In the past, businesses did not have to pay much attention towards customer satisfaction because there were few suppliers and the market was growing fast. Sometimes customers had to deal with the companies directly when they (the customers) were not fully satisfied, but now things have completely changed. Due to cut-throat competition among the companies, the companies are now required to pay more attention towards their customers’ satisfaction. The main purpose of a company is to make the customers stay with the company. One important strategy is to develop and maintain good relations with their customers.
1. The Importance of Customer Retention :-
At any moment, current customers may stop dealing with the company, causing huge losses to the company. According to one study, by reducing the deflection rate by 5 per cent, companies can improve their profits up to 85 per cent.
Classic marketing theories and practice focus on the issue of how to build new customers rather than to retain current ones and on making sales rather than building relationship. Having one new customer along with losing a current one makes no difference to the business opportunity of the company but the cost of making one new customer is much higher than that of keeping an existing one.
2. The Customer Development Process :-
The process begins with suspects, those who may have interest in buying the company’s products. Among those, who have substantially potential interest are prospects. The prospects may become qualified or disqualified for becoming first-time customers. The companies then try to keep the first-time customers and turn them into repeat customers. When the repeat customers terminate purchasing from other providers and deal only with the company, they become company’s clients. Some of the fully satisfied clients may act as advocates for the company. They praise the company and encourage other suspects to buy the company’s products. Finally, the company can actively work with the advocates and convert them into its partners. The customer-provider relationship may be halted or terminated at any time during the process of development. Customers may become inactive or stop buying from the company for such several reasons such as bankruptcy, relocation or dissatisfaction.
The steps of the customer development process indicate the levels of closeness of the relationship. The closeness and characteristics of the relationship at each step may provide suggestions for developing proper strategies in doing relationship marketing.
The Customer- Development Process
3. Five Levels of Relationship Marketing :-
Relationship marketing implies the process of creating customer loyalty. It comprises all efforts and activities taken that enable the company to better know their customers’ expectations and ultimately serve them better. The style of relationship marketing chosen depends on characteristics of the business areas. It basically depends on the unit profit margin and the number of customers/providers in the markets. Five styles of relationship marketing with increasing orders of cost will be subsequently mentioned.
• Basic Marketing: Products are simply sold to customers.
• Reactive marketing : Customers are encouraged to contact the providers by making phone calls, sending faxes/letters etc
• Accountable marketing: The providers actively contact the customers after the sales to identify whether there is any problem.
• Proactive marketing: The providers contact customers on a regular basis to supply new information about their products. Travel agents and software developers are among those who most often practice proactive marketing.
• Partnership marketing: The providers work with the customers to help them perform better. Airplane and satellite manufacturers usually develop partnership relationship with customers. Boeing has built a good relationship with its Asian customers.
Companies dealing in grocery would mainly employ basic and reactive marketing while those trading in durable consumer goods such as TVs, refrigerators and computers would prefer reactive and accountable marketing. Trading machinery and equipment needs considerable customer-provider interaction; therefore, they should widely practice proactive or partnership marketing.
|HIGH MARGIN||MEDIUM MARGIN||LOW MARGIN|
|Many customers/Providers||Accountable||Reactive||Basic or Reactive|
|Medium number of Customers/ providers||Proactive||Accountable||Reactive|
4. Developing stronger customer bonding and satisfaction :-
Customer bonding and satisfaction can be developed by adding financial benefits, social benefits and structural ties.
• Adding financial benefits :
Financial benefits are often offered by Frequency Marketing Programme and Club Marketing Programme. Frequency Marketing Programmes are designed to provide rewards to frequent customers and/or those who buy in large quantities. The airlines industry widely employs this method. Members of these programmes are entitled to such benefits and privileges as free air-tickets, hotel accommodation, car rentals and extra-luggage allowances.
Companies can create affinity groups or clubs of their customers that bind them closer. Membership can be offered automatically upon purchases or by paying a fee. Nintendo, a video games producer, has its customers’ club with two million members.
• Adding social benefits :
Adding social benefits means to increase bonding with customers by individualizing and personalizing the relationships, or, in other words, to turn customers into clients. Customers are served as part of large segments; clients are served on individual basis. Most businesses practice some forms of social benefit adding to their relationship with key customers. Sending Christmas or New Year greeting cards to key and regular customers is a simple example.
• Adding structural ties :
Businesses can provide their partners with assistance such as technical skills, special equipment or information and can thus reinforce their relationship. The staff of Johnson & Johnson, medical suppliers, assists customers in Asia in managing inventories, in placing orders and so on.
The discussion of the theoretical issues indicates that relationship marketing is crucial in developing customer bonding and satisfaction. Moreover, the extensive use of relationship marketing in practice provides extensive evidence to support that.
Since the economy began to transform into a market-driven one, businesses have been facing increasing competition. Many have learnt that the extent of their success depend on how well they can satisfy their customers. Companies employ several tactics in relationship marketing and, in many cases, they are very successful.