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Relationship Marketing

By: Eric Giltner, Senior Area Manager
Grand Forks Area Office - North Dakota District Office

Many small businesses have seen a gradual shift from employing a transactional business model to one emphasizing customer relationships. A transactional business simply has products and or services available with no regard to building any kind of rapport with the customer. Examples of transactional businesses include most of the stores commonly found in an airport. Generally, they are there for the convenience of air travelers and see no value in developing any kind of long-term relationship with their customers. Transactional business are also common when consumption is a one-time (laser eye treatment) or long-lasting event (re-siding a home). These businesses employ a marketing strategy aimed at finding new customers.

Today’s customer demands more from a business than just having products and services available for purchase. This requires a business to focus on activities supportive of building long-term relationships with its customers, hence, the name, “Relationship Marketing.” Relationship marketing is an effective strategy for a business when there are alternative products or services for the customer to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service.

Customer’s Life Cycle
Relationship marketing involves understanding the customers’ changing needs. It emphasizes providing a range of products or services to existing customers as they need them. This requires engaging in activities devoted to gathering information about the present and future needs of customers and with this comes the added cost of time and effort spent with customers. However, acquiring new customers can be challenging and costly. It is commonly accepted that acquiring new customers can cost five times more than retaining current customers. This certainly makes a strong economic reason for paying more attention to existing customers.

The following concepts and activities are commonplace with using a relationship marketing strategy.

Customer Valuation
It is rare when a business can afford to apply relationship marketing activities to every customer. This is where the 80/20 concept comes into play. In many industries, 80 percent of a firm’s revenue comes from a core 20 percent of their customers. This core group of customers is then targeted for a deeper relationship.

Customer Retention Management
Customer retention is a measure of the percentage of valued customers at the beginning of the year that are still customers at the end of the year. The key activity here is to determine the reasons for leaving and then apply corrective action. This requires the difficult task of conducting exit interviews from reluctant, disappointed, or indifferent departed customers. This exit interview can actually be a tool to regain the confidence of the customer through the correction of some aspect causing the customer's dissatisfaction. Strong support and participation from top management or ownership is crucial in obtaining useful information.

Use of Customer Switching Barriers
Businesses will employ strategies to make it harder for a valued customer to switch to the competition. Common tactics used include: Product Bundling (combining several products or services into one package and offering them at a special price); Cross Selling (selling related products to current customers - expanded product line); Cross Promotions (giving discounts or other promotional incentives to purchasers of related products); Loyalty Programs (incentives for frequent purchases); Application of Switching Costs (termination fees); and Infrastructure Sharing (linking of computer systems and software to enhance supply and demand management of products/services).

Team Approach
A single point of contact will be assigned to a customer. To meet the ongoing needs of the customer, the contact will assemble varying teams of unique service providers from within the business as needed. Each successive team will spend considerable time with the customer with the rationale being that the more points of contact between the business and the customer, the stronger will be the bond, and the more secure the on-going relationship.

Can Your Business Employ Relationship Marketing?
Relationship marketing is most appropriate when marketing relatively high value customer products/services. It is also effective when the product or service can support value added extras specifically tailored for the customer. Remember, it takes time to implement the concepts and practices of relationship marketing and requires a complete buy-in by all employees of the business.

Eric GiltnerEric Giltner is a Senior Area Manager for the U.S. Small Business Administration (SBA). In this role, Eric trains and connects entrepreneurs and small business owners with the services they need to confidently start, grow, and expand their businesses. He frequently speaks at small business events across North Dakota and presents online webinars. Eric writes about small business topics for the SBA's North Dakota District Office newsletter, Dakota Business, and often shares business tips Thursday mornings on KNOX radio. As Senior Area Manager, Eric also works with SBA resource partners, chambers, economic developers, and lenders to support entrepreneurship in North Dakota. Prior to joining SBA in 1998, Eric served as assistant to the dean of the UND College of Business and Public Administration. He received his B.S. Degree in Geological Engineering and his Master's Degree in Business Administration from the University of North Dakota. Eric can be reached at

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