Why Relationship Marketing? John H. Melchinger If you know only selling techniques but not the marketing rationale behind them, then you will become brittle and break when your markets and clients change and you cannot read the changes. You will be unable to improvise, adapt, overcome.If the crowd can no longer hear you above the din of the marketplace, the crowd will pass you by. Relationship marketing is a style of marketing that is mostly misunderstood. Businesspeople -- especially salespeople -- misinterpret the word relationshipto mean a kinship or friendship between client and provider. In marketing it really means being interrelated, a state of affairs existing between those having relations or dealings. It is a professional-client relationship rather than a personal relationship. Although the latter may also develop, a personal relationship is not the primary objective -- of either party. Relationship marketing makes great sense and profits when it is understood in business terms. It causes confusion, frustration and lost opportunities when it is misunderstood. Let's explore what relationship marketing really is, and why it is so necessary for brokers to practice. What It Is and Isn't Relationship marketing means to think of yourself and your firm as having clients, not just acquiring customers. The implication is that you should market to protect your customer base, not just build it. This becomes critical as more and more competitors vie with you for your clients' dollars. Most service firms devote most of their time, effort and resources to finding, attracting and acquiring new clients. I call this tactical myopia because these firms could benefit more from keeping valued clients as well as attracting new ones. It is better to attract 100 new, lose 20 old and realize a net gain of 80 than to attract 130 new and lose 60 for a net gain of 70. The first effort costs less and reaps more. Factoid: The cost (time, effort, dollars) to acquire new clients who are strangers is greater than the cost to retain or build up existing clients. Factoid: The more personal the method employed to acquire professional service clients (e.g., personal introductions, workshops, interviews, conversations, engaging inquiries), the better the result. Conversely, the more impersonal the methods used to attract new clients (e.g., mass mail, bulk mail, advertising, telemarketing), the poorer the result; more time needed to make the sale, lower average case size, less persistency of the business written this way. Relationship marketing means attracting, maintaining and enhancing client relationships. Servicing and selling existing clients is just as important to long- term success as acquiring new ones. Good service retains relationships; good selling is required to enhance them. The scope of effective marketing, then, begins with new client attraction and acquisition, followed by cementing the relationship with good service, transforming indifferent customers into loyal clients through good service and sequential selling, and then closing the cycle by riding the wave of the clientele you created to obtain personal introductions to potential new clients. This last effort provides such a low acquisition cost for increasingly profitable new clients that it still amazes how few insurance and financial planners have taken to it. Rather than obtaining personal introductions from their best clients, they still insist on clinging to the dogma of asking for mere referrals -- a tradition more honored in the breach than the observance. Over the past decade or so, authoritative articles among the sales and marketing literature increasingly point out that... 1 firms marketing intangible products need to engage in constant reselling efforts for service firms competing in businesses where firms are not highly differentiated, and where consumers have the ability to change providers easily, most service firms pay inadequate attention to encouraging customer loyalty 2 improving the performance of service personnel as a means of retaining clients is too often overlooked, or rejected as too costly an investment 3 the salesperson may not be the best person to service the client and keep the provider-client relationship nurtured and intact 4 clients keep looking for more timely information they can use to make what they consider to be increasingly important decisions, viewing their chosen providers as their advocates; when the information they seek is not forthcoming or their chosen provider does not behave as an advocate, consumer loyalty wanes quickly 5 where marketing intangibles used to be a seller's job (to select and acquire the client), clients now have equal say and sway selecting their advisors in an increasingly competitive environment. It's really all about business relationships, and salespeople who seek to develop "trust" -- while neglecting all the other factors mentioned so far -- suffer a special brand of tactical myopia that mistakenly makes the salesperson more important than the companies s/he represents or the service staff that routinely talks with the client. None is more or less important than the other, and if relationship marketing is to be implemented successfully, everyone has to acknowledge the importance of the team approach to marketing. Everyone counts. Everyone markets. A Few Realities Some things have changed. 6 Clients want to hear from their broker seven times a year, on average: 2calls, 4 pieces of mail, 1 face to face interview.This means that annual reviews alone or less than seven contacts with clients will not do the job of keeping your clients' attention, trust and loyalty. And quarterly newsletters purchased from newsletter vendors and used as the "4 pieces of mail", although helpful to keep your name in front of clients, have limitations too. No one really views these customized reprints as authored by the broker, nor should they. One large insurer forbids their use by its agents, claiming that any appearance of authorship by the agent -- when it is not the agent's work -- is "fraudulent misrepresentation of the agent's knowledge and ability." Here's the point: clients are fickle and growing fickler, demanding not just more expertise from their brokers, but more and more timely attention as well.They want to see, hear and read their provider's ideas, and experience their competency. They want to work through things with their providers, and not feel worked on by their advocates. 7 People will grant you name recognition after an average of six unique exposures, and name plus idea recognition after an average of nine explanations.Ask yourself how many times you've said, or heard someone else say, "I don't know how he missed the point. I told him twice in the same interview!" The point: people remember words less than half as well as they remember pictures, images and graphics they can see, discuss and experience. They also need to be reminded, on different occasions, so making references back to what you've discussed before reinforces your message. Have you ever experienced a client of yours buying something you sell from someone else because they thought you did not sell what they wanted? Relationship marketing means maintaining on-going, meaningful communications in ways clients understand and can remember. The marketing implications of just these few realities are important. What are the implications when you take into account all the demographic and psychographic changes going on today in the financial services marketplaces? And how practical is it for financial service firms and stand-alone brokers to embrace and practice relationship marketing? Who Needs It? As a practical matter, the practice of relationship marketing works best for professional service firms in businesses with these conditions: 1. The client needs and wants the service periodically; it is needed on an on-going basis. (Example: investment services versus funeral services) 2. The client controls selection of the provider. (Example: choosing a life insurance company, agent or broker versus riding the only train system between Newark and New York) 3. The service has competing providers, and it is common for clients to switch between them. (Example: selecting a financial planner versus which company to buy your electricity from) These conditions present the opportunity not only to acquire new clients, but to build relationships with them as well. The secret is to implement specific marketing strategies that are meaningful to your clients, that differentiate you from your competitors, and are difficult for your competitors to duplicate or improve on. Relationship Marketing Strategies Core Service strategies develop relationships around a core service that attracts new clients by meeting specific needs, cements the relationship through its quality, multiple parts, and long-term nature, and creates the basis for additional selling over time. An example of a core service marketing strategy is fee-based investment portfolio management by financial planners who also write financial plans, sell life and disability insurance, and annuities. The portfolio management satisfies the client's need for orderly, managed investing, is on- going and long-term, and offers the planner plenty of chances to point out opportunities and issues the client can benefit from by moving money, purchasing insurance, buying more services from the provider. Customized relationships capture the clients' hearts and minds by attending to their unique personal needs and desires. No, nothing kinky here, just great contact management. For example, one of my clients has built a computer software system that connects the client database, product databases, word processing software and laser printers so effectively that all the provider has to do to send a target-specific message to a certain type of client is hand it to his secretary. This clerical person can enter the bulletin into the word processor, answer a series of prompted questions about the target audience, and sit back and watch while the computer finds the targets, prints each one the bulletin and an envelope, and ogs the transaction in each client's history record. If following up is to be scheduled, the computer will also do that automatically. Not every client receives every message the broker sends out -- only the ones customized to each client's needs and idiosyncrasies. For the one-time investment required to capitalize and develop this system, one fairly well paid "marketing specialist" does not need to be hired. If among 300 clients only 15 own a stake in a certain type of limited partnership, or own variable life insurance, or play golf with Pings, or race one-design sailboats, or whatever, there is now a way for this broker to efficiently and effectively deliver customized messages to anyone with certain targeted characteristics. Value-Added Service adds extras to existing services. These extras must be generally unavailable from competing providers and valued by clients. Clients perceive the extras as beneficial and prefer to do business with the provider that offers them. When a life insurance broker performs a policy audit of all the prospect's policies, this is not value added. When the broker puts the data on a spreadsheet and produces an index of values with color graphs showing loan amounts and net values, then this service is value addedand appreciated byprospects and clients. Relationship Pricing has worked well for ages. By offering special rates for special clients, relationships are encouraged. The provider gives the incentive to consolidate the bulk of one client's business under the one provider's roof. "Price breaks" may mean offering programs other than discounts. Clients with more investments than others may receive special reports, more often. People with higher net worth may receive annual reports in monogrammed leather binders. Better clients may receive some work without fees. The idea here is simply to encourage customer loyalty by rewarding it. Everyone's a Marketer strategies can be the most fun to implement and highly effective because everyone gets to interact with the firm's clients. Everyone's a marketer. In one such effort, a client firm of mine designed a formal communications program to shape work attitudes and behavior. Who better to help do this than clients who need and want good service from the firm's staff? The multiline insurance and financial planning firm invites in one good businessowner client each month for a two- hour session with all staff assigned to that client's case, followed by a lunch. The business owner client opens with personal observations about the staff's performance over the past year, explains what s/he wants from such a service provider, and then answers questions and often resolves problems in an open forum. The buyer helps tailor the very attitudes and services that s/he's buying. A novel approach to internal marketing, and it works especially well. Why Aren't More People Doing It? Ironically, more people in financial are implementing relationship marketing strategies, much to their advantage. They remain in the minority, however, and that raises the question why? My observation is that the tactically oriented, transaction focused salespeople compensated entirely by sales commissions suffer from tactical myopia and cash flow fixation. I call them the selling impaired. They are running too fast to slow down and think through some strategic issues and contingencies. They also do not understand the difference between cash flow and capital, and which one is devoted to making a business grow. Otherwise they would invest the time, effort and capital to implementing relationship building systems and procedures to both build their clientele as well as protect and nurture it. They would focus on specific, suitable market segments, organizeto reach that focus, discipline themselves to remain true to their organization and focus, and practice, practice, practice how to bond their clients to them by building mutually productive relationships that have clear meaning and benefits for both the clients and the provider...as so many enlightened marketing brokers are now learning to do. John H. Melchinger coaches financial planning and estate planning professionals who market and sell to high income and high net worth buyers. His consultations on developing their professional practices through effective marketing are highly profitable for his clients. John's career experiences in financial services and products--since 1977--make him exceptionally qualified to have developed innovative, non-traditional marketing and skills development programs in estate planning, financial planning, business planning, ethics and consultative selling. His how-to books, articles, bulletins, workshops and presentations have become classics in the industry, and his clients are among the most profitable and productive in their fields. John is available on the Internet at jhmco@ix.netcom.com, by telephone appointment at (403) 459-1472, by fax at (403) 419-2936, and by mail John Melchinger 3 - 11 Bellerose Drive, Suite 117 St. Albert, AB T8N 5C9 Canada Web Site http://fsc.fsonline.com/fsm/jhmco.html