Everything you need to understand about relationship marketing so you can keep more customers and grow your business
What is relationship marketing? It is all about nurturing your relationship with an audience or a customer. The concept isn’t really new, but there are a number of new strategies when it comes to customer retention. After someone has purchased your product or service, they’ve become your customer. This is where relationship marketing begins. Once they’re your customer you want to keep them happy, have them come back for more purchases, and tell their friends and family about your product or service.
In this guide, we’re going to cover everything you need to know about building an effective relationship marketing strategy. You’ll get a clear understanding of what it is, why it’s important, see how it works in reality, and learn how to incorporate it into your company or organization.
What is Relationship Marketing?
Relationship marketing is all about what you do after making the first sale. The goal of all companies is to have repeat customers. The Pareto principle says 80% of your sales will come from 20% of your customers. If this is true, you better make sure you keep those core customers happy.
Unlike marketing for new customers, relationship marketing focuses on building strong emotional connections between customers and brand post-purchase. The initial purchase can give a business a lot of information about a potential long term customer. The more the customer engages, the more the business can learn about the customer and customize their marketing content for that individual’s needs and interests.
Transactional Marketing VS. Relationship Marketing
Transactional marketing primarily focuses on increasing the number of individual sales. It largely ignores the customer service experience. Transactional marketing leaves little time for individual customer interactions because the strategy is to move on to the next sale, rather than turning a sale into more business.
Benefits of Relationship Marketing
The foundation of marketing hasn’t changed since the days of the first marketers. Successful marketing is about creating emotional connections with both new and old customers.
If you ever started a business, think back on how difficult it was in the beginning. You didn’t have any customers. But slowly over time, you got more and more customers and your business grew. What probably wasn’t obvious during the initial growth period was how repeat business and referrals from your initial customers were the fuel sustaining your new business. If only first-time customers purchased from your business, every day would feel like the first day.
Relationship marketing is important because it puts energy into building customer loyalty that leads to word-of-mouth sharing. According to a Nielsen report, 92% of people trust the word of mouth advertising or referrals from people they know, more than any other type of advertising.
A customer who is fully engaged and loyal to your brand will spend over 23% more, on average. When you increase your customer retention rates by as little as 5% your profits increase by 25%. At the same time, it can cost five to 25 more times to gain a new customer than keep an existing one.
Segments Based on Frequency of Usage
- Higher Customer Retention
- Improved ROI on Marketing
- Enhanced Brand Reputation
When you consider the data, it’s pretty easy to see why relationship marketing is so important.
The Four Stages of Relationship Marketing
You can already see that relationship marketing is multi-dimensional. There are four primary stages comprising the relationship marketing hierarchy.
- Attract: First you need to capture a new customer by making an initial sale. This can be accomplished through traditional advertising, email marketing, or social media. The goal here is to generate curiosity and interest in your brand.
- Convert: Once you have a prospect’s attention, the next step is demonstrating that your product or services solves their problem or fulfills a need or desire. When customers have enough trust in your brand and messaging they will take a chance on you.
- Retain: It’s much more difficult to attract new customers than keep an existing one. Retaining customers is largely about providing post-sale support that makes customers feel valued. The quality of customer experience is one of the primary drivers that create brand loyalty.
- Delight: Once you have loyal customers, reward their loyalty. Offer loyalty discounts and referral awards. Reach out when they least expect it and give them a birthday gift or discount. Make sure you offer something truly special that’s exclusive.
What are the 5 Levels of Relationship Marketing?
As you peel away the layers of what makes relationship marketing you’ll discover there are five different levels. The levels are sometimes called hierarchical relationship marketing strategies. The five levels of relationship marketing are:
- Basic Marketing
- Reactive Marketing
- Accountable Marketing
- Proactive Marketing
- Partnership Marketing
Level 1: Basic Marketing – Basic marketing is very much like traditional marketing. The goal is simple and direct: persuade the customer to buy. It’s the most basic form of direct selling and does not include a follow up with the customer after they made a purchase. No customer feedback is sought after.A good example of basic marketing is Walmart. They use their low price strategy to attract new and maintain current customers. The company doesn’t really do much beyond offering super low competitive prices, and it’s worked quite well for them to date.
Level 2: Reactive Marketing – Level two of relationship marketing asks customers to supply feedback. At this level, we see some effort to build a relationship with the customer. It typically comes in the form of asking to leave a comment, idea, or suggestion. Reactive marketing is all about engaging with customers when an opportunity presents itself. This is not an outreach marketing technique, but rather focuses on after purchase interactions.Oreo Cookies executed a textbook reactive marketing ad on Twitter during the 2013 Super Bowl blackout. They posted an image of an Oreo cookie and wrote “You Can Still Dunk In The Dark.” They took advantage of the trending conversations and got over 1,000 comments and 14 thousand retweets.
Level 3: Accountable Marketing – At level three, you check in with your customers shortly after purchase. This shows you’re confident, reliable, and gives you an opportunity to get valuable feedback for improvement. Part of getting feedback is making it clear why it’s important for customers to take the time and give it. Companies will often incentivize customers with discounts and promotions for feedback. Ultimately it’s all about getting a customer’s honest opinions about your products and services.Zappos does a great job with accountable marketing. They place their customer service phone number on their website in an easy to see place and encourage customers to call with questions or concerns. It works because when customers call they get connected to a real person who is ready to go above and beyond to make sure they’re satisfied.
Level 4: Proactive Marketing – Proactive marketing takes accountable marketing to an even more personalized level. On level four businesses keep in regular contact with customers and continually improve products, services, and customer experience based on what they learn about the customer’s needs and preferences. Proactive marketing leverages data to better understand previous marketing campaign successes and failures to create more engaging opportunities.GE (General Electric) incorporates proactive marketing into their content marketing strategy. They conduct research to find out what customers need and respond to. Then, they personalize the content they write for specific audiences to increase engagement and offer value.
Level 5: Partnership Marketing – Partnership marketing is the strongest form of relationship marketing. It helps encourage and maintain customer satisfaction through mutually beneficial agreements between other businesses, and even individual customers. Services that offer custom solutions and dedicated after-sales support often rely on partnership marketing.App API integrations are a great example of partnership marketing. No company can provide an all-in-one solution to satisfy technological solutions. Companies like Zapier provide API integration and create partnerships with other software companies based on customer needs.
Six Market Model in Relationship Marketing
The six market model helps businesses and organizations have a big picture understanding of the different influences that affect their relationship marketing strategy and success or failure.
- Internal Markets – Internal markets are composed of employees. They have the ability to determine the style and ethics of a business by their actions and beliefs. Companies that focus on developing values in support of a customer-oriented corporate culture have the most success in the marketplace.
- Referral Markets – Referral markets are a great source of new business. Referrals come in the form of professional referrals in a B2B form, and from existing satisfied customers. Nurturing your referral markets so they carry out the word of mouth advertising for your brand is an integral part of a relationship marketing strategy.
- Influence Markets – An influence market consists of individuals and organizations who have the ability to positively or negatively influence their marketing environment. Therefore, public relations become a critical part of a relationship marketing process. Successful companies tend to have good relationships with critical influencers in their market.
- Recruitment Markets – This market focuses on keeping the best people that add value to an organization. They’re talented, experienced, skilled, and loyal. Hiring the right people largely influences the success of a business. The right employee will have the right skill set to complete the jobs and share the organization’s values.
- Supplier Markets – Suppliers are very much like partners to an organization or business. They supply critical raw materials and parts. Everything comes to a halt if relationships with supplier markets are fractured. It’s important to form strategic alliances and maintain good relations with your supplier markets to ensure customer service goals are always met.
- Customer Market – This market contains the buyer, intermediates, final customers, and retailers. They are the final consumers of your product or service. They’re the most important entity for any business or organization. They should be nurtured and retained as long as possible.
Relationship Marketing Examples
Every company puts its own twist on how they carry out their relationship marketing strategy. Here are some examples from major brands to give you more clarity on what relationship marketing looks like in practice.
The company Patagonia has created a brand identity as an eco-friendly and environmentally conscious business. They appeal to consumers that value using recycled and organic materials. Patagonia even encourages customers to buy used Patagonia clothing rather than new. They go even further to build loyal customers by offering free lifetime repairs on tears and broken zippers. Patagonia customers believe Patagonia stands for something more than just turning a profit and proudly support and advocate for the company.
In an effort to capture a larger percentage of the millennial market, T-Mobile offers consumers mobile service without contracts. This is an unorthodox approach for telecom carriers. The approach was wildly successful, and improved customer satisfaction, engagement, and referral business. T-Mobile gives customers weekly thank-you gifts and customer rewards. T-Mobile has gone from #4 to #1 in service satisfaction as a result of listening to their customers.
Starbucks is a cultural icon and business that excels at relationship marketing. One only needs to follow Starbucks on Instagram, Facebook, Twitter, or Pinterest to see how they’re setting themselves apart with customer engagement and rewarding loyal fans. Starbucks sends frequent emails to customers keeping them informed on offers and new product launches. They share customer content across their social channels. It’s common to see loyal Starbuck customers lining up before sunrise to get the latest holiday-themed cup or specialty beverage.
Relationship Marketing Strategies
Depending on which level or combination of relationship marketing levels you choose you’ll have a lot of strategies you can experiment with. As long as you keep in mind that the central theme of relationship marketing is going above and beyond customer expectations any of the following strategies may work for your business.
- Take Action on Feedback
Asking for feedback then taking action can come with massive rewards. If enough of your customers are saying the same thing it’s a sign you need to listen and take action. Thanks to social media it’s easy for customers to leave the feedback you need to meet customer needs. The customer feedback loop consists of four steps:
- Ask – ask your customers for feedback on your product or service.
- Categorize – decide which feedback is meaningful and separate it.
- Action – implement the suggestions.
- Follow-up – get back to the customers who gave you feedback and let them know you were listening and that their feedback was helpful.
- Use a Focused Social Media Strategy
Social media is a powerful marketing tool when you use it with a focused strategy. You don’t want to go overboard and over saturate your audience’s feed, or post so sparingly that they can’t remember seeing your last post. The key is understanding which social media platform your specific customers spend most of their time on and build a solid following and engaged audience there first. There are various tools like BuzzSumo or Mention that help you identify which social media accounts get the most engagement.
- A Little Generosity Goes a Long Way
Although your goal is to have as few negative interactions with customers as possible, mistakes and oversights do happen. Putting in the effort to resolve complaints and “make it right” can turn a lost customer into one of your most loyal brand ambassadors. Fixing mistakes than saying thank you with giveaways, freebies, and discounts are good ways to smooth out bumps.
- Smart Communication
You need to keep your customers informed and keep your brand on their minds without being intrusive and overwhelming. You can accomplish this strategically by adding a news sign by the cash register, sending out a monthly newsletter, and even have employees share updates with customers as they interact. Typically the shorter and to the point the better.
- Make Buying Easy
Think about your customer’s journey from engaging with your customer service to completing a purchase. Are there any areas where you could reduce friction and make the process smoother? If you offer products or services online you can keep your customer credit cards and addresses on file to make quick purchasing easy. Some online retailers even allow customers to log in through their social media and check out through Amazon.
- Reward Loyalty
If 80% of your sales are coming from 20% of your customers you want to keep those core loyal customers happy. Not only are they driving your sales, but they’re also promoting your brand through word of mouth. Implementing loyalty programs and referral programs are two relationship marketing strategies worth considering. One increases loyalty, while the other reward your loyal customers for spreading the word. If you want more of the same action, the easiest thing to do is reward it.
- Use Automation When Appropriate
Adding automation to your marketing strategy and save time, money, and improve customer satisfaction. The lowest hanging fruit when it comes to marketing automation is email marketing and social media marketing. Keep your brand in your customer’s minds with personalized emails that provide valuable and contextual content and updates. Many types of social media interactions can be carried out with automation software.
- Invest in Customer Service
Perhaps the strongest relationship marketing strategy is building a great customer service team. Quickly resolving issues and actively engaging with customers on social media is foundational to meet the expectations of customers today. Encourage your team members to be customer-centric and reward outstanding team members who go the extra mile to keep customers happy.
- Collect Data
Customer data can be your greatest advantage in your quest to give your customers what they want. The more personal you can get the better. Start with names. If you can address somebody by their name in your monthly newsletter they will feel like you’re really speaking to them. Get their birthday and send them a birthday message and promotional gift or discount on their birthday. And then go beyond these table stakes by connecting with your customers with meaningful information and deals that are based on how they have engaged with you in the past and predicting what they need now. Customer privacy is a hot topic these days, but the majority of customers are okay with brands knowing more about them if it helps deliver a more rewarding shopping experience.
- Invest in a Data Management Platform
Collecting data is only half the battle. Data doesn’t do anything for you if you can’t organize it and manage it properly. Investing in a customer data management platform that easily combines live, stored, and 3rd party data into a comprehensive view of each website visitor or customer can help you gain meaningful insights while respecting data privacy. The right platform will allow you to integrate data from multiple sources like email marketing, POS systems, call centers, CRM, CDP, DMPs, and others, and then take appropriate action based on these insights.
How Do You Track the Success of Relationship Marketing?
At first thought, you might think relationships and data don’t really go together. As you’ve learned, relationship marketing is not about closing sales, but rather how you close the sale. Nevertheless, tracking and analyzing metrics is critical to identifying what is and isn’t working with your strategy. So how can you measure the success of your relationship marketing strategy? There are some helpful metrics that will indicate if you’re on track with your efforts.
Customer Lifetime Value
Customer lifetime value (CLV) is the first metric to examine to better understand how satisfied your customers are. There is even a handy formula marketers use to calculate lifetime value.
Conversions are all of the actions that lead a customer down a purchasing funnel. The main conversion is the purchase, but all of the actions that lead up to purchase are also considered conversions. Knowing the rates of conversion throughout the journey starting with the customer’s first purchase will reveal strengths and weaknesses in your relationship marketing strategy. For example, if a loyal customer decides to cancel their membership, seeing where in their journey they canceled can help you better understand what may have triggered their decision.
Take a deep dive with your website analytics. Look at the total number of page views, the time spent per visit, bounce rates, and cross-sell and up-sell ratios. Every metric you look at will show you how your customers are reacting to your content. Understanding your metrics gives you the information needed for testing and adjustments, to help you start getting the numbers you want.
Customer Feedback Data
Customer feedback is foundational to a successful relationship marketing strategy. If you’ve done your job and are getting customer feedback you need to evaluate it so you can make the proper adjustments. Look at metrics like custom your NPS scores, Customer Satisfaction Score (CSAT), and Customer Effort Score (CES). Evaluate your social media metrics. Look at direct reviews and feedback from all 3rd party review sites.
Support Team Metrics
Wanting to have a best in class customer support team is one thing, but defining metrics to ensure they can carry out the mission is what gets companies their all-star support teams. Some important metrics to look at when gauging your support team’s performance include:
- Case resolution time (hours/minutes/seconds)
- Duration of support call or chat
- Complaint vs. complaint resolution ratio
- Customer callbacks (the number of calls or responses it takes to reach a resolution)
Some other important metrics that will reveal the strength of your relationship marketing strategy include:
- Onboarding rates
- Sales cycle duration
- Retention vs. churn rate
- Number of new and repeat customers
- Close and renewal rates