The Hindu Business Line : It pays to work on relationships

A FEW years ago, when Microsoft wanted to strengthen its `mid-market' base comprising customer companies ranging from 50 to 500 employees, it took the help of a relationship marketing agency.

`Loyalty analysis' was done on past data to predict buying behaviour, using a finite state machine approach, a mathematical way of building a specific model for every single customer.

As reported on www.dmnews.com, this technique helped Microsoft learn that the best customers to turn to for revenue growth were a group labelled "bad, but good lately." These were newer customers in lower loyalty groups but with increasing buying rates, and so with the greatest potential for revenue growth.

"In most organisations, the marketing department is considered the expert on customer," writes S. Shajahan, in Relationship Marketing published by Tata McGraw-Hill (www.tatamcgrawhill.com) . But that can do with some help from statistical and IT tools, he points out, especially when what is good, turns to bad lately.

The book discusses different types of relationship marketing programmes. `Continuity marketing' is aimed at both retaining customers and increasing their loyalty; in mass markets, this can take the form of membership and loyalty cards.

Another type of relationship marketing is `partnering' between customers and marketers. This can be a co-branding exercise where "two marketers combine their resources to offer advanced products and services" as in the case of ICICI Bank and BPL Mobile. Or, it may be launched as `affinity partnering' using endorsement strategies, and taking advantage of customer memberships in one group to cross-sell other products and services. The third type of relationship marketing is one-to-one, that is account-based and aimed at satisfying customer's unique needs. Lastly, there is the integrated telephone marketing, converting an inbound caller into an ongoing customer.

Customer loyalty can be hardcore, normal or soft, explains the book, if you're loyal enough to read. Then there is `loyalty economics' to measure the value of customer in terms of cash flow. "Some customers are inherently predictable and loyal," notes Shajahan. "They simply prefer the stable long-term relationships."

Then, there are customers who spend more money, pay their bills promptly, and require less service. But, there are also customers the company may be happier to be without.

The chapter on analysing profitability of customers elaborates the computation of LCV, or lifetime customer value. "The best customers outspend others by a ratio of 16 to 1 in the retailing sector, 13 to 1 in the restaurant business, 12 to 1 in the airline business and 5 to 1 in the hotel industry," informs the book, citing American Express. Customer profitability analysis (CPA) using activity-based costing (ABC) is also explained.

IT-enabled marketing will have to create a value migration in your databases, says Shajahan. For this, move from static to dynamic, from generic to customer-specific. To ensure data quality, perform surveillance audit.

Among the first steps in relationship marketing is `internal marketing' because your people are central to the success of any effective relationship.

"Employees should understand their role in the service exchange," is a counsel of import. Training programmes can deliver if there's emphasis on pride in the firm and job, and specific marketing skills, apart from imparting knowledge of product/ service mix.

It pays, after all, to work on relationships.

BookMark@thehindu.co.in

D. Murali

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