Relationship marketing is a process whereby marketers look at building a long term association with their customers. This involves a continuous process of interaction, which is influenced by the stage of the life cycle in which the customer is at any point in time. Thus, practitioners of relationship marketing need to understand the needs of their customers at different stages, and provide products and services accordingly. This is quite unlike traditional forms of marketing which focused on individual transactions between buyers and sellers.



The entire process can be broken into different phases, depending on the nature of the business. For example, the customers' life cycle can be viewed along the following lines, also called the relationship ladder of customer loyalty:

Suspect > Prospect > Customer > Partner > Advocate > Former Customer

The marketer's objective is to send customers as high up this ladder as possible. Since not all customers are on the same rung at the same time, the focus of the customer management effort changes with each buyer's progress. For example, if you're in the computer hardware business, you may like to focus on spreading awareness about desktop PCs to the small business owners in your area who are still prospects. Once some of them become your clients, your efforts are directed towards upgrading them to more sophisticated equipment when they need to replace their existing systems. As the relationship matures, your customers might turn advocates by vouching for your products.

Customer retention is at the heart of any relationship marketing effort. The efforts of the seller are directed towards creating new and sustained benefits on a sustained basis, which ultimately leads to a deepening of the relationship. This makes undeniable sense – while exact numbers may vary, experts do agree that the cost of retaining a customer is a fraction of acquiring a new one. This basically means that a small improvement in customer retention results in a much higher improvement in profitability. For this reason, relationship marketing is also sometimes referred to as defensive marketing – because it aims to defend existing clients from being poached by competitors, rather than aggressively hunt for new ones.

The following analyses form the foundation of the customer retention process:

Assessing value: this is a process of ascribing a value to each relationship. It helps marketers understand issues such as which of the relationships can be mined further or which ones have outlived their utility.

Measuring retention: this provides a measure of how many customers have stayed with the company during a certain period. Such data can provide valuable marketing insight over time.

Understanding drop out: getting to the bottom of why customers shift to competitors is absolutely critical, in order to prevent a further slide.

While relationship marketing can be used in most situations, it is particularly effective in b2b or in service oriented businesses, where the sales cycle is longer and involves repeated interaction. In such businesses, costs of switching vendors can be quite high, and that's a big point in the favor of relationship marketing.