Reading: Marketing and Customer Relationships
Customer Relationship Management: A Strategic Imperative
We have stated that the central purpose of marketing is to help organizations 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 organizations around understanding and addressing customer needs. But only in recent decades has technology made it possible for companies to capture and utilize 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 particular marketing activities, tries to make initial contact with customers and move them through various stages of the relationship—all with the goal of increasing lifetime customer value. These activities are summarized below.
Typical Marketing Activities during each Stage of the Customer Relationship
Stage 1: Meeting and Getting Acquainted
- Find desirable target customers, including those likely to deliver a high customer lifetime value
- Understand what these customers want
- Build awareness and demand for what you offer
- Capture new business
Stage 2: Providing a Satisfying Experience
- Measure and improve customer satisfaction
- Track how customers’ needs and wants evolve
- Develop customer confidence, trust, and goodwill
- Demonstrate and communicate competitive advantage
- Monitor and counter competitive forces
Stage 3: Sustain a Committed Relationship
- Convert contacts into loyal repeat customers, rather than one-time customers
- Anticipate and respond to evolving needs
- Deepen relationships, expand reach of and reliance on what you offer
Another benefit of effective customer relationship management is that it reduces the cost of business 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.
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