While all marketing efforts focus on generating sales and gaining clients, transactional and relationship marketing approach sales differently.
Transactional Marketing: Aims to secure a one-time sale from a large number of customers
Relationship Marketing: Aims to encourage repeat purchases from a defined pool of customers
When choosing between the two strategies, your choice largely depends on who you view as your ideal customer, the type of relationship you want to have with them post-sale and the product you are selling.
In this blog, we will discuss the ins and outs of transactional and relationship marketing and how to apply the strategies to your business model.
What is Transactional Marketing
When you think of the word transaction, you think of a sale. Well, that’s what it is. Transactional marketing definition: the number of sales transactions registered, the profit per sale, and the cost of each purchase. The transactional approach leverages point-of-sale promotion, which is a key element of the marketing mix:
- Product - What consumer needs does your product meet?
- Price - How will you price your product so that it is attractive yet profitable?
- Place - Where will you distribute your product?
- Promotion - How will you get the word out?
Transactional marketing aims to maximize the number of sales by constantly attracting new customers, rather than encouraging repeat purchases with the buyer, like relationship marketing.
A sales pitch on QVC, which if you are unfamiliar, is a shopping channel that specializes in televised home shopping, is a great example of this type of strategy. When you turn on this channel, you will see many different products sold throughout the day. The goal of each product demo session is to sell as many items within a specified time. The product manufacturers don't take the time to engage with the audience and build a relationship. Instead, it's a straightforward, one-way conversation where the moderators use discounts, incentives, and buzzwords (the clock is ticking) to generate as many sales as possible.
What is Relationship Marketing
As opposed to transactional marketing, relationship marketing is focused on, well you guessed it, the relationship with the customer. The goal is to create a connection that ensures customer retention and repeat purchase. This strategy takes more time to nurture, as all relationships do.
Relationship marketing strategies include loyalty programs, social media groups, and increased customer service training. These marketing efforts are investments in the promise of long-term sales.
When implementing this strategy, you'll want to ask yourself questions like: What is the customer looking for? Would they find this valuable? Do they want to see this ad?
A great example is a courtesy call from the customer service team. A simple check-in to poll or survey the satisfaction level from the customer builds your relationship with them and gives insights and data to share internally. Courtesy calls are a great way to increase the level and quality of contact between customers and the company and build a greater understanding of individual customers' needs and preferences.
Combining Transactional and Relationship Marketing
You might see how both strategies organically co-mingle already, so let’s discuss how they work together a bit more.
The first point of commonality is the customer. Whichever strategy you chose to deploy, you must understand your customer. Where do they conduct product research? Where do they shop? What is their typical budget?
The customers that are pulled in through transactional marketing can be nurtured through relationship marketing. This way, those customers that you brought in will stick around. And, you want your customers to stick around!
On the flip side, customers who are nurtured through relationship marketing can be convinced to make another purchase in a transactional way, such as a discount. As you can see, the two strategies go hand in hand.
Transactional and Relationship Marketing Differences
As we talked about earlier, the difference between the two strategies centers on the fact that one is focused on sales and one focuses on customers. This comparison chart helps clearly outline the difference between the two:
These additional points will help you clearly understand what makes each strategy different and unique:
- Transactional marketing is based on a single sale formula and geared towards short term benefits.
- Relationship marketing promotes customer loyalty and improving ways of doing business for long-term customer retention.
- In transactional marketing, customer interaction is minimal, whereas relationship marketing is often.
- Transaction-oriented efforts focus on increasing the number of sales, whereas relationship-oriented actions focus on the customers.
- Transactional efforts lead to low customer commitment, and relationship efforts lead to higher commitment.
Benefits and Pitfalls of Transactional Marketing
Like any marketing strategy, there are bound to be benefits and pitfalls. It’s the nature of business. With transactional marketing, here’s what to pay attention to:
Low cost is a good thing, so we'll mark this as a benefit. The cost of running a point-of-sale promotion can be smaller than running a TV marketing campaign. Another advantage of running point-of-sale promotions is that they are simple and easy.
Little emotional attachment
A lot of transactional customers are looking for low prices because their primary concern is the price. This means they probably aren't going to be long-term customers as they are looking for a short-term connection. Unless you maintain the pricing strategy or nurture the relationship we discussed earlier in the blog, they will seek alternative options. This is a downfall as competitors could undercut your pricing in the future.
Here we will count this as a benefit — we know holding and managing inventory is a high cost, and transactional marketing tries to quickly reduce holding costs by getting a product off the store shelf. By clearing out discounted items, you can make room for more in-demand items, generating higher revenue.
*Tip: transactional marketing is especially great at clearing out seasonal inventory or items that don't sell out promptly.
Benefits and Pitfalls of Relationship Marketing
Relationship marketing presents broader, more long-term goals. Here are the important pitfalls and benefits to pay attention to:
“Relational marketing increases customer retention rates by 5% and increases profits from 25% to 95%” – Reichheld & Schefter
How can this be? Working with previous customers rather than attracting new customers can be more cost-effective, just plain and simple. It’s 5-25 times more expensive to gain a new customer than retain an existing one.
You've heard the saying, "It takes two to tango," well, it's true. In relationship marketing, you have to develop a connection genuinely, so you need to ask for feedback. And as we've learned, reviews are an important part of the customer journey. And, hey, customer reviews give you great insight into what you are doing right, what to improve, and ultimately allows you to serve your customers better. Ask questions like, What do you want to see from us? What do you like about our product/services? What would you like to see more/less of?
Customer feedback is one of the most valuable assets you can rely on. The relationships you have built (psst...relationship marketing) make them more willing to provide opinions on areas of improvement. An important part of feedback is acting upon it; when a customer sees that you take their opinion seriously, it builds and grows trust, but it proves you're listening.
Transactional Marketing Example
Some marketers argue that the 'loyalty era' of marketing is dying out. According to recent consumer research from Kantar Retail, 71% of consumers now claim that loyalty incentive-programs don't make them loyal at all. Instead, consumers look to brands regarding their relevance at the moment. Let's look at an example of how the brand can play less of a role in transactional marketing experience.
Imagine that the fence around your houses needs mending. You have the lumber, the nails and the paint, but are missing a hammer. You drive to the local hardware store where you find a self full of hammers at various price points. As a marketer, you're not as familiar with the different brands as a handyman/handywoman may be, and to be honest, they all look the same to you. So, you evaluate the products based on the 4Ps as any marketer would.
Product: Most of the metal hammers appear the same, but one hammer has a cushioned grip that feels nicer than the rest.
Price: All of the products are priced comparatively, expect the hammer with the cushioned grip, which is slightly more expensive.
Promotion: The hammer with the cushioned grip has a tag attached to it offering one free packet of nails with purchase. None of the other hammers have such offers attached to them, making the higher price seem like more of a bargain.
Place: The hammers are located right next to the nails, so you can easily see the prices and calculate the extra value you'd be getting.
Since you don't buy hammers often (and doubt you'll buy one again anytime soon) you opt for the hammer that has a promotion attached to it.
Relationship Marketing Example
Getting someone to purchase your product over and over again, can be a testament to the quality of your product or service. Achieving this goal requires investing in the relationship you have with your customer, but the time and money you spend doing can be worth the investment. According to one study, engaged customers spend over 23% more than an average customer.
Here are two examples of brands using the relationship marketing model.
Product: SoulCycle’s community for cyclists and fitness enthusiasts aligns with their customers’ wants and needs of a healthy, positive environment.
Price: For a 45-minute fitness class, SoulCycle is expensive when compared to competitors. SoulCycle is confident in their product and people to make the most of each class for customers.
Place: The SoulCycle experience becomes relevant when a customer has an instructor that personally inspires them, thus creating a familiar environment they most likely will want to return to.
Promotion: SoulCycle personalizes their playlists and provide a spa-like atmosphere, generating a feeling of partnership with customers.
This image is one of many wall decals hung in the studios that represents their values, mission, and promise to customers.
Zappos practices relationship marketing differently, and one we thought would be an excellent example to highlight. Relationship marketing is all about building the connection between a brand and its customers for the long-term. Zappos is known for being a customer service icon and internal culture as well.
In fact, the customer relationship is so important to Zappos, that it's in their employee guidelines that customer service reps have the authority (and budget) to wow customers.
"For example, all Zappos customer service representatives have the authority to accept special-case returns, offer partial or full refunds in cases of loss of service, pay for damages, and “WOW” customers to provide solutions in any other manner they deem appropriate.
This includes multiple examples of two-hour long phone calls between customers and customer service representatives that result in surprise care packages or letters.
In the brand's YouTube videos, it highlights the ties amongst employees. With over 100 videos showcases #ZapposCulture, they focus on building relationships, highlighting individual work, or office adventures internally. This ultimately opens the doors for a natural connection between the customer, setting a foundation for long-term relationships.
Here is a video from their #ZapposCulture content. It discusses the theory of holacracy and the importance it plays in the long-run of customer relationships.
At the end of the day, what it all comes down to in both transactional and relationship marketing is the customer. Both strategies target and execute in different ways, but one cannot live without the other. Now, think about which approach your marketing team currently focuses on and what strategies and tips you can embrace to improve.
Interested in learning more about your customers and the metrics that matter most? Meltwater has the data and insights-fill out the form below, and we will be happy to show you!