Relationship vs. Transactional Marketing

During heady boom periods companies focus a lot of marketing activity on traditional transactional marketing processes to find and close individual deals or transactions. Demand is good, buyers have budgets, vendors are busy and there are lots of potential deals to pursue. Transactional marketing as the name implies is about each party maximizing the return on individual transactions. It’s about immediate value delivery and short-term revenue generation. For IT companies, transactional marketing typically focuses on acquiring new customers and gaining market share.

But as we all painfully know, economic cycles go up and down with boom periods giving way to slow periods. Transactional marketing doesn’t work well during slow periods because demand decreases significantly, spending is restrained and there are fewer new transactions to be had. Some companies continue pursuing a transactional marketing approach during slow times by using special promotions, discounting, and other tactics to keep new transactions flowing. Besides being ineffective, these short-term tactics create longer-term detrimental consequences.

Relationship marketing on the other hand focuses on long-term customer loyalty, retention and satisfaction to generate a continuing revenue stream from existing customers. The “relationship” is not about some cozy, kumbaya intimate friendship with a customer. Relationship Marketing is about a continuing mutually beneficial business relationship process that encompasses the entire customer life-cycle.

Relationship marketing continues whether or not a customer intends to buy this quarter or whenever. Although relationship marketing should be a cornerstone of B2B marketing strategy, many companies have recently found new religion in relationship marketing during the economic slowdown.

Relationship marketing is ultimately about generating additional revenue from existing customers using appropriate retention and loyalty methods. The key to successful relationship marketing is to tune your retention, loyalty and marketing activities to relevant and prevailing circumstances:

• Listening to customers or market segments of customers – they’ll communicate their circumstances, needs and buying intentions.
• Customer life cycle – what’s going on in their business, when last did they buy, what did they buy? Either individually for large customers or in groups with similar characteristics.
• Customer events – capitalize on major events such as acquisitions, management changes, new product introduction, etc.
• Customer demographics – such as larger versus smaller companies, owner operated versus corporate management, etc.
• Industry – yours and your customer’s. Each industry has its own economic cycle and specific conditions.
• Monitor customer service / support activities for trends in issues and complaints to identify threats and opportunities.
• Improve your Net Promoter Score
  
• Even though your focus is on retention and loyalty, always provide meaningful value that customers appreciate during the process.

“The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.” – Peter Drucker

I’ve seen several recent articles positing that the current slower market conditions for IT vendors may continue long after the recession is over due to a fundamental shift in the market, demand and buying motivations. Relationship marketing is the best approach to combat the vagaries of the economy and business cycles over the long term.

The basic premise of relationship marketing is to stay engaged with customers and keep them long enough to buy more stuff from you.

How does your company use relationship marketing? Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

How customer loyalty depends on employee satisfaction

We’ve all experienced it – you go to a store to buy something and the service is lousy, you walk out annoyed and make a mental note to never shop there again. Or you go to another store selling the same stuff and the service is excellent, you walk out feeling good and make a mental reminder to come back to this store when you next need whatever they sell. The difference behind these experiences is primarily employee training and attitude. Employees who are poorly trained and/or dissatisfied with how they perceive being treated by their employer and manager will reflect that in how they deal with customers.

How does this apply to B2B marketing and sales? Many B2B companies are focusing on customer retention and loyalty as a means to market and sell additional products/services/solutions to existing customers. A key element of this strategy is to increase customer retention and loyalty. Firstly, we need to recognize these are different attributes:

• Customer retention means that a customer continues to actively use your product/service/solution and there is some continuing relationship such as subscribing to support or maintenance services.
• Customer loyalty means that a customer desires to continue doing business with you based on their positive experience and satisfaction. They want to buy more from you.

While you obviously want to retain customers, developing customer loyalty is the key to generating significant revenues from existing customers.

However, before you set off on any marketing and sales program based on customer retention or loyalty, be aware that there is a direct correlation between employee satisfaction and customer loyalty. There is a lot of research to support this – just search for ‘customer loyalty and employee satisfaction’ in your favorite Internet search engine. If your employees, in every area of your business and particularly those who interact with customers, are dissatisfied with their situation and/or the conditions at your company overall, your customer loyalty rating will probably be impacted negatively.

To adapt an old adage – “customer loyalty starts at home” – there is no point in launching a customer loyalty program for generating more sales unless employee satisfaction and attitude at your company is generally positive. Unfortunately, during this challenging economic period, companies are doing many things to undermine employee satisfaction and are mistakenly expecting to improve sales via customer loyalty at the same time.

“Bring a good attitude to work and customers will feel it all day long.” – Anonymous

Customers can sense when something is wrong at a company based on the demeanor of the employees. An employee satisfaction program should be an integral precursor to using customer loyalty for marketing and sales programs for best results.

If you have a customer loyalty focus in your organization, check out this blog post by my good friend and former colleague Melissa Paulik about the role: The Trials of the Customer Loyalty Specialist.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Impact of Customer Retention on Lifetime Customer Value

Continuing the series of posts about Lifetime Customer Value (LCV), this post looks at how Customer Retention impacts LCV.

Everyone probably agrees that customer retention is important and we know intuitively that better retention is a good thing. But just having better customer retention isn’t worth much unless you have relevant programs to monetize existing customers. Do you know specifically how a change in customer retention will manifest in financial terms at your company?

That’s where having factual data that measures LCV comes into play. Measuring LCV provides the means to do modeling on possible scenarios and then track performance. Using the same LCV example from the previous posts, this would be the scenario if we increased retention to 95% with a 10% increase in retention costs (changes in red):
Assuming the same sales penetration rate for existing customers, revenues and gross profit would increase by 41% and 34% respectively during years 2-5 (the retention period). The LCV revenue and profit per customer would increase by 9.1% and 9.3% respectively over the full 5 year lifetime period. In this example the 10% increase in retention cost represents 1.05% of total costs. Therefore an investment of 1.05% returns 9.3% additional LCV profit – a good deal by any measure. Would you like to do this for your company?

Unless you have factual LCV baseline data to model possible improvement scenarios, you’re just guessing that the outcome would be favorable. In this example, spending 28% more on customer retention produces a negative return – do you know what your rate of return would be for various spending levels?

“Old age marketers like photo shoots and they believe in their intuition. But new age marketers believe their job is allocating assets in order to achieve desired business results, such as increasing revenue or customer retention.” – Jeff Levitan

As mentioned earlier, we probably all agree that improving customer retention is a good thing, especially in the current recessionary business environment where finding new customers is tough. Retaining more customers should reflect positively on Lifetime Customer Value, but it’s not a straightforward certainty:

• What’s the value proposition for customers to stay with you longer than they have been?
• How much can you spend to retain more customers?
• If you can retain more customers, how are you going to monetize it? There’s no point in just retaining more customers if you don’t have a plan to market and sell something to them.
• What other benefits can you reap from retaining more customers? For example, a larger pool of candidates for references and case studies.

Hopefully this series of blog posts has provided some ideas and food for thought to make better decisions and improve business results using Lifetime Customer Value data.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

What do your C-Level Execs want from Marketing?

In my blog post last week I ended the customer buying cycle series discussing the need for separate marketing strategies to address new customer acquisition versus existing customer retention and unlocking the lifetime value of customers.

Two days after that post, eMarketer reviewed a research study conducted by Heidrick & Struggles on the focus of C-level executives in 2009. Interestingly the top 3 priorities for US senior executives are:

• Acquire new customers
• Increase customer retention
• Increase customer lifetime value

That puts Marketing squarely in the hot seat to enable and drive results for these top business priorities during these difficult economic times. Although not part of this research study, the disconnect for me is that other research shows that so many companies have cut marketing budgets over the past 6-9 months. So, while the top business priorities are clearly goals that marketing needs to drive, they have fewer resources and reduced budgets to accomplish it.

Although these 3 priorities have broad applicability, they may not be specifically what your C-level executives are thinking at your company. I would suggest that, if you haven’t recently done so already, marketing leadership do their own survey of C-level executives of business priorities for the next 12-18 months for your company, and then develop your strategic plan to deliver on those expectations.

“Marketing is too important to be left to the marketing department.”
– David Packard (co-founder Hewlett-Packard / HP)

Once you have your specific top priorities, you’ll need to show your C-level executives:

• Specific marketing strategies for each
• Current marketing campaigns and programs in each area
• How Sales is being enabled to bring in deals in each of these areas
• How other areas in the company are aligned in support of these plans
• Results from these campaigns and programs
• What’s working, what isn’t
• What needs C-level attention

The 4th highest priority in this survey is ‘Improve Marketing ROI’ – an interesting topic that has frustrated many C-level executives and marketers that I’ll explore further in my next post.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

Buying Cycle – You have a customer – now what?

This last post in the customer buying cycle series, explores opportunities for marketing and sales to engage with existing customers to drive more deals.

Even though the customer has bought and successfully implemented your product/service/solution, the buying cycle continues with the customer focused on achieving the benefits and value that initially drove them through the earlier steps of the buying cycle. While a customer may not specifically be in the market to buy something at this time, the outcome from this phase of their buying cycle will determine whether they buy more from you in future and what recommendations they make to anyone who asks.

During the achievement step, responsibility for customer success is primarily with support and professional/consulting services. An effective way for marketing to connect with the customer and monitor progress during this step is to ask for a case study. Since case studies are designed to highlight customer achievements, several responses from the customer are possible including:

• It’s too early, no documented achievements yet – this gives marketing the opportunity to follow-up on a regular basis to monitor the situation.
• It’s not going well / we’re having problems / no case studies until our problems are resolved – although negative, marketing can help bring attention to the situation to get it resolved, and continue to follow-up and monitor.
• Customer agrees to do the case study as requested – confirmation of achievement you can now put on record and publicize to attract more customers. Also opens the opportunity to develop a mutually beneficial long term business relationship with the customer.
  

The last step in the customer buying cycle is to have a loyal customer. If your business and product/service/solution creates value for your customer, a loyal customer will create value for your business:

• Lifetime customer value – the total revenue from loyal customers over the relationship lifetime can be many times the initial purchase
• Loyal customers are more willing to be positive references you can use to win other deals
• Loyal customers will promote your product/service/solution in their business dealings generating referrals

It takes significant time, effort and resources for most B2B companies to acquire net new customers. But that’s just for the initial sale – it takes more time, effort and resources to unlock the much larger lifetime value of a customer.

IMO, the key consideration for B2B marketers is that you have two very different audiences and therefore need two different marketing strategies that translate into specific campaigns and programs for each audience:

1. New customers – how to find and acquire net new customers – this is the lifeblood that feeds the long term viability of a business.
2. Existing customers – how to develop customer loyalty that unlocks the significant lifetime revenue stream – this is the major source of revenues and profits for the long term.
   

A key consideration from this series of posts is that the customer buying cycle begins long before your sales cycle and continues long after the sales cycle is done. How do your marketing strategy and sales cycle connect with your customer buying cycle?

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com

The Buying Cycle Disconnect

Talk to salespeople about their process to engage with prospective buyers and you’ll hear all about the sales methodology and sales life cycle they use. Marketing also has a life cycle for designing, developing, launching and executing campaigns plus another life cycle for managing, nurturing and distributing leads. These life cycles are all necessary and important.

However, these are all inside-out processes on how you want to engage with prospective buyers or how they should engage with you. That’s an unrealistic perspective.

Prospective buyers have their own buying life cycle that they will follow. Whether or not it’s a defined methodology, all B2B buyers will follow a similar process for acquiring whatever product/service/solution they need. Customers want to go through their buying life cycle processes and will buy when they are ready. You can achieve much better results by understanding and connecting with your prospective customer’s buying life cycle. I’m not suggesting you put the customer in the driver’s seat – sales still needs to manage and control the process, but to better align your marketing and sales processes with the buying cycle and the outside-in perspective.

Although buying cycles vary by industry, product, service, solution, etc. there are common processes that most buyers want to step through. The diagram to the right outlines the major steps in a generalized B2B customer buying process:

1. Sidelines – the vast majority of your prospective buyers are sitting on the sidelines, not actively looking to buy anything related to what you’re selling.
   
2. Awareness – prospective buyers are aware of the general category or type of product/service/solution you are selling, but have not identified a need for it yet.
3. Interest – the prospective buyer has identified a problem or opportunity that needs to be addressed and explores the issue in greater depth.
4. Research – the prospective buyer defines their requirements and actively researches a long list of possible solutions for the identified problem or opportunity.
5. Consideration – the prospective buyer finds suitable solution sources, gets more detailed information and does comparisons to compile a short list of possible solutions.
6. Decision – the short list solutions are evaluated in various ways including customer defined demonstrations, tests, in-depth analysis and other methods to find the most suitable solution. The buyer could also decide not to buy anything. Marketing is usually disengaged at this point.
7. Purchase – the purchase is made and everyone is happy for a fleeting moment. Sales usually disengage at this point.
8. Implementing – the implementation process to get the solution installed and working for the customer in the manner they expect. Vendor or third party professional services usually assist customers with this step.
9. Implemented – the solution is actively working for the customer. Vendor engagement with customers is primarily through support services from this point forward.
10. Achievement – the customer (hopefully) begins to realize the benefits they set out to achieve from the solution.
11. Loyal Customer – cultivating a satisfied and loyal customer has many benefits including additional purchases and referrals.
    

Although some of these steps in the buying cycle may seem beyond the interests of a marketing and sales discussion, I’ve specifically included them because they are frequently overlooked opportunities for marketing and/or sales to be engaged.

In the next several blog posts, I’ll delve into each step in more detail to explore how marketing and sales can engage more effectively and productively in the customer buying cycle to produce better results.

Your comments are always welcome.
Copyright © 2009 The Marketing Mélange and Ingistics LLC. http://marketing.infocat.com