Relationship Marketing (RM) is defined as the process in which the construction, cultivation and strengthening of strong value laden relationships with customers and other stakeholders occur. Another way relationship marketing can be defined is as both business marketing and consumer marketing benefit from attention to conditions that foster relational bonds leading to reliable repeat purchase.
Pros of Relationship Marketing
1. Customer Loyalty
A significant benefit that can be derived from successful relationship marketing (RM) in a business is the development of loyalty in customers. Customer loyalty and positive word-of-mouth recommendations are usually the two outcomes of effective RM. Furthermore, RM can provide exclusive benefits for customers, consequently reducing competition from other businesses that offer the same product which can thus assist in the achievement of consumer loyalty.
Loyalty is defined as a close bonding between the consumer and the seller which results in frequent purchase of a certain product or service from the same supplier, despite the influence from other competitors which has the potential to evoke switching behavior in consumers. The concept of customer loyalty has long been regarded as an important aspect of the integral operations occurring in organisations nowadays, as companies are becoming increasingly aware of the rewards to be reaped in the form of superior financial performance in the long run. Loyal customers are more likely to spend additionally and often make favorable recommendations to other potential customers.
In addition, greater knowledge and understanding of customer loyalty may allow companies to align their management strategies to meet the different needs of its customers in a more effective manner and hence, resulting in a more profitable business. Therefore, many organizations in today’s world have implemented their own customer relationship management (CRM) system in order to offer their customers a unique and satisfying experience by accurately identifying the various needs of customers. The concept of CRM has evolved over the past decades into a strategy employed by many organisations to integrate the different aspects present in the company, so that a greater understanding of their customers can be attained and ultimately, resulting in a long-term profitable relationship between the customers and themselves.
However, it is crucial for organizations not to overlook other areas that are closely related to the concept of customer loyalty, instead of just merely focusing on the establishment of an effective CRM system. Customer loyalty is often linked to other service management concepts such as customer satisfaction and customer centricity. Businesses should be mindful and take into consideration these other concepts that might affect the development of customer loyalty — the ultimate aim of successful RM.
It is also critical for organizations to recognize the obstacles impeding them from instilling loyalty in customers. One of the more noteworthy obstacles includes unresolved areas of dissatisfaction in consumers which, if left unattended, can result in dropping sales and profitability. Therefore, a two-way communication becomes all the more essential for businesses to understand what customers want and knowing how to deal with dissatisfaction. Lastly, managers should always assess the pros and cons of a loyalty program before implementing them, so that resources get measured and managed.
2. Focus on Customer Retention
Another advantage derived from relationship marketing is the increased profitability that stems from the retention as opposed to capturing new customers. Firstly, customer retention can be defined as the ability of a firm’s offer for a customer to purchase or patronage its product over a specific time period. This occurs when an organization adopts a customer management orientation where it seeks to apply RM to retain its customers.
Customer retention reduces marketing costs and as such benefits the business financially. This means that businesses need to spend potentially less money to attract customers they have lost as a result of the defection of its existing ones. This can be done by the business developing a customer retention strategy and thus focusing its energies on particular customers in which they would like to retain. This is as not all customers are worth the additional effort as well as cost to retain, certain customers are with more important with regards to their perceived value to the company as well as potential for development in the future. In the context of a hotel for example, a hotel might want to center its attention on the higher spending, more affluent members of its clientele, as they represent more profits for the company as compared to the ordinary spending customer that patronizes the business. With these measures and understanding of customer retention in place, businesses can reap increased profits as an advantage of relationship marketing.
3. Word-of-mouth (WOM) Advertising
One of the desired outcomes of successful RM is the positive word-of-mouth recommendations by satisfied customers. WOM has been regarded as a powerful tool of communication which can influence consumers’ purchasing behavior and judgments. WOM behavior plays an influential role in promotion and it is very important especially in businesses that provide services such as hotels. WOM creates significant impacts in service organisations because the intangibility of service made it impossible for consumers to pre-trial the product before purchasing it. Hence, it is paramount that service businesses are aware that WOM behavior can affect them to a large extent.
Though significant repercussions may prove to be an issue if negative words about the company were to spread around, service organizations should be forewarned of the positives that WOM marketing can provide for them. For instance, WOM can reduce geographical boundaries that used to exist in traditional marketing, especially true with the increased affluence of internet in our modern society today. The use of Internet can provide many various platforms and avenues for users to share their views and opinions with one another. In addition, it also serves as an advertising channel which can lower costs and ensure that consumers receive the message in the shortest possible time.
4. Costs Savings for Businesses
As most organisations face difficulties in nurturing and maintaining long-term relationships with their customers, the advancement of information technology (IT) has significantly improved efficiency and decreased the costs associated with RM. For customers, RM through the use of IT will ensure a better understanding and better fit for marketing efforts.
For service organizations, RM through the use of IT means moving from general market segmentation to a more definitive segmentation while enhancing the level of intimacy between the organization and customers. Generally, customers desires to be communicated with on a one-on-one basis. Based on past data collected through the use of information systems and property management systems, organizations are able to utilize sequential data in RM. The use of IT in customer RM will facilitate information exchange, allow possible tracking of buying patterns, and the personalization of service experience. This translates into cost-savings for the organizations for their marketing efforts.
5. Understanding the Market
Relationship marketing can be taken advantage to narrow the demand gap caused by seasonality of demand. Seasonality of demand exacerbates problems relating to capital access, retention of skilled labor and the under-utilization of resources. Generally, the two main causes of seasonality in demand has been identified as natural causes and institutionalized causes.
Weather conditions can often lead to the seasonality of demand. For example, the ski industry has a large turnover rate of employees and often, ski resorts are vacant during the summer. Based on the geographical environment that it is in, hotels can actually sell nature tourism to potential guests during the off peak seasons. By having leisure activities at the destination, it creates a compelling justification for travelers to stay over. This form of marketing would be best communicated via the use of relationship marketing as hotels will have a better understand of guests’ preferences. Similarly, hotels can utilize existing guest records to target those that do not have work obligations for instance, and those that they deem as potential guests. During the low-peak seasons, hotels can make use of that as a selling advantage. A different group of guests may be attracted as a result of marketing the hotel to be quiet and peaceful. For example, by creating special packages that addresses accessibility issues, and includes a wide variety of leisure options and accommodation standards for the elderly, the hotel is able to tap on the retired greying population and boost room occupancy rates even during these periods.
Cons of Relationship Marketing
1. Importance of Recognizing Cultural Differences
One of the disadvantages of RM is that cultural differences are not being recognized when a single approach is being implemented for different societies. Culture must be first defined as an integrated system of learned behavior patterns that are distinguishing characteristics of the members of any given society. This would mean that different cultures adopt different mindsets on various issues, attitudes and feelings. For example, Chinese tourists attach great significance to ritualistic behavior such as a smile, greeting or a hand-shake as part of a service orientated experience which represents respect and importance of the guests. In the UK, however, ritual greetings by hotel employees are rare; furthermore interactions with guests from Chinese cultures are inclined to be hindered by language barriers. This means that tourists from a Chinese culture would be affected in ways that guests from for example, a western culture would not be. Hotels therefore are faced with the constant challenge of providing a positive service experience for a variety of visitors with different expectations and needs. It is also noted that RM in the Chinese cultural setting is approached in a different manner than how it is done in western cultures. In the former, it is custom to establish kuan-hsi (networking/relationship) first followed by the business dealing. However in western cultures, a closer relationship is fostered only after the business dealing, with the view of acquiring further business opportunities. In the hotel’s context this would mean that international hotel chains such as Starwood would have to deal with local suppliers or partners in different ways with regards to business dealings. A deal in China would not be approached in the same way as a deal in New York, lest offending or putting off potential suppliers. Hence the challenges faced by global hotel brands in RM with regards to different cultures.
2. Involvement of High Costs for Training and Software
Because of the different approaches to RM and a need to recognize these different cultural elements, employees are required to undergo a stringent training process. The high costs related to relationship marketing generally spawns from the recruitment and training of staff. Thus, it contributes to the additional costs of the organization.
Furthermore, managing relationships have now been rarely limited to just the customer and the business, but also relationships with other stakeholders which have different levels of integration and ways of operating. As a result of these complexities identified, many organizations are utilizing integrated RM software to simplify their business operations process and effectively manage these multiple relationships. As such, this technology acquisition contributes to ongoing operating costs for the organization and can be viewed as a form of maintenance.
3. Counter Productivity of Relationship Marketing
While trying to meet the needs of existing loyal customers, RM may have an adverse impact on customer loyalty. Sending unsolicited promotional materials such as mass customized emails to customers may risk jeopardizing the relationship the organization has with the customer. At the same time, RM can result in guests being bombarded with promotional messages from various organizations that they have previously lived in. The customer loyalty can only be dedicated to a small number of brands. Thus, overloading of information via marketing might be counterproductive and will eventually result in less benefits for both the organization and the customers. Although RM might be able to anticipate customers needs and wants by accessing sequential records in the information system, it is important to remember that customers may not always desire for the same product and services.
4. Negligence of Existing Customers
RM can be detrimental to any business if used in an improper manner. For instance, certain organizations may tend to use RM or tailor their strategies toward acquiring new markets whilst at the same time, lesser emphasis is placed on managing existing customer relationships. The cost of attaining a new customer is five to six times more than retaining a loyal guest, meaning some organizations suffer from the leaky bucket syndrome as they seem more interested in attracting new customers rather than retaining existing ones.