Transactional vs. relationship marketing: Key differences

What is transactional marketing?

Transactional marketing is a strategy that aims to increase efficiency and volume of point-of-sale transactions. This approach focuses on making the sale, rather than forming a relationship with the customer. Once the business completes a transaction, there is no further interaction with the customer, other than potential customer service assistance.

Transactional marketing follows the four traditional elements of marketing: product, pricing, placement and promotion -- often known as the four P's. This means businesses focus on providing customers with high-quality products at profitable, yet attractive, prices.

Companies also establish efficient distribution chains and promote the products in ways that appeal to the customer. For example, a business may promote a product by using discounts and coupons; buy one, get one (BOGO) promotions; cash-back offers; mail-in rebates; and in-store or online sales.

Benefits of transactional marketing

Although transactional marketing doesn't focus on building a relationship with customers, companies that use this method benefit in a couple ways.

• Low cost. Because this method focuses on quick sales, transactional marketing campaigns are typically inexpensive. Most transactional marketing campaigns include sending out fliers and promotional emails, enabling marketers to spend less of their budget in this area.
• High inventory turnover. It can be expensive for businesses to manage large inventories for long periods of time, and quick sales can reduce the amount of time that businesses hold items in their inventory. If a business clears its shelves quickly, it can replenish them with in-demand items and to generate more revenue.

Example of transactional marketing

Examples of transactional marketing include:

• a shopping channel on TV advertising a BOGO offer for a new product and provides a phone number or website to buy the product in that moment; and
• a convenience store selling one brand of a product, but also displaying another brand on a promotional display next to it at a lower price.

What is relationship marketing?

Relationship marketing aims to build strong, long-term relationships between brands and customers that lead to repeat sales and increased customer loyalty. Relationship marketing focuses on enabling communication between customers and the business, tracking their activities using a CRM system and tailoring messages and advertisements to customers based on their customer profiles.

Businesses that use relationship marketing emphasize customer service to improve retention and satisfaction. Often, if customers aren't satisfied with a company's customer service, they will stop buying products from that company and seek another with better customer service.

While transactional marketing is focused on short-term communications, relationship marketing focuses on the long-term benefits of building relationships and brand loyalty.

A benefit of relationship marketing is that strong customer connections can result in trust, and customers may help promote the brand by free word-of-mouth promotion -- or buzz marketing -- and potentially generate leads and sales. Customer acquisition can be expensive, so relationship marketing can often help cut costs on marketing and advertising, as it is the customers who find and draw new people to a business.

A business can use relationship marketing in the following ways:

• provide noteworthy customer service;
• increase customer engagement by interacting with customers through social media and regularly responding to posts;
• conduct customer feedback surveys, polls and phone calls to show customers the business values their opinions;
• launch customer loyalty programs; and
• offer discounts or bonuses to repeat customers.

Benefits of relationship marketing

Relationship marketing focuses on building strong relationships with customers, which leads to several benefits. Here are a few examples:

• High ROI. It is more expensive to acquire new customers than it is to retain current ones. Customers who have strong relationships with a brand are likely to purchase more of a business's products and services and support the company when they introduce new products. Relationship marketing also increases the likelihood that a customer will return to the store more than once.
• Increased customer feedback. Relationship marketing creates loyal customers who are more likely to promote a company and its products on social media and leave comments or ratings on the company website. Businesses that listen and act on customer feedback over social media, or through surveys, can improve the products and show that they care about what the customer wants from a product.
• Long-term sales. If a customer trusts a business and enjoys its products or services, he or she is likely to continue purchasing from the company, even if they raise their prices. Businesses that have loyal customers who trust the company increase the chances of long-term sales.

Examples of relationship marketing

Relationship marketing takes it a few steps further than transactional marketing. A company that uses relationship marketing may:

• thank a customer through a social media post;
• offer discounts to long-term or repeat customers; and
• survey customers on how the company can improve its product, service or customer experience.

Transactional vs. relationship marketing

While transactional and relationship marketing are similar in that both strategies aim to make a sale, they go about it in different ways. Here are the main differences between transactional and relationship marketing:

1. Transactional marketing uses mass marketing and promotion to make sales, while relationship marketing uses personalized marketing and builds customer relationships to make sales.
2. While transactional marketing is focused on short-term communications, relationship marketing focuses on the long-term benefits of building relationships and brand loyalty.
3. Customer interaction is minimal in transactional marketing and does not occur beyond the sale. Relationship marketing, on the other hand, pushes for communication with customers via surveys, polls, phone calls, text messaging and social media interactions.
4. While transactional marketing uses promotional strategies such as BOGO offers or discounts to make one-time sales, relationship marketing uses loyalty programs and reward systems to encourage customers to return.