How To Advertise: An Analysis of Contemporary Advertising (part 19)

The New Marketing Mantra: Relationship Marketing

by

Charles Lamson

Today, many advertisers are discovering that the key to building brand equity in the 21st century is to develop interdependent, mutually satisfying relationships with customers.

A market-driven firm's overriding purpose is to create happy, loyal customers. Customers, not products, are the lifeblood of the business. This realization has created a new trend away from simple transactional marketing to relationship marketing---creating, maintaining, and enhancing long-term relationships with customers and other stakeholders that result in exchanges of information and other things of mutual value.

Today's affluent, sophisticated consumers can chose from a wide variety of products and services offered by producers located around the world. As a result, the customer relationship---in which the sale is only the beginning---is the key strategic resource of the successful 21st century business. As Dartmouth professor Frederick Webster points out, "The new market-driven conception of marketing will focus on managing strategic partnerships and positioning the firm between vendors and customers in the value chain with the aim of delivering superior value to the customer.

The writers of Contemporary Advertising define value as the ratio of perceived benefits to the price of the product.

The Importance of Relationships

To succeed, companies must focus on managing loyalty among carefully chosen customers and stakeholders (employees, centers of influence, stockholders, the financial community, and the press). This is important for a number of reasons:

1. The cost of lost customers. No amount of advertising is likely to win back a customer lost from shoddy products or poor service. The real profit lost is the lifetime customer value (LTCV) to a firm. For example, the average customer of one major transportation firm represented a lifetime value of $40,000. The company has 64,000 accounts and lost 5 percent of them due to poor service. That amounted to an unnecessary loss of $128 million in revenue and $12 million in profits! Moreover, negative word of mouth can have a terrible snowballing effect. Imagine if one lost customer influences only one other customer to not patronize the business. That immediately doubles the LTCV loss. Negative word of mouth is why bad motives disappear so quickly.
2. The cost of acquiring new customers. Defensive marketing typically costs less than offensive marketing because it requires a great deal of effort to have satisfied customers away from competitors. The fragmentation of media audiences and the resistance of sophisticated consumers to advertising messages make it increasingly difficult for a brand to break out of the ghetto of advertising clutter by stepping up the advertising volume. In fact, it costs five to eight times as much in marketing, advertising, and promotion to acquire a new customer as it does to keeping an existing one.
3. The value of loyal customers. Lester Wunderman, the founder of Wunderman Worldwide (the second largest direct response agency in the world), says that 90 percent of a manufacturer's profit comes from repeat purchasers; only 10 percent comes from trial or sporadic purchasers. Reducing customer defections by even 5 percent can improve profit potential by 25 to 85 percent. And the longer customers stay with a company, the more willing they are to pay premium prices, make referrals, increase their annual buying, and demand less hand-holding.

Thus, a company's first market should always be its current customers. In the past, most marketing and advertising effort focused on presale activities aimed at acquiring new customers. But today, sophisticated marketers are shifting more of their resources to postsale activities, making customer retention their first line of defense. They have discovered the primary benefit of focusing on relationships: increasing retention and optimizing lifetime customer value.

Levels of Relationships

Koder and Armstrong distinguish five levels of relationships that can be formed between a company and its various stakeholders, depending on their mutual needs:

• Basic transactional relationship. The company sells the product but does not follow up in any way (Target).
• Reactive relationship. The company (or salesperson) sells the product and encourages customers to call if they encounter any problems (Men's Warehouse).
• Accountable relationship. The salesperson phones customers shortly after the sale to check whether the product meets expectations and asks for product improvement suggestions and any specific disappointments. This information helps the company to continuously improve its offering (Acura dealers).
• Proactive relationship. The salesperson or company contacts customers from time to time with suggestions about improved product use or helpful new products (Nextel).
• Partnership. The company works continuously with customers (and other stakeholders)to discover ways to deliver better value (Nordstrom's Personal Shopper).

Different stakeholders require different types of relationships. The relationship a company seeks with a customer will rarely be the same as it seeks with the press. However, there is a significant overlap in shareholder roles. An employee may also be a customer and own stock in the company. Knowing intimately the customers and stakeholders is critical to the success of relationship marketing.

The number of stakeholders is also important. The more there are, the more difficult it is to develop an extensive personal relationship with each. Moreover, some customers may not want anything more than a transactional relationship. Most people would not want a phone call from Oscar Mayer asking if the hot dogs tasted good or from Gillette asking about the smoothness of their last shave. However, when Coca-Cola changed its formula in the early 1980s, legions of Coke loyalists besieged the company with angry letters and phone calls. They believed their relationship with the brand had been violated. The company quickly brought back Classic Coke. Clearly, therefore, brand relationships can be psychological or symbolic as well as personal, and they can be created by brand promotion, publicity, and advertising as well as by people.

Realizing this, Mountain Dew places a great deal of emphasis on creating a "Dew-x-perience" for its customers. Using guerrilla marketing tactics to reach out to urban youth, it employs a variety of hip hop and Latin recording artists in various "street marketing" efforts to distribute bottles of Dew. It also sponsors extreme athletes and appears at sporting events such as the Gravity Games and ESPN's X Games with vans full of merchandise and giveaways.

The final consideration is the profit margin. High-profit product or service categories make deeper, personal relationships more desirable. Low profit margins per customer suggest that the marketer should pursue basic transactional relationships augmented by brand image advertising.

*SOURCE: CONTEMPORARY ADVERTISING 11TH ED., 2008, WILLIAM F. ARENS, MICHAEL F. WEIGOLD, CHRISTIAN ARENS, PGS. 244-246*

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