Summer 2008: by Brent Banda, MBA

Driving Profit Through Relationship Marketing

Relationship Marketing is a simple concept. It focuses you on building a continued relationship with your customer rather than incurring a single transaction. Unfortunately, few companies do this well.

Relationship Marketing is difficult to implement. It requires the organization to change how it does business, and has implications deep into areas that are not normally connected to marketing.

In the 1990s, relationship marketing became the new buzzword in the industry. It put into question the value of short term sales-oriented marketing promotions and made people view customers as partners.

The key is to evaluate the customer over the long term. Instead of looking at sales volume in a region or market share in a market, examine the total gross profit your company can generate over the life of a customer relationship. Your organization is forced to make decisions such as:

• Selecting your profitable customers and avoiding unprofitable customers
• Retaining your most profitable customers
• Gaining more of your customers' total purchases
• Building additional value into products and services

There are considerable benefits to this philosophy. For example, organizations are far more likely to receive referrals from loyal customers who perceive your company as a business partner. Loyal customers also tend to be less price-sensitive. Naturally this philosophy of dealing with people will attract customers that appreciate a long term relationship, and are willing to pay a fair price for added benefits of the partnership.

Organizations have always struggled with the concept of 'the customer is always right'. At what point does servicing a customer become unprofitable? Relationship Marketing encourages an organization to consider the cost of customer satisfaction relative to the profit during the life of the account.

For example, let's assume your custom fabrication company generates $100,000 in gross margin annually from a key customer. That customer's Procurement Officer just informed you that a $300 part you delivered did not meet spec. You have the drawings on file that prove your product met exactly the customer's requirements. The value of the relationship is obviously higher than profit on this single part.

Rather than wading into a dispute, your organization must get the correct part to the customer quickly and ensure your relationship with the Procurement Officer is pristine. It would be valuable to ensure the Procurement Officer realizes the mistake did not happen in your shop, but you must also leave the impression that the customer can rely on you when a solution needs to be found.

Ask yourself how your employees would have handled this key customer. Practically, Relationship Marketing is difficult to implement. It requires the organization to change how it does business, and has implications deep into areas that are not normally connected to marketing. It focuses you on:

• Placing as much emphasis on after-sale service as technical quality of the product
• Changing internal systems and processes to deliver more profitable work
• Sharing customer information widely throughout the organization, not just the sales department
• Providing employees with authority to solve customer problems

Consider the difficulty of implementing Relationship Marketing throughout your company. It is crucial for all employees to understand why partnerships with customers are important. This system will live or die in the front lines. Everyone should own the customer, from the production floor to the finance department. We don't want our accounting department closing our best customer's credit account over a misunderstanding with an invoice.

As with most marketing theory, good execution is crucial. Relationship Marketing requires a cultural change within the organization. When implemented correctly, this customer-focused approach to building your business will result in a more stable and profitable organization.

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