Customer relationship marketing
Relationship marketing builds long-term, profitable bonds instead of one-off sales. CRM uses customer data to raise retention and lifetime value; keeping customers usually costs less than winning new ones.
Transactional vs relationship marketing
Christopher, Payne and Ballantyne (1991) drew this contrast and set out six markets: customer, referral, supplier, recruitment, influence and internal.
Levels of relationship marketing (Berry and Parasuraman, 1991)
| Level | Bond | Example |
|---|---|---|
| Level 1 | Financial: price incentives, discounts, points | Shoppers Stop's First Citizen rewards; Tata Neu's NeuCoins |
| Level 2 | Social: personal contact and recognition | A bank relationship manager who knows the client |
| Level 3 | Structural: systems that tie the customer in | A supplier linking its ordering system to the client's |
Ladder of loyalty, relationship levels and CRM types
| Framework | Stages or types |
|---|---|
| Ladder of loyalty (Christopher, Payne and Ballantyne) | Prospect → customer → client → supporter → advocate → partner |
| Kotler's levels of relationship | Basic → reactive → accountable → proactive → partnership |
| Types of CRM | Operational (sales, marketing and service automation), analytical (data warehousing and mining), collaborative (sharing across channels and partners) |
Worked example: customer lifetime value
(a) A retail customer spends ₹1,500 a visit, visits 4 times a year and stays 5 years, at a 25% margin. Find the simple (undiscounted) CLV. (b) With an annual margin of ₹1,200, a retention rate of 80% and a discount rate of 10%, find CLV using m × r ÷ (1 + i − r).
- (a) Annual spend = 1,500 × 4 = ₹6,000.
- Margin per year = 6,000 × 0.25 = ₹1,500.
- Simple CLV = 1,500 × 5 years = ₹7,500.
- (b) 1 + i − r = 1 + 0.10 − 0.80 = 0.30.
- CLV = 1,200 × 0.80 ÷ 0.30 = 960 ÷ 0.30 = ₹3,200.
- Check (b): 3,200 × 0.30 = 960, and 960 ÷ 0.80 = 1,200.
(a) ₹7,500 undiscounted; (b) ₹3,200 with retention and discounting. Retention matters a lot: at 90% retention, (b) gives 1,200 × 0.9 ÷ 0.2 = ₹5,400.
Worked example: Net Promoter Score
Of 200 customers surveyed, 110 score 9-10, 50 score 7-8 and 40 score 0-6. Find the NPS.
- Promoters = 110 ÷ 200 = 55%.
- Detractors = 40 ÷ 200 = 20%.
- Passives (50 customers, 25%) are left out.
- NPS = 55 − 20 = 35.
- Check: 110 + 50 + 40 = 200.
NPS = +35. The score can range from −100 to +100.
Exam points
- Winning a new customer is commonly said to cost about five times as much as keeping an existing one.
- RFM analysis ranks customers by recency, frequency and monetary value of purchases.
- Customer equity (Rust, Zeithaml and Lemon) = value equity + brand equity + relationship (retention) equity.
- Later texts (Zeithaml and Bitner) add customisation bonds between social and structural bonds.
- CRM tools: data warehouse, data mining, customer touch points, churn analysis.
NET asks you to name Berry for relationship marketing, order the ladder of loyalty, match bond levels, compute CLV or NPS, and classify CRM types (analytical vs operational).
Typical MCQ: “What is the NPS when 60% are promoters, 25% passives and 15% detractors?” 60 − 15 = 45. Trap: passives are left out; do not subtract the 25.
Typical MCQ: “Which level of Berry and Parasuraman's relationship marketing relies mainly on price incentives?” Level 1, financial bonds. Trap: structural bonds (level 3) are the hardest for rivals to copy.
Ladder of loyalty: 'Please Call Customers; Supporters Advocate Partnerships': Prospect, Customer, Client, Supporter, Advocate, Partner.