Relationship marketing is important to both the parties involved in’ relation, i.e., customers and the organization. The importance of relationship marketing is described below:
1. Importance for Customers: As long as the customers are offered greater value (through different products and services) by organizations than that by their competitors, they remain loyal.
This value is determined by the customers by evaluating the balance between “give” and “get” elements.
If the get element (benefits, satisfaction, quality, etc.) is more than the given element (costs- monetary or non-monetary), it adds value to the relationship and customers remain loyal to the organization.
Customers remain in the relationship as long as the organizations are able to offer value in their products and services.
There are many types of benefits identified by the researches which are offered to the customers in long-term relationships and these benefits may include confidence benefits, social benefits, and special treatment benefits.
These are described below:
i. Confidence Benefits: Confidence benefits are the most significant benefits to the customers among various types of benefits that were analyzed in the research.
In this, customers become comfortable with what to expect from the organizations, their anxiety level is minimized and confidence is generated in the customers regarding the organizations.
Most of the customers will not like to change the service providers due to basic human nature, especially when a lot of efforts have been taken for maintaining a good relationship.
Also, the switching process is costly as several time-related, as well as psychological costs, are linked with it.
By availing confidence benefits from the organizations and maintaining relations with them, customers may organize their time for other concerns in life.
ii. Social Benefits: Over a period of time, a sense of familiarity and a social relationship is developed between the customer and the service providers.
These kinds of relations will still be maintained when the customers receive the information that another competitor is offering better quality products or services at lower prices.
In some of the long-term customer-firm relationship, customers’ social support system also includes the service providers.
For example, the manager of a health club or the restaurant who knows the customers personally, or the proprietors of a local retail outlet who has become the key individual in the neighborhood networks, the principal who has a good knowledge of a family and their specific requirements and so on.
Both the individual as well as business customers may have such kind of relationships with the service providers.
These social benefits are more beneficial to the customers as compared to the instant benefit offered by the service or product.
Often customers become loyal to the organizations just because of such personal as well as professional relationships.
iii. Special Treatment Benefits: Various benefits such as receiving the benefit of the doubt, getting a special deal or price, or receiving preferential treatment can be seen as the special treatment benefits.
It is an interesting fact that in comparison to other benefits which are received by a customer for having long term relations, the special treatment benefits are not so significant.
However, there are some industries (such as frequent flyers in the airline industry) in which the role of special treatment benefits is quite important for creating customer benefits; however, the customer does not give any significance to these benefits.
2. Importance for the Organisation: Relationship marketing is also important to organizations. The importance of relationship marketing for organizations is as follows:
i. High Return on Investment: In comparison to simple transaction-focused organizations, relationship-focused organizations (B2B firms) achieve a greater return on their investments.
This is possible due to the fall in marketing and other expenses, fixed margins with stable pricing strategies, and significant revenues from the customers.
As much as the customers are satisfied with the products and services of the organizations, they become loyal to it and thus, offer more business to them.
ii. Lower Cost: Having lower costs is the other advantage that can be gained by organizations from long-term relationships.
Different types of advertising and promotion costs, the time cost of knowing the customers, operating costs of setting up accounts and systems, can be reduced.
In the short-term, the revenue which is expected from a customer may be lesser than the cost which is explained above. Even there will be a decrease in the cost associated with the maintenance of long-term relationships.
For example, there can be a number of questions regarding the operating methodology of a product which may be asked by customers in the early stages of a relationship.
The frequency of these questions will be decreased once the customer learns how to use the product (provided that the quality of service maintained at a high level) and thus, the cost of serving the customer will reduce.
iii. Word-of-Mouth Advertising: Free advertising in the form of word-of-mouth can be gained by the firm.
Most of the customers look to get suggestions from other customers in case the product is difficult to use and evaluate and high risk is associated with the buying decision (which is true in the case of most services).
A strong word-of-mouth advertisement will be provided by the customers who are really satisfied with the company’s services and have a higher loyalty to it.
In comparison to any other form of paid advertising, the results are better with this type of free advertising by the customer himself and this mode has the advantage of reduced cost for attracting new customers.
Employee Retention: Employee retention can be the other advantage which is received from customer relations.
When the firm has a stable base of loyal customers, it can easily maintain and retain its employees.
The employees will have higher job satisfaction as they will spend more time improving their relationship with the existing customer rather than looking for new customers.
It will result in higher customer relationships and maintaining the customers for a longer period of time which will create a positive upward spiral.
The service quality can be improved and the cost of turnover will be reduced and it will result in higher profits as the employees will remain in the firm for a longer period.