Relationship Marketing: A Key to Success and Survival
These days, it seems that we, American consumers, make more and more of our purchases from stores, companies, or services with whom we've developed long-term relationships. Whether it's the person we've gone to for haircuts for more than 20 years or the car dealership we rely on for new cars and service, we keep going back to people and places we trust.
Why? Not only because we can rely on their products or services, but also because they know us and our needs. We have clear, two-way communication between us. And, perhaps more noteworthy, we often have personal relationships with these people; we know each other's children and go to one another's parties.
Logically, the flip side is also true: more and more organizations are finding that a growing percentage of their profits come as a result of long-term customer relationships, rather than individual "sales" transactions. And they're finding that moving from simply knowing customers to having customer relationships and managing those relationships appropriately can increase both profits and efficiency.
So, while "relationship marketing" or "relationship management" may seem to be more a skill to be cultivated by marriage partners or contestants on TV's "Survivor," it has become an invaluable tool for many business organizations.
What Is Relationship Marketing?
Relationship marketing has been defined as "the ongoing process of identifying and creating new value with individual customers and then sharing the benefits from this over a lifetime of association. It involves understanding, focusing, and managing ongoing collaboration between suppliers and selected customers for mutual value creation and sharing through interdependence and organizational alignment."1
To understand the difference between relationship marketing and the more traditional approach — what we might call "transactional marketing" — one might use the comparison of a romantic alliance. The usual marketing scenario is focused on a single purchase decision, much like a couple on a date might focus on a single evening's encounter. Relationship marketing is more like a long-term romance or marriage, in which the qualities of mutual respect, communication, and watching out for one another's interests are much more important.
As in other fields, relationship marketing is proving effective in the highway industry. Just like anyone else, people who work with multibillion-dollar roadway systems, which effect hundreds of thousands of motorists each day, also want to get their products and services from people whom they know they can trust and who will look out for their interests. This can be seen in the many multibillion-dollar highway and transit construction projects across the nation that have a single contractor managing the entire process from the selection of subcontractors to design to construction to inspection. These projects take years to complete, and the ability of the contractor to build and maintain a healthy relationship with his client agency is critical to the project's success. Also, unlike the typical highway project, these complex mega-projects typically involve several governmental agencies, and the ability of all parties to work in partnership demands maintaining healthy relationships.
Bill Jones, the administrator of the Colorado Division of the Federal Highway Administration (FHWA), noted that the $1.2 billion highway-transit rail project in Denver, which is nicknamed T-REX (Transportation Expansion Project), is a case study of relationships. Not only are four governmental agencies — the Colorado Department of Transportation, the Regional Transportation District, the Federal Transit Administration, and FHWA — involved as "customers," the design-build contractor is actually a consortium of firms led by Peter Kiewit Sons Inc. and the Parsons Transportation Group. In addition, the local media have been brought in as partners in the process to keep the driving/commuting public informed of the developments and progress of the project.
"We've learned lessons from other areas of the country that bringing the public and the media into something like this is so very important. And these are relationships that we'll need to be maintaining for years to come," said Jones.
Knowing how to manage relationships well can be the difference between success and failure in another area — ensuring the acceptance of new highway technology and innovations. Many years and huge sums of money often go into developing new approaches to highway practices. Yet, once they are ready for implementation, how do their developers gain acceptance for them and help make them part of standard policy or practice within the highway industry? This challenge is not small; it involves convincing the people entrusted with managing this country's highway system — typically engineers and planners — to look beyond the old tried-and-true methods and to try something new. So, why should they change?
People involved in transferring technology — getting others to accept and apply it — have found that it is helpful to use the basic principles of marketing. Rather than relying on persuasive sales techniques and personal charisma, they focus on the needs of the customer. They don't just describe the new technology in a way that appeals to the customer; they go beyond that to make sure that the innovation responds to a real need of the customer in the first place.
But often, such "transactional marketing" is simply not enough. Think about it! The customer is being asked to adopt an approach that has undergone limited testing — an innovation or technology that, if flawed, might cost millions of dollars in construction costs, not to mention the potential loss of human life. It is quite understandable if new innovations meet with a degree of skepticism. So, what is the vital ingredient that convinces the customer to use the new approach?
That key factor is trust. Years of working with the customer and demonstrating your expertise, capabilities, and reliability can make the difference between someone turning down a new idea or trying it — in marketing parlance, making a decision to buy the product.
Private industry is now realizing the big difference customers' trust can have on their bottom line.
"Our customers' trust is like a family jewel," said one Hewlett Packard executive. "Our obligation, as the current generation of HP management, is never to waste the value of this precious asset."2 For a company like HP, maintaining a high-trust factor with its customers means that those customers will be more likely to select HP products to meet their future needs.
For the person promoting the use of a new highway technology, it means an increased likelihood that the technology will be accepted by the potential user. But how does one cultivate such trust? That's where relationship marketing comes in.
Where It Came From
"OK," you ask, "so is this the flavor of the month, the latest in a string of management approaches? First, Total Quality Management, then Quality Circles, and now this new thing?"
Surprisingly, relationship marketing is not new. The first mention of the term in marketing trade journals dates back to the early 1980s.3 Of course, one could go back much further and think of the old style "black book" in which a salesman kept the names and telephone numbers of clients, and the notebook often included the names and birthdays of the client's family members. Yet, it wasn't until much more recently that the concept gained widespread publicity, largely because that's when new computer software packages for applications such as customer tracking and online customer surveys and when help desks became available. And these tools proved to be invaluable for keeping up with customers and their needs.
"Some of what has driven this [interest in relationship marketing] has been the systems community looking for the next wave of investment and wanting to put in place the capabilities to help companies better manage their relationships with their customers. But, at the same time, it's not like they made up these ideas. What's new is the continued advance in information technology and the ability to apply that to these tasks," said Steve Silver, a partner at Helios Consulting Group in New York.
Many in the marketing industry agree, including Dave Rooney, director of global CRM (customer relationship marketing) at DaimlerChrysler.
"Most of what's coming out in the software, the hardware, the technology tools, are just that - tools. They're not answers. How you use those tools is still the role of marketers," Rooney said.4
And it's the "how" that's important for a successful relationship with the customer. So, how does one have a good client relationship marketing program? As with anything, one must start with a plan.
The Step-by-Step Approach
The first step of this plan is to write down exactly what you want to accomplish — in other words, a statement of purpose. While you may think that this step is simply understood, you still need to go through the exercise. If you don't actually spell out what you are trying to do, you may too easily slide off into areas that don't relate directly to your area of focus.
Second, determine with whom you want to have a relationship. In Relationship Marketing, Ian Gordon writes, "A meaningful relationship starts ... when supplier and customer see that it is in their interests to get together for the long term."1
Start by listing everyone with whom you have business dealings. Then focus on just the people you consider customers or potential customers. Supplement this list with other people whom you perhaps don't yet know but need to. Where should this list be made? On index cards? Your personal digital assistant (PDA)? It's up to you; whatever works best.
The next step of the process is to record the key information you have gathered pertaining to your customer. Key information may include job-related information, such an explanation of specific assistance you've provided in the past and areas of concern, and personal information, such as favorite music and hobbies.
Many large firms, interested in the benefit of shared knowledge, have computer databases of customers that can be accessed and annotated by staff members throughout the organization. For example, if a customer with whom you've been working asks a specialist from another part of the organization for help, that specialist can quickly find what help you've provided in the past and what the customer's "hot buttons" are. (However, a word of caution: if you keep customer records and if you are an employee of a government agency, be aware that under the provisions of open records laws, you may be required to provide your records, including the client's personal information, to a third party, such as a newspaper editor.)
Next, establish routines and communication with your customers. As with any interpersonal relationship, the key to good relationship marketing in business is communication. You need to make sure that you contact your customers regularly. Just as you should have your car serviced at regular intervals to keep things running smoothly, so your customers need to be seen on a periodic basis.
There are several good examples of people who have established their own systems of managing their relationships with customers. Paul Olson, a specialist in the area of intelligent transportation systems (ITS), is a good example. Paul works in FHWA's Western Resource Center in San Francisco. His job requires him to work closely with other ITS engineers throughout the country — but particularly with those in the 14 Western states that are the primary coverage area of his resource center. These engineers include ITS specialists who work for state and local agencies as well as FHWA employees. Indeed, Paul has been called upon to provide consulting services throughout the country and beyond. In 2000, he was invited to visit the Japanese ITS industry and compare that country's activities to ours. And with all of these many contacts, Paul focuses on managing relationships.
"Typically, I'll call my contacts periodically and just ask them, 'What's going on?' I let them know about any new developments I've gotten wind of, and they tell me what's happening in their area," Paul said. "When I'm perusing trade publications, I keep my customers in mind. Often, I'll tear out an article and send it to one of them with a note. It's a good way of keeping in touch with them. That way, when something comes up in their locale, I'm the one they think of to call."
Likewise, the FHWA division in Phoenix has a technique for regular communication with their "customers" or "partners" at the Arizona Department of Transportation (ADOT). The management staffs of the two groups meet each month at ADOT's employee cafeteria for breakfast. At that gathering, each staff shares agency news, technology innovations, and progress reports on major highway projects. The cafeteria remains open to ADOT employees during the meeting because it was agreed that it was good for employees to see the two agencies working and communicating with one another and sharing ideas, according to FHWA's Arizona Division administrator Bob Hollis.
"It is not surprising that in professional partnerships, such as law, medicine, architecture, consulting, investment banking, and advertising, individuals are rated and rewarded by the client relationships they control," said Theodore Levitt in The Marketing Imagination.5
In the future, more and more reliance will be placed on relationships. In some cases, these are termed "partnerships," and that is truly what they are because each party relies on the other's help to be successful. Each partner has a vested interest in cultivating and maintaining the relationship even if the other doesn't seem to be sharing in the effort.
For in the end, as Ian Gordon states, "Relationships are the only real asset of the enterprise — not the machines that make the products, the products themselves, or even the intellectual capital inherent in the people, patents, or know-how, important though all these might be. Traditionally, an 'asset' has been seen as that which affects the short-term, revenue-generating potential of a company. A relationship, in contrast, provides the company with long-term, lower risk revenues and the opportunity to grow both revenue and profit in many ways."1
1. Ian Gordon. Relationship Marketing, John Wiley & Sons Canada Ltd., Toronto, 1998.
2. Christopher W. Hart and Michael D. Johnson. "Growing the Trust Relationship," Marketing Management, American Marketing Association Publishing Group, Chicago, Ill., Spring 1999.
3. Relationship Marketing: Gaining Competitive Advantage Through Customer Satisfaction and Customer Retention, edited by Thorsten Hennig-Thurau and Ursula Hansen, Springer-Verlag, Berlin, 2000.
4. Cara Beardi. "CRM," Advertising Age, Vol. 72, Issue 16, April 16, 2001.
5. Theodore Levitt. The Marketing Imagination, The Free Press, a division of Macmillan Inc., New York, 1986.
Kathleen A. Bergeron is the marketing specialist in FHWA's Western Resource Center in San Francisco. She has 27 years of experience in all aspects of marketing, including market research, public relations, and advertising. She is accredited in public relations (APR) by the Public Relations Society of America (PRSA). Her experience includes working for major consumer-products corporations, a market research company, consulting engineering firms, and state and federal transportation agencies. She has taught classes on marketing at community colleges and major universities, and she has received awards from PRSA, the International Association of Business Communicators, the Texas Public Relations Association, the WorldFest Charleston International Film and Video Festival, the National Association of Government Communicators, and the American Association of State Highway and Transportation Officials. She is a member of PRSA and the American Marketing Association.