by Christina Pomoni

Created on: August 04, 2008   Last Updated: August 05, 2008

In the 90s a transition from brand value to customer value has been noticed. In mature markets, as opposed to growth markets, customers became more sophisticated and consequently more demanding and less easily persuaded by the marketing hype. In addition, the impact of advertising declined because of a more detailed market segmentation, which led to higher advertising costs. In order to adjust to new market realities, companies engaged in price competition, which however did not result in increased brand loyalty. Finally, there was a continuing concentration of the buying power due to mergers and acquisitions, which resulted in the fragmentation of consumer markets due to the extensive market segmentation. This paradigm shift created the difference between transactional marketing and relationship marketing as it moved beyond customer acquisition to a more balanced focus on customer acquisition and retention.

Transactional marketing emphasizes on the management of the key marketing mix elements (product, place, price, promotion) within a functional context. The goal of each party is to maximize the benefit received from each transaction. There is no concern about future exchanges, customer satisfaction, or customer loyalty to the business, but it is all about delivering the functional components of value delivery. This type of marketing generates reactive relationships with the customer, and tends to be short-term in nature.
A simple example of transactional marketing would be to phone a physician to make a therapeutic recommendation. This can be viewed as a single event or as one in a series of events over time. A pharmacist with a transactional viewpoint is concerned only with completing the call and getting on with work. The outcome of the call is less important than the desire to conclude it as quickly as possible.

Relationship marketing reflects the need to create an integrated, cross-functional focus on collaboration. The focus is on emphasizing customer retention and maximizing lifetime value of desired customer segments. The relationship marketing approach brings quality, customer service and marketing closely together.
A simple example of relationship marketing would be sending new customers a "Welcome Kit," which might have an incentive to make a second purchase. If 60 days pass and the customer has not made a second purchase, a follow up with an e-mailed discount should occur. The company uses customer behavior over time (the customer LifeCycle) to trigger the marketing approach. Assuming that the customer visits the company's website until suddenly he stops implies that he might be unhappy with the content, or he found an alternative source. This inaction is a trigger telling to the company something changed in the way this customer thinks about the site and perhaps the service. The company should look for feedback from the customer.

In conclusion, the objective of relationship marketing is to turn new customers into regular purchasing clients and then convert them from strong supporters of the company to strong advocates for the company generating positive word of mouth and becoming an important referral source. In doing so, the company establishes, maintains and enhances mutually beneficial enduring relationships with its customers realizing a win-win situation through a joint effort achieving an enduring competitive advantage.

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