From a shoebox of typewritten cards detailing customer information, to the ability to house and query millions of records on your personal computer, database marketing has rapidly developed over the last two decades. Relationship marketing is a natural outgrowth of these technological advancements in database marketing. The better you know a customer (through access to more information about that customer), the better you can market to, and develop a relationship with, that customer.
Database Marketing Evolves
The emergence of relationship marketing is also an outgrowth of today’s business environment: The United States is the most over-stored and over-banked country per capita in the world. These factors mean that today’s marketers are competing for an increasingly sought-after and discriminating customer base. Relationship marketing encompasses the techniques of database marketing but goes beyond, creating the next stage in the evolution. So what makes each distinct? Glad you asked.
Short-term vs. Long-term Interest
Database marketing traditionally takes a short-term interest in customers. For example, ABC Bank may send loan solicitations to prospects who are in their heavy loan-use years. Afterward, success is measured according to the number of responses generated. And the next time a loan is featured, the same promotion is sent again.
Relationship marketing, by contrast, looks at individual customers over the length of their relationship with an organization. ABC Bank might look at a customer’s lifecycle and plan an all-encompassing program that carries this customer from initial savings and checking accounts through a first car loan, a home mortgage and retirement planning. The success of this program would not be measured by a single promotion, but rather by increases in customer lifetime value and retention. (Lifetime value is defined as the profit stream customers will generate over the time they are customers.)
Promotion Driven vs. Relationship Driven
Database marketing tends to be driven by a marketing-events schedule. For instance, a retailer might plan an annual anniversary sale and look to its database to identify those customers who tend to respond to major storewide events.
A men’s clothing retailer using relationship marketing might send letters to its customers’ wives two weeks before their wedding anniversary with this offer: “John works with your husband personally, assisting him with his clothing choices, and he would be delighted to help you select an anniversary gift. We have enclosed a $25 gift certificate; please use it with our best wishes.”
Stated simply, using database marketing, the anniversary sale is the store’s anniversary; with a relationship marketing approach, the anniversary is the customer’s.
The Proof Is in the Objectives
Database marketing objectives tend to center on response and conversion in selling to both prospective and existing customers. Relationship marketing objectives not only include cross-selling and upselling existing customers, but also revolve around customer retention and best customer recognition and reward. Because a 5 percent reduction in attrition can mean a 25 to 85 percent increase in profitability, retention of customers — especially best customers who typically account for 60 percent or more of a company’s sales — is a strategy that makes common sense and has a major impact on the bottom line.
Watch Your Language
A common mistake found in typical database marketing efforts is the lack of differentiation made in communications to prospects versus existing customers. Marketers who forget to acknowledge their existing customers miss a tremendous opportunity to build customer loyalty.
Language and tone in customer-directed communications are key. This difference can be characterized by comparing the way you would speak to a stranger you meet on the bus with the way you would talk to your mother. Your customers already know you. They don’t necessarily need to hear a sales pitch every time you communicate with them, but they are interested in catching up with what’s happening, new things you might have going on and any advice you can give them based on your company’s particular expertise. For this reason, many relationship marketing programs — from Neiman Marcus’ In Circle to United Airline’s Mileage Plus — include a newsletter as part of their communications strategy.
The differences between database marketing and relationship marketing are distinct. In the long term, relationship marketing is imperative to future success in today’s business environment.
Originally published in StrateScapes, Volume 1, Number 1, 2002