Transactional And Relationship Marketing

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ASSIGNMENT OF MARKETING

NAME

AFKAR AHMED

STUDENT NUMBER

28001547

LECTURER NAME

MRS. TRACY GALLAGHER

COURSE

MARKETING

MODULE CODE

2MIT4120

DATE OF SUBMISSION

30th MARCH 2009

ASSIGNMENT NO

2

TOPIC Difference between Transactional and Relationship Marketing and how Customer Relationship Management impacts on the marketing and operations of an organization

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TABLE OF CONTENTS 1. 2. 3.

Executive Summary ----------------------------------------3 Introduction ------------------------------------------------ 4 Transactional Marketing ---------------------------------- 4 i. Marketing Mix -------------------------------------5 ii. Is Transactional Marketing Valid Today? ----- 5

4.

Relationship Marketing ----------------------------------- 6 i. Strengths of Relationship Marketing ----------- 9 ii. Six Market Model --------------------------------- 9

5.

Transactional v/s Relationship Marketing ------------- 10

6.

Customer Relationship Management ------------------- 12 i. Strategic CRM ------------------------------------ 13 ii. Operational CRM -------------------------------- 13 iii. Analytical CRM ---------------------------------- 15

7.

Impact of CRM on Marketing and Operations -------- 15 Of Organization i. Customer-Centric ---------------------------------17 ii. One-to-one Marketing --------------------------- 17

8.

Conclusion ------------------------------------------------- 18

9.

Bibliography ----------------------------------------------- 19

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Executive summary Transactional marketing and relationship marketing a two different approaches taken by the marketers for the marketing and promotion of the organizations products and services, but the main difference between these two approaches is; transactional is wholly concerned about the promotion and selling of the product with little or no concentration over customer value and satisfaction, and try to make new customer every time, on the other hand relationship marketing is all about building and maintaining the long-term customer relationships, creating a sense of loyalty by providing the valued product and services for mutual benefits. CRM is a technology-based system of marketing where organizations come into contact with their long-term customers, and organizations try to provide their customer with valued product and services. Satisfied and customer promotes the organizations name and could also get the referrals. Organizations with who has a relationship marketing approach doesn’t really have a threat of their customer switching to the competitors and have a competitive edge over rivals. With the implementation of CRM system with in the organizations, firms have to face a little bit of problems with their marketing strategies and operations but in a longer run it provides a substantial growth in the revenues and lower the expenses occurred on creating new customer each time, and organizations enjoy growth in profits each year, because its been said that 80% of the organization’s business comes from 20% of the customers, those customer who are repurchasing (Satisfied customer).

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Introduction Marketing is in the process of evaluation. No any universally approved definition of marketing has been given as yet. The old definition of marketing was only defining it as a process of buying and selling, but now the focus is being shifted from its buying and selling perspective to it being more customers focused and described as “the art of creating and maintaining customers.” (J O’shaughnessy, 1995, Pg4) Previously marketers’ focused on the transactional marketing to make transactions for the company but now marketers’ seems more aggressive about the relationship marketing where marketers’ try to bind the customers in a long-term relationship to gain long term profits and save expenses occurred on creating new customers. Relationship marketing plays a vital role in the growth of the organization. Customer relationship marketing is the key component of the marketing strategy. These all topics would be discussed deeply in the later part of the discussion.

Transactional marketing Transactional Marketing is also known as Traditional marketing. Transactional marketing is a marketing approach, which mainly focuses on the single sale formula, pushing the sales through mass marketing and promotions of the product. Orientation on product features, rather planning for the longer run of the product in the market; it is based on the short time scale, with little or no emphasis on customer services. This employs pull technique, producing the product with quality as a primary concern, and satisfying the customers needs and wants without building any relationship with them. “Transactional marketing focuses on maximizing the profit of the company by recruiting more and more customers to purchase the firm’s product.” (M. W. Vilcox, T. O. Mohan, 2007, Pg 53) In this changing world of technology and emergence of many new modes in the marketing, like, E-marketing and online marketing, Traditional marketing still holds control of many of the corporates. Transactional marketing is mostly about forwarding the message focused on advertising and promoting the product, with a view that more products would be sold if huge number of people knows the product. For Example: a day-to-day example of transactional marketing could be a phone call made to the physician to get some therapeutic recommendations. It is being viewed as a single event or one among the series of event taking place that day. A pharmacist, who is having a transactional viewpoint, would be concerned about completing up the call and keep going on with the work. He doesn’t pay any attention or importance to the out comes of the call then the desire to conclude it quickly.

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2MIT4120_ASS2 Or we can think about a sales agent who is being given commission for each sale he makes. The sales man tries to persuade the customer to buy the product by describing the benefits of the product, and sales the product and then never gets back to the customer.

Transactional marketing’s Marketing Mix The factors marketers consider before the launch of any product or service into the market. This marketing mix or “4p’s” were put together by Jerome McCarthy, which consists of the four components: 1. 2. 3. 4.

Product Price Promotion Placement

According to McCarthy Product captures the 1st place in the mix, with its production and management. Second comes the Price, with a process of fixing the right and affordable price for the product. Then comes the advertising, branding, packaging of the product, which is included in the promotion of the product. Last but not the least component of the marketing mix is Placement of the product, to make it in reach of the customers. All these four components are kept into mind before and planned really well by the marketer before throwing the product into its launch.

Is transactional marketing valid today? As the world changes its operations gets faster pace, its better to acquire the trend. “Transactional marketing, say many analysts, fails to work in today’s world”. J. Blackwell, 2008. Overview of Traditional Marketing. Ezine Articles, business category Available from http://ezinearticles.com/?Overview-of-Traditional-Marketing&id=374128 (accessed on March 14th 2009) New technologies such as Internet, Phone and other handheld devices are the greatest innovations, and have became few of the most important needs of human being and those things have helped the marketers to build a dialogue with the customers which was previously not easy. Not even companies but consumers too are increasingly using those communication tools to take care and control of their relationships with those companies whom they buy their products from.

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2MIT4120_ASS2 Tim kitchin says, “The certainties of the transaction age are being replaced by the subtleties of the relationship age.” (Anonymous, 2008) Available at http://www.theidm.com/resources/idm-insights/transactional-marketing-isdead-long-live-relationship-marketing/ [Accessed on 25th of March]

Relationship marketing It’s true that any business, which focuses on customer satisfaction stay in the market for long. Successful organizations never go wrong with their customers’ demands, and keeping the record of those needs and demands as they grow and transform. Relationship marketing was introduced by Berry in 1983. This concept of “Relationship marketing was regarded as the biggest change in 50 years, and became the ‘Battle Cry’ of the 1990’s.” (Berndt, 2004, Pg 6) In very first days of relationship marketing it was described as an approach to attract, maintain and enhancing customer relationships. But in later days Gronroos (1994) proposed the comprehensive definition of relationship marketing as, “The process to identify and establish, maintain and enhance, and, when necessary, terminate relationships with customers and other stakeholders, at a profit so that the objective of all parties involved are met. This is done by mutual exchange and fulfilment of promises”. (Berndt, 2004, Pg 6) RM uses Event driven tactics of customer retention marketing, and treats marketing as a time taking process not an unconnected single event. Relationship marketing is focused on creation, retention and satisfaction of the customers. Its emphasis is diverted on building and maintaining long term relationship with customer, then attracting new ones everytime. Relationship marketing reverses the historical emphasis of creating customers and paying no attention retaining them. It was claimed by (Rosenberg and Czepiel, 1984) “It is between five and ten times as expensive to win a new customer than it is to retain an existing one”. (Buttle, 1996, Pg 5)

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(Anonymous, Pg 1) Available at http://rtbrown.faculty.fhu.edu/MKT261%20Ch%2006%20Relationship%20Marketing.pd f (Accessed on 14th March, 2009) Due to the cost of creating new customers, marketers today are more focused about retaining the customers rather then making new ones. This ongoing process of building and creating new values with individual customers, and sharing lifetime benefits with them is vital and very important for the organisations because it creates the sense of loyalty in customers and long-term profit for the company.

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Fig. Life-cycle of satisfied customer

In recent days of technology, relationship marketing is being used efficiently to come close to the customers and make them feel special. Technology could be used in several ways to encourage interaction between the brand and the customer. For example: PEPSI launched an innovative digital marketing campaign in recent days, where they actually used very modern ‘quick response code’ through mobile phone technology. Customers were brought to a website they could download exciting free gifts for their mobile phone very easily. This campaign allowed Pepsi to communicate directly with millions of their customers in an innovative way. This kind of campaign actually allowed Pepsi to gather more information on who are their actual customers, what they like, how could they make long-term relations with them and much more.

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Strengths of Relationship marketing Relationship marketing is more focused on providing the valued products and services to the customers. The main emphasis goes on to retention of the customer for the longer benefits of the company, not on making new customer everyday. It provides the customer with valued products and striving for the customers’ satisfaction, that gives the organization a competitive advantage over its rivals. As we have discussed above the cost incurred attracting new customer is much more so marketers today try to build long term relationships with the customers, which will lower the cost of attracting new ones. It is noticed that effect of word of mouth advertisement is much stronger then any other form of advertisement or promotion, so it is also possible that satisfied and loyal customers could initiate the word of mouth promotions for the company and could provide referrals. The biggest threat any businesses have is the fear that their customers could switch to its competitors but if an organization follows a good relationship strategy their customers are less likely to switch to the competitors that will also create hindrances for the competitors to enter into the market.

Six Markets Model Marketers say that there has been a shift from transactional marketing to on-going relationship based marketing. Adrian Payne says, “Transactional marketing of the 1980’s placed the emphasis on the individual sale; relationship marketing of 1990’s placed the emphasis on individual customers’ and sought to establish a long-term relationship between customer and company”. (S. Dibb, L. Simkin, 2001, Pg 10) Cranfield’s Adrian Payne, Martin Christopher and his colleague identified six markets model, which they think are central for RM. Those are: 1. 2. 3. 4. 5. 6.

Internal Markets Supplier Markets Recruitment Markets Referral Markets Influence Markets Customer Markets

Internal markets deals with the employee with in the company, and supplier issues are deal by supplier market, maintaining the relationships with supplier for the mutual benefits. Every business needs long-term relationships for market performance viability. Referral marketing develops a plan for referral stimulation. It could take long before you see the results of referral marketing plan. Where as influence markets include submarkets such as, government agencies, stockholders, consumer associations etc.

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(S. Dibb, L. Simkin, 2001, Pg 11)

Transactional Vs Relationship marketing There is no issue among different scholars and the practitioners about the differences and the inter-relation between the two main marketing perspectives i.e. (Transactional and Relationship). Coviello, Brodie and Munro (1997) after working hard on various ideas by different schools of marketing of Europe and US, and defined these two marketing perspectives. As discussed above, transactional marketing attracts the customers to buy the product and walk away, on the other hand relationship marketing takes the sale as the first step to relation building. The best example of these two different approaches is Tesco and WalMart. As Tesco seems to be striving to engage in relationship with its customer by introducing different loyalty programs and offering different promotions to them, where as WalMart is focused on providing its customer with low priced products, not considering any previous interactions. WalMart has a motto, which was set by Sam Walton, “If you want loyalty, get a dog. ”

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Transactional Marketing

Relationship Marketing

1. Focuses on Single sale recruitment.

1. Focuses on retention of the customer

2. Emphasises on product features

2. Emphasises on product benefits and and systematic solutions

3. Its short-term

3. It’s a long-term relationship

4. Little or no importance given to Customer services

4. Customer service taken as the most important element

5. Limited commitment toward the Customers

5. Higher commitment towards customers

6. Focused on product qualitywhile Production

6. Quality at all aspects

7. Communicate to persuade

7. Communicate to make sense n meaning

8. Functional, mechanistic, Production-oriented based business model

8. More humanistic and relationship based business model

9. Goal is customer satisfaction

9. Goal is to delight the customer

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Customer Relationship Management As said by Peter Drucker “The purpose of business is to create customers.” (K. Anderson, C. Kerr, 2001, Pg1) But in today’s business, it’s more important to keep those customers, and growing indepth relationship with them. It is a fact that most of the customers are profitable for the business in the second year of their business with you. (K. Anderson, C. Kerr, 2001, Pg1) So it’s very important for the business to retain the customers to gain a long-term profit because new customers, in the beginning, will cost you the money, in terms of advertising, marketing, researching about their wants and finally educating them how beneficial are you to do business with. CRM is the most effective technique one uses, being a manager, to make sure, that customers become and stay loyal. CRM in any business holds the primary position, even before your people (Employee). CRM is not just about the selling and marketing, but it touches all the areas of the business, it could be, from customer services group to information and technology team. Anyone in these areas could be the internal champion of CRM in the organization. It is most comprehensive approach of dealing with something. As defined by Anderson and kerr: “Customer Relationship Management is a comprehensive approach for creating, maintaining and expanding customer relationships.” (2001, Pg 2) Judith W. Kincaid gave a very broad definition of CRM, saying: “CRM is the strategic use of Information, processes, technology and people to manage the customer’s relationship with your company (Marketing, sales, services and support) across the whole customer life cycle.” (2003, Pg 41) CRM came into existence in 1990’s. The term CRM is being used in number of different ways. According to the view of some IT related companies, the terms CRM is used to give details about software applications that mechanizes the selling, marketing and service functions of the business. CRM could be thought at three different levels: 1. Strategic CRM 2. Operational CRM 3. Analytical CRM

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Strategic CRM Strategic CRM is more leaned towards the development of customer-focused kind of business culture. This culture is striving to create and retain the customers by providing them better value than competitors do. Resources are used to enhance customer value; specific reward systems are introduced to improve employee behaviours to increase customer satisfaction. Here, the best among employees is one, who would provide an outstanding value or services to the customers. It could be outlines as: “A top-down perspective on CRM which views CRM as a core customer-centric business strategy, that aims at winning and keeping profitable customers” (Buttle, 2004, Pg 3)

Operational CRM Operational level of the customer relationship management deals with the front line interaction with the customers. It could through call centres, worldwide webs, direct emails or call, or direct sales. It is more focused on the front office business processes. Like, sales, marketing and customer care. A client database is settled usually, where each interaction with customer is added up, so that customers could easily interact with different people in the organization, without mentioning their personal information over again. Customer satisfaction is usually assessed through two techniques i.e. Customer satisfaction model and SERVQUAL for services companies.

Customer satisfaction model This model was given by N. Kano, which is used as a quality management and marketing technique to measure the client’s happiness. This model distinguishes six categories of quality attribute, of which, first three focuses on customer satisfaction (Basic factors, Excitement factors and Performance factors), while other three factors mentioned by Kano are, Indifferent attributes, Questionable attributes and finally, Reverse attributes.

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(Prof. N. Kano 1984) Customer satisfaction model Available at http://www.12manage.com/methods_kano_customer_satisfaction_model.html (accessed on 19th March 2009)

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Analytical CRM Analytical CRM is focused on using the customer data to enhance the customer and organization value. It is based on the customer information. This data could be found from history of the purchases made, credit scores or payments made, marketing data taken through the surveys or loyalty schemes etc. This information helps the organization to identify its loyal customers, and will help the company to get answers of the most important questions like, customers who are most likely to switch to the competitors, which customer would respond to certain offer, which customer should be targeted, which part needs more sales efforts etc. Analytical CRM, in customer’s point of view, delivers most timely, more personalized solutions to the problems of the customers, getting the customer satisfaction in return. In organization’s point of view, Analytical CRM provides more powerful up selling and cross selling chances, with effective customer acquisition and retention techniques.

Impact of CRM on marketing and operations of an Organization As discussed above, CRM is all about managing customer relationships. Rightly have been said by Don Peppers, “… Managing customer relationships. If I’m managing customers’ relationships, it means I’m treating different customers differently, across all enterprises…. the relationship develops a context over time, it drives a change in behaviour… this means that I have to change my behaviour as an enterprise based on a customer.” (Solomon, 2003, Pg 92) This view of CRM completely changed the operations of the organizations. Companies became more concerned about keeping the customer then striving completely making new ones. This new dimension of marketing changed the entire approach, companies changed their marketing strategies, and every customer is different than other so each one is being treated differently. Different CRM strategies are used by the companies, which allow them to identify their best customers, try to satisfy their needs and continuously increase their level of satisfaction and take them up to the loyalty level. In early 1990’s Philip Kotler proposed a new dimension of organizational performance and success based on the relationships rather than the transactional marketing approach, which is based on the marketing mix. This marketing mix approach was not actually replaced but it was repositioned as the toolbox to understand and respond to all the main players in company’s environment i.e. Customers, distributors, suppliers, unions, employees etc. He outlined the importance of this approach to the stakeholders. AHMED_AFKAR_(28001547)_15/19

2MIT4120_ASS2 (Payne, 2006, Pg 7) CRM has a huge impact on marketing of the organization. It has almost shifted the focus from mass marketing to individual customer. Managing each customer relationship is the heart of CRM, while traditional market metrics hardly allowed the companies to make operational decisions that affect individual customers. CRM helped the organizations to improve its mass marketing and campaign measures. These retention campaigns cost a lot but its very effective in longer run. Traditional marketing approach was more focused on the sales while CRM has a view of long-term relationship with the customers. This idea of retaining the customers made huge changes within the organizations and changed its marketing and operations. Organizations started building and maintaining databases of the customers’ information. CRM made businesses more conscious about customer services, acquiring and serving the customers, increasing their value towards the company, retaining good customers and determining which customer should be retained or given a higher level of services. Businesses today put a lot of efforts on analysing the purchasing behaviour of the customer, they manage several databases where they keep records of each customer i.e. what does he purchase? How frequently he purchases? What amount he spends? Etc. According to the information each customer is targeted separately. Different schemes and campaigns are being organized by the business to retain the customers. The popular among them is Loyalty scheme. For example: Businesses today provide different kinds of promotion and loyalty schemes to retain the customer. These schemes include different promotions to create a sense of loyalty among the customer. Like different newspapers give a free copy to its regular customers sometimes, 1 stamp on the loyalty card on purchase of one book from Eason, and the time one gets 10 stamps on the card h/she gets 10% off on the next purchase. CRM has affected the marketing of the organization in a sense that it made organizations to change all its marketing strategies and operations. CRM based organizations are concerned about the customers. Organizations now attempt to define the characteristics of the best customers, and estimate their lifetime value such customers, and are changing their marketing strategies accordingly. CRM system is mostly technology based, and it affects the customers’ behaviour a lot, if it is not implemented properly. For example: if a customer is ordering anything online from any supplier, and he suddenly gets 200 mails from firms which sale related products, in this situation a customer would think twice before placing an order online with the organization again. A CRM based organization is focusing on up selling and cross selling than just following the single sale strategy. This concept also had a deep affect on the marketing management of the organization. With the implementation of CRM system in the organizations, their marketing strategies seemed to be customer centric (striving to create the customer loyalty rather than making

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2MIT4120_ASS2 new customer every time) and focus is being given to One-to-one marketing, rather than mass marketing.

Customer centric This term is being used for the organizations that are operated from customers’ point of view. In simple worlds organization makes sure that its customers could easily contact it. For example: The best example of customer centric organization could be Amazon.com. They have personalized web pages with wide rang of products to select, the low price lead towards the customer loyalty and a long-term relationship of amazon.com. More than 20 million people have purchased at amazon.com and 15 to 20% of them are returning customers, comparing to other e-business retailers, who have a returning customer percentage from 3 to 5%.

One-to-one marketing It is also expressed as 1:1 Marketing. It’s a CRM strategy which emphasis on personalized interaction with customers. It is thought that this personalized interaction will grow customer loyalty and will give a better return on the marketing investments. This one-to-one marketing term could be new but the approach is quite old. And it’s been taking place since the commerce cam into existence. For example: the owner of a grocery store would naturally take this one-to-one approach while dealing with customers, i.e. remembering the customer details about their preferences and their characteristics and ultimately providing the services based on that knowledge. “One-to-one marketing seeks to reinvent marketing with the personal touch absent from many modern business interactions.” (D. Peppers, M. Rogers, 1994) CRM has also affected the operations of the organization in terms of putting more pressure on them. A CRM system could run better if the organization have the right employees, who have knowledge of the CRM system, so organizations now have to spend more on training the employees and make them aware of the system. CRM system is more or less technology based so certain tools should be upgraded continuously like WebPages. Organizations now tend to make databases of the customers, which have increased the burden because this approach of one-to-one marketing and customer loyalty expects a lot. In nutshell we can say that CRM has given organization great benefits in terms of improved marketing methods, customer retention, a growth in the market share and an analysis of customer profitability. CRM provides the organization with a sustainable competitive advantage.

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Conclusion After above discussion it could be concluded that relationships with customers help a lot growing the revenues of the organization. Relationship marketing is all about creating, building and maintaining the relationships with the customers for the long-term profits. Transactional marketing is the one sale ahead strategy which doesn’t mainly focuses on building the relations, but this approach of marketing is still applicable and many big organizations still use this approach of marketing more or less. While CRM is the comprehensive approach of creating and maintaining long term relationships. This one0to-one marketing approach has impacted a lot on different aspects of the organization; this is more technology-based approach to stay in touch with customers, striving to make them loyal with the company. Due to this relation maintaining approach, companies have also affected in terms of their marketing strategies, and their operations. Companies have to change all of their previous strategies and start working on this new approach. But in recent days its quite obvious that CRM approach is really successful, because 80% of an organization’s revenues are generated by 20% of the customers

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