A Beginner's Guide to Relationship Marketing – The Motley Fool

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by Mark Roy Long | Updated May 26, 2022 – First published on May 18, 2022
Image source: Getty Images
Once upon a time, in ye olde business days, each sale was a unique transaction that ended when you collected payment. That was then, but this is now: Customer lifetime value (CLV), the projected amount of total revenue earned from a single customer account, is where the real money is.
This paradigm shift has changed the fundamental nature of customer-business interactions from one-and-done transactions to long-term relationships. We’ll go over relationship marketing examples below and the steps to implement this strategy for your small business.
Relationship marketing, also known as engagement marketing, looks beyond advertising a single product or sale and concentrates on building customer engagement and loyalty through superior customer experiences. In transaction marketing, the customer journey ends with a purchase, but in relationship marketing, the customer journey is the sum total of all experiences each customer has with your company.

Relationship marketing focuses more on the quality of the ongoing customer experience than product-specific features. Image source: Author
Other relationship marketing elements include:
This marketing concept’s power comes from building relations with customers. It is, however, a more complex undertaking than rethinking your social media ad buys or issuing press releases in support of the cause du jour.
An effective relationship marketing strategy will impact your most important key performance indicator (KPI) — the bottom line — over the short and long term.
Transaction marketing focuses on acquiring new customers, but it costs up to five times more to attract a new customer than to retain a current one. After an initial purchase, a customer is also 27% more likely to make another purchase, and after a third purchase, the odds of more purchases go up to 54%. Retaining even 5% more customers can increase profits by 25% to 95%, and 65% of your business comes from repeat customers.
Another bottom-line impact is the cost of attracting a new customer. For both brick-and-mortar and e-commerce businesses, recovering that acquisition cost and generating a profit can require multiple purchases over a year or more.

Multiple industries require a year or more to recover the cost of acquiring each new customer.
An overemphasis on acquiring new customers at the expense of retaining your current customer base could result in a deep financial hole for your company.
Long-term relationship marketing allows you to leverage loyal customers for increased brand awareness. Before online reviews and ratings, the process to research and compare products was limited. Now your customers can be your best advocates wherever your products are sold or discussed:
Customers’ face-to-face and online recommendations give your brand a reach and legitimacy impossible via traditional marketing tools.
As a business owner, you want every competitive advantage possible. The benefits of relational marketing are well documented, but less than 25% of companies are using it in 2020.

Less than a quarter of companies use relationship marketing.
Many factors explain why companies have not gotten onboard with relationship marketing. Almost every organization not suffering financial distress is inclined to continue what it’s already doing. And relationship marketing is hard because it forces a company to lean on its public persona, not products and price points alone, and have authentic conversations with customers instead of talking at them.
One allure of a traditional marketing plan is its cause and effect approach: You spend money to reach potential customers, some of whom buy your product. Relationship marketing is gooier: Meet your customers where they are, be authentic, and focus on the customer journey, not the product.
Gooey is not bad, just different. Use the five steps below to create a loose-but-tight customer relationship strategy for your small business.
Implementing a customer relationship marketing strategy requires you prioritize customer relationship management (CRM). You must also identify your objectives, because CRM without a defined plan or goals will undercut your efforts from the outset.
Identifying clear objectives provides everyone with goals to work toward. The 6:3:1 marketing spend formula, as backward as it feels (only 40% for generating sales?), is a good budgeting rule of thumb to help shape your marketing funnel.
Your next step is to collect in-depth customer data to identify different purchasing drivers. Someone who buys online as a result of living in a remote area has a different purchase driver than a person who lives in a large city but also buys online even when the same product is available in a nearby brick-and-mortar store.
Questions to answer include:
Traditional purchasing criteria include price, speed of service, convenience, quality, brand, and customer service. More recently recognized consumer purchase drivers include a company’s mission, its actions within the collective social sphere, and its treatment of each customer.
The amount of customer data required for this step is too great to collect and analyze on an informal basis. If you don’t already use CRM software, you should begin now to capture customers’ behavior during their interactions with you and ask them for feedback about their customer journeys.
Every customer wants to be treated like a real person, not faceless information in a corporate database. When you receive a generic direct mail piece via snail mail addressed to “current resident,” you’re not even a number: You’re more like a decimal point.
Once you know your customers, their purchase drivers, and where they are online, leverage that data to create more personal interactions:
The multiple options to personalize customer experience can be overwhelming, so start small. For example, adding personal elements to your email marketing — even something simple like addressing your customer by name — can increase click rates by 27%.
A rewards program is a long-term marketing campaign that incentivizes customers to purchase more of your products and remain loyal to your brand. These programs also attract potential customers when the rewards align with their interests and values.
Typical loyalty programs include:
An effective loyalty program requires a clear understanding of your customers, their purchase drivers, and how they perceive their roles within society.
Customer relationship marketing may seem like an ad hoc collection of different marketing tips, but the metrics to measure its results are not. These marketing campaigns are more labor-intensive than traditional advertising, so a cost-benefit analysis helps identify where your strategy is working and which areas need retooling.
CRM strategy KPIs include:
Except for customer churn, these metrics should trend upward if your relationship marketing strategy is working. CRM software once again proves its value here because a good system has the built-in features to track and report this data.
General Motors CEO Mary Barra wrote: “My metric for success can be summed up in one phrase: earn customers for life.” Do the same thing at your small business, using the five steps above to implement a relationship marketing strategy.
Mark Roy Long is a technology journalist and workflow expert writing for The Ascent and The Motley Fool.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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