A market-driven firm’s overriding purpose is to profitably create happy, loyal customers. Customers, not products, are the lifeblood of the business. This realization has created a trend away from simple transactional marketing to relationship marketing—creating, maintaining, and enhancing long-term relationships with customers and other stakeholders that result in exchanges of information and other things of mutual value.10 As can be seen in Exhibit 1-1, the shift from a transactional to a relationship focus has broad implications for the goals of marketing and the focus of advertising and IMC. None of these changes is more significant than the elevation of listening as a corporate value. Southwest’s ad on this page is a great example of this principle in action.
Consumers can choose from a wide variety of products and services. As a result, the cus- tomer relationship—in which the sale is only the beginning—is the key strategic resource of the successful 21st-century business. Companies that commit to relationship marketing are generally trying to accomplish three things: (1) identify, satisfy, retain, and maximize the value of profitable customers; (2) manage the contacts between the customer and the company to ensure their effectiveness; and (3) develop a full view of the customer by acquiring useful data.
To succeed, companies must focus on managing loyalty among carefully chosen customers and stakeholders (employees, centers of influence, stockholders, the financial community, and the press).11 This is important for a number of reasons:
1. Thecostoflostcustomers. Greatmarketingwillnotwinbackacustomerlostfromshoddy products or poor service. The real profit lost is the lifetime customer value (LTCV)
to a firm. For example, the average customer of one major transportation firm represented a lifetime value of $40,000. The company had 64,000 accounts and lost 5 percent of them due to poor service. That amounted to loss of $128 million in revenue and $12 million in profits!12 Moreover, negative word of mouth can have a terrible snowballing effect. And if one lost customer influences only one other customer not to patronize the business, the LTCV loss doubles. With the pervasiveness of social media, this is more important today than ever before.
- Thecostofacquiringnewcustomers. Defensivemarketing,which attempts to retain loyal customers, typically costs less than offensive marketing, which seeks new customers, because it isn’t easy to lure satisfied customers away from competitors.13 In fact, it costs five to eight times as much in marketing, advertising, and promotion to acquire a new customer as it does to keep an existing one.
- The value of loyal customers. Repeat customers keep a company profitable even in tough economic times.14 Retention is enormously profitable because acquiring new customer is almost five times as expensive as retaining old ones. In addition, long-term customers are less sensitive to the marketing efforts of other companies.15 The bottom line is a company that makes a small increase in customer retention may be rewarded with big profits in return.16
- Thus, a company’s first market should always be its current