Types of relationship marketing.

Types of relationship marketing.

Discuss the marketing metrics used to measure customer lifetime value (CLV) with a suitable corporate example.

Relationship marketing goes beyond how we make our customers see us , rather its a continuous aim driven towards making our customers valuing the relationship with us to the extent that , we will be their only choice of supplier. This path to identifying, acquiring and retaining customers happens to be the most important part of every business. While some regarded it as the future of marketing .

 

There are five different levels of relationship marketing. These levels are sometimes called hierarchical relationship marketing strategies, or types of relationship marketing. The five levels of relationship marketing are:

•         Basic marketing

•         Reactive marketing

•         Accountable marketing

•         Proactive marketing

•         Partnership marketing

 

•        Basic marketing

Basic marketing can be compared to traditional marketing. Think of it as the Mad Men marketing approach: It’s marketing that simply aims to entice the customer to buy. It’s direct selling, and doesn’t include following up with customers after they purchase a product or service. There’s no communication or customer feedback involved. Basic marketing is when a business sells simply for the sake of making money (which is not necessarily a bad thing

•                     2) Reactive marketing

At this level, you encourage your customers to supply feedback, be it a complaint, comment, suggestion, or random idea. There is some effort required to build a relationship with the customer; It’s about responding and interacting with customers when the situation or opportunity arises.

This is not your typical outreach marketing technique and is more inbound, focusing on after purchases reactions. You don’t resolve a specific problem when you respond to a customer with reactive marketing, though

•                    3) Accountable Marketing

The salesperson calls the customers to ensure whether the product is working as per satisfaction and if there is any problem in the product. Furthermore, he also asks the customer for any suggestions/feedback to improve the service/product. Thus he is taking responsibility for the sale.

•                    4) Proactive marketing

The company works continuously with its large customers to help improve performance. This is especially seen in financial companies wherein the movement in the financial market induces the company to make changes regularly. However, at the same time, these financial companies have to take care of their customers as well. Thus they take regular feedback from their large customers thereby developing their products accordingly.

•                    5) Partnership Marketing

The company works continuously with its large customers to improve its performance. An example would include General Electric which has stationed Engineers to its third party service centres to improve overall performance. Thus even in partnerships, GE is ensuring optimal relationship development with the parent brand.

•                    Example of a Good Relationship Marketing

Harley Davison

was able to win back its already lost bike market from its Japanese counterpart when it introduced their unique relationship marketing strategy in 1993, by coming up with strategies that customer would have input in rather than the usual way of dictating to customers what they should have.

An owners club was formed with the name HOG- Harley owners Group, which was geared towards customer relations as it forms the bases for different incentives enjoyed by all HOG owners

Members receive 1year free membership, which in turn helps Harley Davidson company keep track of its HOGS customers.

With customers’ data on the increase, different kinds of social event are put in place for members, such as rallies and charities.

 

Dell – 

Dell computers created a special online store for high volume corporate customers. By tailoring the ordering process to the specific customer's needs, Dell was able to expedite many of the hassles corporate technology buyers face. Providing a higher level of service leads to increased loyalty.

 

Amazon Prime

shows us how a business can incite loyalty with incentives that don’t involve a loyalty program. The ecommerce conglomerate has been very successful, in part due to its relationship marketing strategies. For example, two-day shipping is part of Prime benefits, but it takes this a step further by frequently giving Prime members one-day shipping or the option to get account credit for choosing a shipping time over two days.

By giving members more value, they remain loyal to Amazon. The numbers demonstrate this; Amazon Prime members spend four times as much on average than non-Prime members, indicating how effective their relationship marketing strategy is.

 

CLV:

The definition of Customer Lifetime Value is simple: Customer Lifetime Value represents a customer’s value to a company over a period of time. You can calculate a simple Customer Lifetime Value model for your company with this formula:

Average annual customer value * Average duration of customer retention

 Let’s take an example of Starbucks:

Starbucks

Starbucks is always opening new stores around the world, its acquisition strategy being frequently copied., I am going to use data from 2004. The numbers do not reflect the company’s current status, but they can be used to exemplify how you should determine your customer lifetime value.

 

Step 1: Find out your average

To simplify calculations, let’s say you only have three customers. Customer 1 spends $4 per visit. Customer 2 spends $6 per visit. And customer 3 spends $9 per visit. The average will be $6.33 (I’ll call this value ‘s’, the average spends per customer).

 

Now, for the purchase cycle, customer 1 visits you 5 times a week, customer 2 visits you 3 times a week, and customer 3 does it 6 times a week. The average number of

visits is 4.66 (I’ll call this ‘c’). Last but not least, your average customer value per week (expenditures * visits) is $20 for customer 1, $18 for customer 2, and $54 for customer 3. The average across the three customers is $30.66 (I’ll call this value ‘a’).

 

Step 2: Calculate the CLV

To determine the customer lifetime value, I will also use some constants:

Average customer lifespan (t) = how long an individual remains a customer. For Starbucks, that’s 20 years.

Customer retention rate (r) = the percentage of customers who repurchase over a given period of time when compared to an equal preceding period. Starbucks’ retention rate is 75%.

Profit margin per customer (p) = For Starbucks that’s 21.3%.

Rate of discount (i) = the interest rate used in discounted cash flow analysis to determine the present value of future cash flows. Usually, the rate of discount is between 8% and 15%. For Starbucks, it’s 10%.

Average gross margin per customer lifetime (m) = Starbucks has a profit margin of 21.3% (p). If the average customer spends $31.886 (52 * a * t) during their life as a customer (t), Starbucks has a gross margin per customer lifespan of $6.791 (profit margin * expected customer lifetime expenditure).

A large corporation like Starbucks will use several methods to determine the customer lifetime value, as well as marketing budgets and acquisition costs.

CLV= 52 *a*t= 31.886        CLV=t(52*s*c*p) = 6.534         CLV=mr1+i-r= 14.532

Simple CLV                            Custom CLV                             Traditional CLV