Reading: Marketing and Customer Relationships

Customer Relationship Management: A Strategic Imperative

We have stated that the central purpose of marketing is to help organisations identify, satisfy, and retain their customers. These three activities lay the groundwork for what has become a strategic imperative in modern marketing: customer relationship management.

Building relationships between customers and companies is a natural outgrowth of the marketing concept, which orients entire organisations around understanding and addressing customer needs. But only in recent decades has technology made it possible for companies to capture and utilise information about their customers to such a great extent and in such meaningful ways. The internet and digital social media have created new platforms for customers and product providers to find and communicate with one another. As a result, there are more tools now than ever before to help companies create, maintain, and manage customer relationships.

Maximizing Customer Lifetime Value

Central to these developments is the concept of customer lifetime value. Customer lifetime value predicts how much profit is associated with a customer during the course of their lifetime relationship with a company.^[1] One-time customers usually have a relatively low customer lifetime value, while frequent, loyal, repeat-customers typically have a high customer lifetime value. Companies develop strong, ongoing relationships with customers who are likely to have a high customer lifetime value through marketing.

Marketing applies a customer-oriented mindset and, through specific marketing activities, attempts to establish initial contact with customers and guide them through various stages of the relationship, ultimately increasing lifetime customer value. These activities are summarised below.

Another benefit of effective customer relationship management is that it reduces business costs and increases profitability. As a rule, winning a new customer’s business takes significantly more time, effort, and marketing resources than it does to renew or expand business with an existing customer.

Customer Relationship As Competitive Advantage

As the global marketplace offers an increasing number of choices for consumers, relationships can become a primary driver of why a customer chooses one company over others (or chooses not to choose at all). When customers feel satisfied with and have an affinity for a specific company or product, it simplifies their buying choices.

For example, why might a woman shopping for a cocktail dress choose to go to a local boutique rather than Walmart, or pick from an army of online stores? Possibly because she prefers the selection of dresses at the boutique and the store’s atmosphere. It’s much more likely, though, that thanks to the local boutique’s practices, this shopper has a relationship with an attentive sales associate who has helped her find great outfits and accessories in the past. She is also aware of the store’s customer-friendly return policy, which may be useful if she needs to return an item.

A successful local boutique can deliver such satisfactory experiences that its customers return again and again. A consistently positive customer experience matures into a relationship in which the customer becomes increasingly receptive to the company and its products. Over time, the customer relationship gives the boutique a competitive advantage over other traditional department stores and online retailers.

When Customers Become Your Best Marketing Tool

Customer testimonials and recommendations have always been powerful marketing tools. They often work to persuade new customers to give something a try. In today’s digital media landscape, there is an unprecedented opportunity for companies to engage customers as credible advocates. When organisations invest in building strong customer relationships, these activities become particularly fruitful.

For example, service providers such as restaurateurs, physical therapists, and dentists frequently ask their regular patrons and patients to write reviews about their real-life experiences on popular recommendation sites like Google, Yelp, Foursquare, or TripAdvisor. Product providers do the same on sites like Amazon and CNET.com. Although companies risk getting a bad review, they usually gain more by harnessing the credible voices and authentic experiences of customers they have served. In this process, they also gain invaluable feedback about what’s working or not working for their customers. Using this input, they can retool their products or approach to better match what customers want and improve their business over time.

Additionally, savvy marketers recognise that when individuals take a public stance on a product or issue, they tend to become more committed to that position. Thus, customer relationship management can become a virtuous cycle. As customers have more exposure and positive interactions with a company and its products, they become more deeply engaged, and they are more likely to become vocal evangelists who share their opinions publicly. Customers become an active part of a marketing engine that generates new business and retains loyal customers, driving repeat business and increasing customer lifetime value.

Engagement Marketing: Making Customers Part of the Brand

A further step beyond customer evangelism is engagement marketing, the practice of reaching out to customers and encouraging them to become full participants in marketing activity and the growth of a brand. Sometimes called live marketing, this approach is becoming more common as media and technology provide more interactive, visible, and sharable ways for consumers to connect with brands and companies.

A mind shift is underway, away from one-way, company-to-consumer communication toward marketing activities that invite consumers to shape and become part of the value a brand provides. In an increasingly crowded marketplace, many organisations find that they can distinguish themselves and their products by creating tribes of fans who not only advocate for the brand but also actively make it part of their daily activities and lifestyle. Customers may even become involved in developing marketing programs, creating content for marketing purposes, and cultivating one-on-one relationships with a company or brand.

Creative marketers have devised numerous ways to foster engagement in marketing. The self-promotional mindset and proliferating tools of social media are a natural fit for making customers part of a brand. People tag their favourite restaurants and post photos to communicate with friends when they are having fun. Bloggers routinely name-check favourite products, review them, and carry on conversations about them in their posts.

The phenomenon of engagement marketing helps explain the meteoric rise in the popularity of GoPro cameras. When company leaders realised that their customers had an unquenchable appetite for sharing videos of amazing outdoor adventures (shot with GoPro cameras, of course), they built the company brand and marketing strategy around engaging customers in viral sharing. The following video, produced by YouTube, explains this engagement marketing success story.

You can view the transcript for “GoPro YouTube Case Study | YouTube Advertisers”. (opens in new window)