CHAPTER 8

Future of Relationship Marketing

New Frontiers for Value Cocreation

Relationships and their management matter for startups, large firms in emerging or mature markets, for both business-to-business and business-to-consumer contexts.¹ As such, firms spend more than $12 billion annually on customer relationship management (CRM) alone, a figure which will only go up as the utilization of big data increases.² The increasing use of relationship marketing (RM) metrics enables marketing to demonstrate concrete returns (return on marketing investments) and to communicate with the finance department. In turn, this increases the resource flow to marketing, which boosts the performance of the firm further. This will increase both the prevalence of marketing modelers and CRM function in organizations. To that end, we envision that more and more complex models to measure and maximize customer lifetime value (CLV) will be developed and implemented during the next decade.

In fact, more advanced dynamic models are increasingly economically computable and will overcome the limitations of current models (e.g., stationary Poisson transaction rate) by simultaneously taking seasonality and individual relationship states into account. Wealth of available models will make the decision to use appropriate research methods to measure satisfaction and loyalty richer and crucial. For example, it may appear that customer satisfaction is negatively linked to market share if unhappy customers defect to competitors after a major incident and drop out of the customer sample, and therefore, surveys show a higher satisfaction than before while the market share is decreasing.³ Owing to the fact that customers desert a firm if they are continuously unsatisfied and that most mediocre customer experiences are forgotten rather quickly, the way to expand share of wallet is to delight customers with extraordinary levels of service,⁴ which can be enabled by flawless execution of RM.

On the other hand, the basic technology to implement CRM will be made available to and used by even the smallest of (lifestyle) businesses. Those without a CRM system will be at a significant disadvantage. However, marketers need to pay close attention to invasion of privacy concerns when implementing RM. A lack of ethical consideration is bound to create a backlash from the customers.

It has been suggested that small firms (specialists) have an advantage over large firms (generalists) based on their inherent ability to focus and serve their customers better through RM.⁵ While large firms can use advanced CRM techniques and economies of scale to partially overcome this disadvantage, smaller firms presumably will always retain the advantage of developing close personal relationships that even the latest models cannot compensate for. The good news for marketers of either type of firm is that a customer can develop relationships with both generalists and specialists in a given sector and that these two types of firms do not necessarily compete with each other directly, but rather intra-compete with other firms that belong to the same strategic group. Therefore, it might even be feasible to codevelop relationship offerings with competitors in the same industry.

Rather than trying to optimize locally, we think that firms will be jointly maximizing the CLV of their combined customers through alliances (further increasing issues revolving privacy through their use of merged databases). The customers of one firm may be even more valuable to another firm horizontal or vertical to the focal firm. The interface of RM with other functional processes such as IT is enabling tremendous big data insights and opportunities that make certain traditional statistical techniques redundant. The 21st century provides truly an exciting era for marketers to transform their organizations into technology and customer-centric enterprises where customers are comprehensively understood and served better through cultivating relationships rooted in their current and potential value.⁶ Both marketers and customers stand to gain from this revolution. We hope that you will not only choose to be a part of the RM revolution but also welcome the opportunities and challenges it brings.

Mindful Relationship Marketing

Ironically, there are four billion people who are underserved even by transactional marketing efforts. They survive with under $1,500 a year and many live under $2.50 per day. Yet it is possible and important to serve the so-called base of the pyramid profitably if we consider a new mindset.⁷ In fact, the base of the pyramid represents $5 trillion in terms of purchasing power parity and double that figure ($10 trillion)⁸ if one considers their future earning potential if they are served through relationship (instead of transactional) marketing and the cherished relationships are maintained! With continuous income acceleration in emerging markets such as China and India, it is not inconceivable to imagine a consumer to migrate from a Tata bike to Tata Nano and eventually all the way to a Jaguar or gradually upgrade from disposable generic blades to Gillette’s latest offerings. Private sector has a critical role to alleviate poverty (profitably nevertheless), and it can accomplish this through new products developed for emerging markets, new business models (shared economy or leasing vs. selling), and new technologies that also enable new micro-CRM and finance solutions. These markets are incredibly diverse in terms of literacy, geography, income, culture, religion, and so forth. Thus, no single model can serve the entire market.⁹ Yet one can only imagine the possibilities if one were to serve the base of the pyramid with evolving, value cocreating relationships instead of traditional, transactional marketing. Marketing can generate tremendous value for stakeholders (firms, customers, partners, employees, society) by promoting both effectiveness and efficiency, guiding production purposefully toward satisfaction and value, and rewarding those who contribute to the marketing system.¹⁰ Yet marketing seems to have lost its way, and the returns are on a path of decline.¹¹ One promising path to re-steer marketing toward a path of virtue and profitability could be through mindful RM. Mindfulness has been examined as a useful individual construct, but its incorporation to business and marketing literature is relatively recent.¹² Mindful RM would seek ways to create win–win strategies and avoid being involved in wasteful, unethical, and selfish marketing practices during the establishment, development, and maintenance of relational exchanges.¹³ It would be conscious of the question regarding should we rather than can we up-sell and cross-sell? It could reduce excessive marketing and consumption.¹⁴ Finally, it could promote shared use and reuse in order to sustain planet, people, and profit for cocreating lasting value.¹⁵