsidering Reconsidering New Capabilities as
Individual Customer
Traditional Market Traditional required by
Approach
Segmentation Marketing Mix Business
2.2.1 INDIVIDUAL CUSTOMER APPROACH
The individual customer approach involves the application of segmentation, customization and one-to-one
marketing.
CUSTOMIZATION – tailoring of a product and service so that the client enjoys more convenience, lower
cost or another benefit.
CRM – builds relationships with strategically significant customers.
o The emphasis is on individual customers that are profitable to the business.
Since customers are not all the same, they are segmented based on what is known about them.
The collection of relevant customer information is a necessity in successfully implementing relationship marketing
as it enables the business to satisfy the needs of the selected customers more thoroughly.
2.2.2 RECONSIDERING TRANDITIONAL MARKET SEGMENTATION
CUSTOMER LIFETIME VALUE-BASED SEGMENTATION - CLV – groups or divides customers into
meaningful segments based on customer profitability and lifetime value.
o Helps to effectively segment the market using evidence and concrete information about
customer purchase history, attitudinal data collected from satisfaction surveys and
demographic and socio-economic data collected from reward/ loyalty programmes.
o Designed to provide increased value to the customer.
o Value of the relationship with customers can be increased by increasing the amount of profit or
by extending the relationship lifetime.
o Considers the traditional bases of segmentation when decisions are made regarding the
targeting of individual customers.
CUSTOMER EQUITY – the total of the discounted lifetime value of all the customers to the business.
= Value Equity + Brand Equity + Relationship Equity + Perception Equity.
Higher customer value increases customer satisfaction which instils customer loyalty. In turn, creates higher
profit due to increased volume resulting from repeated purchases and positive word-of-mouth referrals.
6
, 2.2.3 RECONSIDERING THE TRADITIONAL MARKETING MIX
The new focus on customer relationships will require a fresh approach to the traditional 4Ps of Marketing.
Technology assists in combining the 4Ps in various ways, which increases the market offerings to customers
which enables them to obtain exactly what they want, when and how they want it, at a price representing the
value they wish to receive.
The 4 Ps need to be implemented that they can respond to ever-changing consumer needs
Accommodate the use of technology in successfully implementing CRM for the benefit and sustainability
of the business
TRADITIONAL APPROACH CRM
Marketer develops product concepts Recognize that customers are
researches customer, then different and want different things
develops products that would yield in different amounts at different
PRODUCT the desired profit margin times
Assumes customers have similar Customers collaborate on product
wants design
The key challenge for the marketer is to identify both the core strategic value that will be delivered to the
customer and the elements that the customer can change.
This puts the customer in charge of “assembling” the value they want.
Sets price (value) for product/offers Product varies according to
in exchange for money. customer’s preference,
PRICE
Price seeks to secure a fair return Thus price will vary too (based on
on the investment the business has customization elements).
made in its product.
Customers want to participate in decisions regarding the value they receive and the prices they pay. They
want the various options offered and the ability to remove undesirable elements.
This invites customers into the pricing process and gives them the opportunity to make any tradeoffs they feel
necessary to further develop trust in the relationship.
One-way mass communication Technology engages individual
customers at the time and in the
manner that suits them
PROMOTION
Gives individual customers an
opportunity to decide how they
wish to communicate with
businesses.
Through the use of technology companies can give their customers a host of options for communicating with
them and can always have information on hand to engage, inform and direct each customer with complete
knowledge as to their preferences.
Distribution as the channel that Considers distribution from the
takes the product from producer to perspective of the customer
consumer.
PLACE Not a channel but a process
Allows customers to choose where,
and from whom, they will obtain the
value they want.
Think of a distribution as a “placement”, giving the customers a choice with regard to the location at which
they will specify, purchase, receive, install, repair and return individual components of the products and
services.
7
, 2.3 NEW CAPABILITIES REQUIRED BY BUSINESS
A business must know who its customers are, their value, what they buy, where they are located and through
which channels they want to interact with the business.
Support at the
Reasons for CRM failure
Executive Level
Service Quality Management
NEW CAPABILIITES REQUIRED BY BUSINESS
Processes Service Recovery
Complaint Management
Information Management
People
Relationship Management
Technology to gain Customer
Knowledge and Insight
Value of CRM Capabilities
Below follows a detailed analysis of the figure above:
SUPPORT AT THE EXECUTIVE LEVEL
o For CRM to be initiated properly by top management the whole organizational culture will need
to change.
o The CEO needs to take the lead and ensure they understand the real meaning of a relationship
before committing the company to CRM.
o Value-oriented Focus needs to be created through relationships with key stakeholders.
o The customer relationships need to be managed to provide desired value to customers.
o A Customer-Centric Approach.
REASONS FOR CRM FAILURE
Viewing CRM as a technology initiative
The lack of customer-centric vision
Insufficient appreciation of the customer-lifetime value
Inadequate support from top management
Underestimating the importance of change management
Failing to re-engineer business processes
Underestimating the difficulties involved in data mining and data integration
8
, PROCESSES
o The procedures, mechanisms and flow of activities and operations by which services are
delivered.
o A company wishing to implement CRM needs to manage and link all work processes.
o Customer Perceived Value consists of:
Service quality management
Conformance to specification – error-free invoices and product delivery
Fitness for purpose – customer select channels of communication
Service recovery
Actions are taken by the business to rectify issues (service failure)
Customers want the issue resolved, they don’t care who is to blame
o Distributive Justice – offering apologies or compensating the
customer
o Procedural Justice – the customer has a perception of the process
to obtain recovery both prompt and delayed recovery systems.
o Interactional Justice – the customer has a perception about the
performance of service recovery people, such as their empathy,
courtesy and effort.
Complaint management
Enables the business to capture complaints and do damage control on
negative reviews and word of mouth
PEOPLE
o Excellent customer service is an integral part of CRM.
o Achieved by training employees.
o Customer Contact Roles:
Information Management
Relationship Management
TECHNOLOGY TO GAIN CUSTOMER KNOWLEDGE AND INSIGHT
o By using technology appropriately, an organization can serve customers as individuals.
o CRM is technology-driven, but technology is only the enabler.
o CRM systems require the following to be in place prior to implementation:
Established Customer Centricity within the organization
Fully developed database
The use of data mining for predicting and analyzing customer behaviour.
VALUE OF CRM CAPABILITIES
o Research indicates that the most profitable companies develop a very specific set of CRM
capabilities.
o Each business must reinvent itself to really produce benefits from the use of CRM benefits.
o CRM capabilities help the organization to increase profitability.
o The end result of establishing a relationship with profitable customers is customer loyalty and,
ultimately, greater profitability.
9
, TOPIC 2 – BUILDING CUSTOMER RELATIONSHIPS
UNIT 3 – BUILDING RELATIONSHIPS
BUILDING RELATIONSHIPS
The Learning Unrealistic Limitations of Implementing
Relationship Relationships Relationsip Marketing
Large
Learning Customer No Capabilitiy
Not much Investments in
relationships interaction Insufficient for
value to be product
are built on enhances Lifetime Value relationship
created desing and
knowledge relationships marketing
development
For a company to establish and improve a relationship, the marketer needs to acquire knowledge about the
customer, be able to develop insight into this knowledge, and interact regularly with the customer to acquire new
information.
Learning relationships are built on knowledge.
o The more customers interact and influence a company, the better it becomes at providing
exactly what the customer wants.
o Technology enables companies to gather and store information about individual customers and
create a database of preferences and purchase history.
o Thus, companies gain insight into customer decision making and allow the, to extend and
deepen customer relationships.
Customer interaction enhances relationships.
o The more interaction there is between customer and business, the more satisfying the
transaction process will become as the organization learns and adapts their approach towards
individuals.
o Interactions with the customer enhance the relationship, excessive interaction causes the
customer to start resisting interacting with the staff and/or the organization at all.
o Excessive interaction is to be avoided.
o It is important for a business not to wait for a major event in assessing customer satisfaction,
but to make it a habit to evaluate the level of satisfaction even when the business is performing
normally.
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