Tangible Benefits of Relationship Marketing

(This is part four of a series of blog posts on Relationship Marketing)

Over the last couple of weeks, I have been blogging about relationship marketing and customer satisfaction, retention and loyalty. If you have been reading my blog posts, you’ve probably learned a thing or two on how to make customers happy and keep them coming back often. That explains the how. What I haven’t told you yet is the why, as in why you should focus your efforts on relationship marketing. I think I saved the best for last.

My company, Guidance, has been tremendously successful in retaining clients and keeping high levels of customer satisfaction over the years. Almost 70 percent of our customers renew their contracts after the first year. That’s incredibly high, especially since most of the remaining 30 percent were only seeking a one-time solution with no long-term project needs. Making our customers happy and retaining them for as long as we have – 10-plus years in some cases – has been one of our strongest selling assets. However, I couldn’t get myself to list exactly how my business has benefited from relationship marketing techniques, besides predictable gains such as recurring business from the same, great customers, and effective PR. I guess it is because most of the benefits from relationship marketing and customer loyalty are cost saving rather than revenue generating. And I must admit — I haven’t tracked my savings.

So, I decided to do a bit of research on relationship marketing and found an interesting article published in the European Management Journal. The article, “Value managed relationship: The key to customer retention and profitability” by Buchanan and Gilles, discusses the cost benefits of achieving customer loyalty and reveals that the success associated with customer retention efforts occurs because of several factors, including lower customer acquisition costs, free word-of-mouth promotions, and lower account maintenance costs.

Most of today’s marketing budgets are spent on lead generation and customer acquisition efforts. But if you think of it, a few recurring clients can generate just as much revenue as several one-time new customers. Here’s a thought: consider replacing some of your costs of customer acquisition – which occur only at the beginning of the relationship – with account maintenance costs, which are typically lower and better yielding. Why? Because long-term customers are generally more familiar with your products or services, require less product or service ‘education’, and are consistent in their order placement, so they tend to be less expensive to service.

In addition, long-term customers are less likely to switch brands and are less price-sensitive than newer customers. They are also more likely to purchase additional products, including high-margin supplemental products – a business strategy called ‘lock-in’. Gillette® razors make a good example of lock-in strategy products (inexpensive razor, not-so-cheap blades). But here’s where the real strategy lies: when customers stick to your brand, product or service, you’re making it that much more difficult for competitors to enter the market, gain market share, or steal yours.

That’s not all. Loyal customers make your employees’ jobs easier and more satisfying. This feeds back into better customer satisfaction, as happy employees tend to perform and treat customers better.

One more thing: long-term customers usually initiate free word-of-mouth promotions and referrals among their peers, who frequently act on what their friends and colleagues suggest. According to a Yankelovich survey, 65 percent of consumers trust friends above experts when it comes to recommendations. Talk about low customer acquisition costs!

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