breakeven on ‘one-time’ shoppers. For grocery e-tailers, customers have to be retained for
18 months for breakeven. The study also shows that repeat purchasers tend to spend more
in a given time period and generate larger transactions. For example, online grocery shop-
pers spend 23% more in months 31–36 than in the first 6 months; this includes products
in other categories (cross- and up-selling). A final effect is that repeat customers tend to
refer more people, to bring in greater business. The impact of these referrals can be signfi-
cant – over a 3-year period, in each product category, more than 50% additional revenue
of the referrer was generated. Each referrer also has a lower acquisition cost.
Table 6.1 summarises the differences between the two paradigms discussed in this sec-
tion. Figure 6.16 shows that to build relationships and loyalty online, the quality of the
online experience is significant. The topic of loyalty drivers is discussed further in
Chapter 7.KEY CONCEPTS OF RELATIONSHIP MARKETINGTable 6.1A summary of different concepts for the transactional and relationship paradigms
Transactional Relationship Comments and examples
paradigm concept paradigm concept
Market segment Individual customer Raphel (1997) describes the success story of AMC Kabuki 8
movie theatres in San Francisco. Despite the competition from
the giant multiplexes, AMC is flourishing because of its under-
standing of the cinematic preferences of its customers so they
can be informed in advance of ticket sales.
‘The most failure-prone fault-line in transactional marketing is
the statistical customer – the hypothetical human who is com-
posed of statistically averaged attributes drawn form research’.
(Wolfe, 1998)
Duration of transaction Lifetime relationship The pursuit of customer loyalty ‘is a perpetual one – more of a
journey than a destination’. (Duffy, 1998)
Margin Lifetime value To support the Huggies product in the 1970s, Kimberley-Clark
spent over $10m to construct a database that could identify
75 per cent of the four million expectant mothers every year in
the USA, using information obtained from doctors, hospitals
and childbirth trainers. During the pregnancy, mothers received
a magazine and letters with advice on baby care. When the
baby arrived a coded coupon was sent, which was tracked to
learn which mothers had tried the product. The justification was
the lifetime value of these prospective customers, not the unit
sale. (Shaw, 1996)
Market share Most valued customers Rather than waging expensive ‘trench warfare’ where profit
and customer share objectives are linked automatically to overall market share,
companies have now realised that, as 80 per cent of their
business often comes from 20 per cent of their customers (the
famous Pareto law), then retaining and delighting that 20 per
cent will be much more cost-effective than trying to retain the
loyalty of the 80 per cent. Reichheld (1996) conducted research
indicating that an increase in customer retention of 5 per cent
could improve profitability by as much as 125 per cent.
Mass market Direct marketing ‘The new marketing requires a feedback loop’. (McKenna, 1993)
monologue dialogue
Passive consumers Empowered clients ‘Transactional marketing is all about seduction and propaganda
and it depends on a passive, narcotized receptor, the legendary
“couch potato”.’ (Rosenfield, 1998)