Relationship Marketing and the New DM

This December McGraw-Hill will publish the third edition of David Shepard Associates’ “The New Direct Marketing.” Over the next few issues we’ll offer a preview. This month’s column is taken from a new chapter on relationship marketing.

What we have chosen to call “the new direct marketing” evolved from traditional DM over the last 20 years or so. During that period a number of attempts have been made to rename what we were tempted to call “this thing of ours,” but that name, too, we understand to be taken. In the 1980s the name of choice was database marketing. But because the term “database” had (and still has) a technical connotation, other names with more of a marketing orientation-such as relationship marketing or customer-focused marketing-have received considerable attention.

The new direct marketing involves establishing and maintaining value-added, one-on-one relationships with customers. Here, then, is our understanding of the history, current status and likely course of development for this important component of the new DM.

Relationship marketing is not so much a bold leap forward as it is scrambling to recapture something from the past. Before the age of mass production, producers and merchants had one-on-one relationships with individual customers. A customer’s needs were well known and products were routinely custom produced to meet individual needs.

Over time, large-scale mass production and distribution methods revolutionized the way that products were brought to market. These advances created cost efficiencies that drove lower prices, making a broad range of products affordable to the masses. However, a price was paid for that standardization. Instead of products being configured to individuals’ needs, consumers had to evaluate the merits (features and benefits) of mass-produced products and then choose the one that most completely fulfilled their needs.

Along with standardized production and distribution came standardized marketing. In this product-centric approach, individuals were grouped into a mass market consisting of six or so macro segments. Effective communication with consumers involved developing a half-dozen relevant types of targeted messages and distributing them via print, TV, radio and outdoor advertising. Marketing communications occurred through impersonal, one-way channels, from companies out to consumers.

It’s important to recall that people then were really no different than we are today. They all had unique needs. What was different was that production capacity in the post-Depression era was outdistanced by demand, especially in the 1950s and 1960s. During this period, people were happy to get any product at a reasonable cost, let alone one that significantly met their needs.

Today, the marketplace is structured quite differently and consumers have come to hold the advantage in many product categories. Competition from foreign companies and non-traditional suppliers has increased supply. Technology-driven advancements in communications and delivery of products and services have increased competitive reach to the extent that in many industries we have almost achieved a truly global marketplace.

Technology has also vastly increased production capabilities, further lowered manufacturing costs and enabled large-scale customized production. In many industries it is now less expensive to produce custom-configured products than to mass produce, carry inventory, incur distribution expenses, stock retail sites and accept closeout losses on unsold merchandise. As a result, multinational companies with heavy investments in retail sites find themselves competing with smaller, more nimble niche providers that remotely service their customers.

In most product categories, demographic trends have resulted in a stagnation of growth in the consumer base. Compoundingthis is the fact that the baby boomer generation is moving into a life stage characterized by relatively low levels of product acquisition. The net impact is a dramatic increase in the cost of customer acquisition for most industries.

Beyond demographics, the vast majority of consumers lead busy lives and have heavy demands made on their free time. This, combined with the constant introduction of products and promotions, as well as a seemingly endless bombardment of marketing messages, has resulted in a marked decrease in shopping.

Several market research studies over the last five years indicate that most consumers are convenience-driven, not price-driven. Consumers tend to identify suppliers that provide adequate quality at a fair price, simplify their lives and add value. They are inclined to stay with suppliers that prove worthy of their loyalty, realizing it would take time and effort to identify and switch to a new supplier.