Thoughts on Relationship Marketing

by James T. Berger , January 2006

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Like so many ideas in modern marketing, the concept of relationship marketing began as a smart, sensible realization that the then-existing paradigm, transactional marketing, was inefficient and that it made a great deal more sense to establish relationships between buyers and sellers to facilitate repeat business and “value added benefits.”

One of the most significant expressions of relationship marketing is Harvard’s Theodore Levitt’s “After the Sale is Over,” published in the Harvard Business Review more than 20 years ago. In this highly insightful article, Levitt’s basic premise was:

“As our economy becomes more service and technology oriented, the dynamics of the sales process will change. The on-going nature of services and the growing complexity of technology will increasingly necessitate lengthy and involved relationships between buyers and sellers. Thus, the seller’s focus will need to shift from simply landing sales to ensuring buyer satisfaction after the purchase. To keep buyers happy, vendors must maintain constructive interaction with purchasers — which includes keeping up on their complaints and future needs. Repeat orders will go to those sellers who have done the best job or nurturing these relationships….”

Levitt goes on to equate the difference in relationship sales/marketing to the difference between a marriage and a one-night stand. “The sale, then, merely consummates the courtship at which point the marriage begins,” writes Levitt. “The quality of the marriage determines whether there will be continued or expanded business, or troubles and divorce.”

‘Complaints’ Help Relationships

Levitt maintains that companies can avoid such troubles by recognizing at the outset the necessity of managing their relationships with customers. He also observes that such a marriages is constantly pressured by the “forces of decline.” Thus, the seller constantly has to re-sell products and/or services to the buyer. Another important element is communication. Levitt maintains that complaints are a necessity, and one of the surest signs of a declining relationship is the absence of complaints. He points out that in even the best of relationships nobody is ever “that satisfied” especially over a long period of time. “The absence of candor,” Levitt writes, “reflects the decline or trust and the deterioration of the relationship. Bad things accumulate. Impaired communication is both a symptom and cause of trouble. Things fester inside. When they finally erupt, it’s usually too late or too costly to correct the situation.”

Relationship Marketing Works Best in B2B

While Levitt and others in the 1980s heralded the beginning of relationship-oriented sales and marketing, the greatest examples of success in relationship marketing are in the business-to-business arena.

“Just in Time” (JIT) is a clear manifestation of the virtues of relationship sales and marketing. Here vendor and buyer work so closely that they are in lockstep with one another. The buyer is totally dependent on precise delivery schedules to maintain production and minimize inventory. The seller will often serve its JIT customer to the exclusion of other business. This is a marriage in Levitt’s truest sense.

Internet B2B purchasing is yet another manifestation. Here buyers and sellers have their computers linked to each other. When inventories reach a certain point, an electronic reorder command goes from the buyer’s computer to the seller’s and a purchase order and invoice is automatically generated without human participation.

Business-to-business sales people are trained to develop and nurture relationships. It’s so much more efficient to generate orders from existing customers instead of doing the time-consuming missionary work necessary to develop new customers. The fastest way a salesperson can meet or exceed quotas and earn bonuses is through re-orders from existing customers.

Growth of Relationship Marketing

The academic pronouncements of Levitt and his peers in the 1980s has led to new thinking in the evolution of marketing. Textbooks talk of the production era evolving into the sales era and then the marketing era. They now talk of the “relationship era” as the new paradigm.

However, like many concepts the desire to systemize sales and marketing relationships has resulted in problems, which center around the concept of Customer Relationship Management (CRM). The basics of CRM make much sense. It is a strategy used to learn more about customers’ needs and behaviors to develop stronger relationships. There are major technological components to CRM centering on various software products. Installing a CRM system can be costly as well. The Gartner Group estimates companies spent $22 billion on CRM software in 2001.

Kirsten Sandberg, executive editor of Harvard Business School Publishing, is highly skeptical of CRM programs. She writes: “The snazzy technology was supposed to make one-to-one interactions with customers a reality, but experts say all it has done is enable companies to disappoint their customers faster and more efficiently — anytime and anywhere. Customer loyalty hasn’t increased. Companies still can’t target their most profitable customers, and their data-mining and sales processes are still as convoluted as ever. “

She goes to say that there is widespread agreement that “customers are sick and tired of the barrage of irrelevant products and services, the glut of marketing messages, the coddling and patronizing, and the broken promises.”

Rather than a high-tech approach, she advocates a high-touch approach to relationship management. She urges companies to get closer to customers with “new ways of thinking about the people who buy your products and services.

“The better equipped your company is to view and treat your customers as whole human beings, the wider the range of opportunities it can envision for engaging in relationships with them.”

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Author
James T. Berger, Managing Editor of The Wiglaf Journal, specializes in both finance and marketing and has spent a number in both the investor relations field as well as an account manager and officer at several Chicago advertising agencies.

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