According to Peter Drucker, “The basic purpose of an organization is to create customers and retain them. Marketing is a broad functional discipline which can respond to the general view of the transactional mode of marketing.” There is a growing concern for customer retention or the new focus on the newly emerging concept of relationship marketing.
According to Morgan and Hunt, “All marketing efforts directed towards establishing, developing, and maintaining successful relational exchanges.”
Importance of Relationship Marketing to Enhance Business
Relationship marketing is important to both the parties involved in the relationship, i.e., customers and the organization. The importance of relationship marketing is described below.
1. Importance for Customers
As long as organizations offer customers greater value (through different products and services) than their competitors, they remain loyal. Customers remain in the relationship as long as the organizations can offer value in their products and services.
The customers determine this value by evaluating the balance between the “give” and “get” elements. If the pet element (benefits, satisfaction, quality, etc.) exceeds the given element (costs-monetary or non-monetary), it adds value to the relationship, and customers remain loyal to the organization.
There are many types of benefits identified by the researchers which are offered to customers in long-term relationships, and these benefits may include confidence benefits, social benefits, and special treatment benefits. It is the importance of relationship marketing. These are described below:
i) Confidence Benefits
Confidence benefits are the most significant customer benefits among various benefits analyzed in the research. In this, customers become comfortable with what to expect from the organizations, their anxiety level is minimized, and a confidence is generated in the customers regarding the organizations.
Most customers prefer to keep service providers the same due to basic human nature, especially when many efforts have been made to maintain a good relationship. Also, switching is costly as several time-related, and psychological costs are linked. By availing of confidence benefits from the organizations and maintaining relations with them, customers may organize their time for other concerns in life.
ii) Social Benefits
Over time, the customer and the service providers develop a sense of familiarity and a social relationship. These relations will still be maintained when the customers receive the information that another competitor is offering better quality products or services at lower prices. In some long-term customer-firm relationships, customers’ social support system includes service providers.
For example, the manager of a health club or a restaurant who knows the customers personally, the proprietors of a local retail outlet who has become the key individual in the neighborhood networks, the principal who has a good knowledge of a family and their specific requirements, and so on.
iii) Special Treatment Benefits
Various benefits, such as using the doubt, getting a special deal or price, or receiving preferential treatment, can be seen as special treatment benefits. It is one of the importance of relationship marketing. It is an interesting fact that compared to other benefits a customer acquires for having long-term relations, the special treatment benefits are insignificant. However, there are some industries in which the role of special treatment benefits is quite important for creating customer benefits; however, the customer does not give any major significance to these benefits,
2. Importance for Organization
Relationship marketing is also important to organizations. The importance of relationship marketing for organizations is as follows:
i) High Return on Investment
Relationship-focused organizations (B2B firms) achieve greater investment returns than simple transaction-focused organizations. This is possible due to a fall in marketing and other expenses, fixed margins with stable pricing strategies, and significant customer revenues. As much as the customers are satisfied with the products and services of the organizations, they become loyal to it and, thus, offer more business to them.
ii) Lower Cost
Lower costs are the other advantage organizations from long-term relationships can gain. Different types of advertising and promotion costs, the time cost of knowing the customers, operating costs of setting up accounts and systems can be reduced. In the short term, a customer’s expected revenue may be less than the cost explained above.
Even there will be a decrease in the cost of maintaining long-term relationships. For example, there can be several questions regarding the operating methodology of a product that a customer may ask in the early stages of the relationship. The frequency of these questions will decrease once the customer learns how to use the product (provided that the quality of service is maintained at a high level), thus reducing the cost of serving the customer.
iii) Word-of-Mouth Advertising
Free advertising in the form of word-of-mouth can be gained by the firm. Most customers seek suggestions from other customers if the product is difficult to use and evaluate. A high risk is associated with the buying decision (which is true in the case of most services).
A strong word-of-mouth advertisement will be provided by the customers who are satisfied with the company’s services and have a higher loyalty. Compared to any other form of paid advertising, the results are better with this type of free advertising by the customer himself, and this mode has the advantage of reduced cost for attracting new customers.
iv) Employee Retention
Employee retention can be the other advantage received from customer relations. When the firm has a stable base of loyal customers, it can easily maintain and retain its employees. The employees will have higher job satisfaction as they spend more time improving the relationship with the existing customer rather than looking for new ones.
It will result in higher customer relationships and maintain the customers for a longer period, creating a positive upward spiral. The service quality can be improved, and the turnover cost will be reduced, which will result in higher profits as the employees will remain in the firm for longer periods.
Conclusion
Relationship marketing is important for the business. Every relation is important for the increment in the business sales. Better relations for the organization helps it into employees retention, higher return on investment. Also, it is very important for the customers for confidence benefits and special treatment benefits.