Business Intelligence Lowdown: Relationship Marketing

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December 29, 2005

Relationship Marketing

Companies, such as banks, have progressed from treating retail customers identically to implementing the 80/20 principle - realizing that 20% of the customers generate 80% of the profit; and strategizing accordingly. Relationship marketing is grounded in the idea of establishing a learning relationship with customers. Building a relationship can create cross-selling opportunities. When deciding which customers are worth the cost of long-term relationships, assess their lifetime value. Look at their current profitability computed at the customer level, the tendency of those customers to stay loyal, and expected revenues and costs of servicing such customers over the lifetime of the relationship. Relationships that make the most sense for the company are those whose lifetime value to the company is the highest. That is why, when building relationships, you should focus on customers who are currently the most profitable, likely to be the most profitable in the future, or likely to remain with the company for the foreseeable future and have acceptable levels of profitability. CRM Today reports:

Discovering preferences transparently means that the marketer learns the customers' needs without actually involving them. For example, the Ritz Carlton hotel makes a point of observing the choices that guests make and recording them. If a guest requests extra pillows, then extra pillows will be provided every time that person visits. At upmarket retailers, personal shoppers will record customers' preferences in sizes, styles, brands, colors, and price ranges and notify them when new merchandise appears or help them choose accessories.

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December 29, 2005 in CRM | Permalink