Relationship marketing is the philosophy of doing business, a strategic orientation that focuses on keeping and improving current costumers, rather than acquiring new costumers. This philosophy assumes that the costumers prefer to have an ongoing relationship with one organization than to switch continually among providers in their search for value. Relationship Marketing refers to all marketing activities directed towards establishing, developing, and maintaining successful relational exchanges. From these to definition it can be see that the overall objective of relationship marketing is to create long lasting relationships with consumers instead of focusing on the point of sale approach (which is to attract new consumers each sale). The firm must create a unique relationship with the consumer which cannot be replicated by their competitors and thus give them a long lasting competitive advantage. It can also be argued that it is cheaper to retain a consumer than to attract a new one at every transaction. Through these definitions it can be said that relationship marketing is just an extension of the simple transaction of the buyer-seller relationships. However this point is not accepted as it is argued that in fact relationship marketing is the opposite of transaction marketing. Transaction marketing refers to the short term relationship that has a beginning and an implied ending; customers tend to be price elastic and firm monitors their market share, the quality of the product is dominating. While contrarily relational exchange involves multiple exchanges over a long period of time, costumers tend to be price in-elastic, and firms monitor their customer base, while the quality of interactions grows in importance and is dominating.
There are several elements of relationship marketing that are used in a companies operation. Although there are no set elements, the same type of elements have been seen through the various views of relationship marketing. The first one, perhaps the most obvious is the financial element; this consists of the firm tying in customers through financial incentives such as the price reductions for recurrent customers or lower prices for a greater quantity of goods bought. Good examples of this include frequent flyer programs or long distance phone companies selling a higher quantity of minutes for a lower price than its competitors. Both of these are trying to create a loyal brand base. Although the advantages of this can be seen, if not properly combined with another element the financial element is lost in the long run as the ability to differentiate with its competitors fails.
The second element of relationship marketing is the social element. This consists of fostering strong interpersonal relationships; the main social elements include the promise, trust, and commitment. The promise is done by giving promises and then persuading consumers towards a desired outcome. In this it is just as important to fulfill the promises as make them, if promises are not kept then relationships will fail and not evolve. This is an important part of consumer retention. Trust is important as it is needed in order confidence to the firm, this can be attributed to the firm’s expertise and reliability. Not only in business relationship but also in a long term human relationship without trust it will deteriorate and eventually fail. The final part of the social element is commitment. Commitment is helped on by the liking of the relationship, and the sense that the relationship is worth something of value to you. These both help foster a strong mutually beneficial relationship.
It is interesting to note that relationship marketing can take place between firms. This is called the structural element in relationship marketing. Examples in business include ‘information and resource sharing and/or adoptions’, ‘mutual knowledge’, ‘contractual arrangements, and integrated competence and investment by two organizations.
Relationship marketing has many advantages in its usage. Firstly the firm has the possibly of creating different relationships with different customers such as creating an entirely different relationship for high-value customers while creating a less attentive or ‘worse’ one with low value customers that are more replaceable. This can be attributed to the knowledge and the data the firms collects over many long term relationships with customers. It is cheaper to retain a customer than try and gain a new one at every different transaction. Other advantages include the long term relationships in which a firm engages in because these augment a firms product innovation strategy as intimate facts about the customers is learned. Customer’s acceptance of product innovation should be increased as they are bonded to the company through relationship marketing. Long term relationships give suppliers big flexibility in product life cycle pricing or product line pricing. Because suppliers can make better forecast then the cost reduction for economies of scale can be factored into the priced, this can lead to long term cost cuts. And finally this can be used to augment other strategies other firms use either in marketing or in strategic management.
Although there are many positives to relationships marketing it does have its draw backs, one major negative is that this requires significant resources. A firm must allocate significant personnel and resources in order to preserve so many long term relationships. It can be argued that it can also lead to inter-functional activities which take away from a firms short and long term productivity. Through these reasons it can be seen that poor implementation can actually hurt a firm. There is also the issue that a consumer cannot have a million one to one relationships with every supplier it buys from, there is a limit, and also it is conceivable that a consumer would not want a relationship in the first place. This would further squander resources. If a firm decides to employ the segmented way of dividing consumers between high and low values, this could create dissension as low value customers would feel un-appreciated or disillusioned and perhaps leave for a competitor. Assuming a company gets into relationships with its consumers it is hard for firms to manage all these long term relationships, getting more complicated with each consumer added. If a firm decides to employ the structural element of relationship marketing dependence on other companies cannot be avoided, this brings increased risk to the firm. Finally another risk is if a firm decided to pursue low value customers this would involve spending significant resources and lots of risk.