Strategy, Part 1

RM is a strategy in itself, and one that affords little scope for the organization to follow a predetermined strategic direction. Having decided on its strategic partners, the way in which the organization develops its resources, product range and skills will emerge from dialogue with the customer, not from a unilateral plan. It is the choice of customer, and the strategic importance placed on each customer, that forms the predictive component of RM strategy. The RM strategist must manage the portfolio of customers to ensure an even flow of profits in the long term, and to determine when relationships should be initiated, developed, maintained or discontinued. As Gronroos (1996) points out, however, the essence of RM is in the organization’s processes, rather than its planning.

Initiating relationships

Target marketing techniques

This stage of the relationship cycle involves the supplier in target marketing activities. For the smaller or less well-established company, initiation will usually involve the recruitment of new customers through advertising, sales promotion or personal selling. Identifying, evaluating and targeting new customers comes from arm’s length research, and dialogue begins only when the new customer has been recruited. For organizations that already have a good base of occasional customers, relationships may be initiated with existing uncommitted customers, for example by using predictive modeling techniques. Whatever the method, this is commonly the most expensive stage of the relationship cycle, since success rates will be low (Johnson, 1999).

Avoiding the common mistakes

Some common mistakes to avoid at this stage are:

A relationship is more than just repeat custom and more than a series of transactions. It is the presence of trust and commitment that bring the financial rewards, through positive word of mouth and the willingness to pay premium prices in return for a customized product. It is the customer’s willingness to commit that should form the basis of prospect evaluation.

It should not be assumed that the customer would welcome a relationship – indeed, it is possible that customers are becoming increasingly cynical about RM, as the term is bandied about with increasing carelessness. The programme must be able to communicate relevant value from the outset.

Although sales promotions based on financial incentives are a good way of recruiting new customers, the marketer must be careful not to confuse loyalty with self-interest. Like all mercenaries, customers attracted purely by economic benefits will defect as soon as a better offer comes along.

Finally, the marketer should not expect all relationships to be successful. Just as new product launches suffer from a 90 per cent failure rate (Dibb et ah, 2000), so the vast majority of relationships fail in the early stages (Johnson, 1999).