Relationship marketing represents the recent shift of focus within marketing that went from a concentration on acquisitions and sales to relationship and retention. It is a business philosophy that focuses on retaining and maintaining relationships with current customers rather than a focus solely on business development and sales. The underlying assumption with relationship marketing is that customers would prefer dealing with one organization over an extended period of time rather than constantly switching between different providers.
A great example of a company that places customer retention as a core value is USAA with its employees and members. The firm has developed an enhanced military awareness program that aims to allow the company employees to empathize with the customers. Examples of the training program involve tasks such as reading letters written by soldiers to a family at home or wearing a 65-pound backpack and military helmet. USAA’s efforts have ultimately paid off, as the company is considered to be a customer service leader in the business world. Furthermore, research firms have gone to show that 81% of USAA’s customers believe that the company acts in their best interest rather than the bottom line.
The relationship marketing approach provides a unique set of benefits for customers and firms. As long as the firm can deliver value to the customer from his or her point of view, the customer is incentivized to stay in the relationship. Over time, the customer increase in value from the company’s point of view.
The customer benefits as the level of trust between them and the company increases over time. The customer does not have to spend time and money looking for alternatives. The customer will also develop a social relationship with the provider. The social relationship makes it less likely that the customer will search for alternatives amongst the competition. As the relationship continues to develop, the most valuable and socially connected customers receive special treatment, or benefit of the doubt.
The firm benefits from an economic standpoint. One of the most attractive features of customer retention is the increased purchases over time. Retaining customers is also associated with lower costs, as the existing clients require less marketing expenditure. One of the most valuable benefits of relationship marketing is the free advertising provided through mediums such as word-of-mouth communication between existing and potential customers.
Organizations that focus only on the acquisition of new customers rather than the maintenance and retention of current customers may face the problem of a leaking bucket: although the company might be consistently bringing in new business, customers may also be exiting in larger numbers.