Relationship Marketing vs Traditional Marketing for High-Growth Companies
When people hear the word marketing, many of them jump immediately to the thought of TV commercials, billboards, mail-in flyers, or paid posts on social media. However, these are all forms of a type of marketing. For companies that are selling physical products or technology companies that are marketing to a wide array of people (business-to-consumer), these methods are the expected ways that they will get their brand out there. But the more specific the audience that a company is targeting, the more precise and creative the marketing efforts get. This is where relationship marketing takes over traditional marketing, which if done right results in a more profitable ROI.
A good example of relationship marketing can be seen by taking a closer look at US Trust, which caters to the top 1% of Bank of America clientele. Some of you may not even know of US Trust, because they do not spend their marketing dollars on flyers that go in your mailbox, nor do they pay for TV commercials. The same goes for Lamborghini; it is well known that Lamborghini does not advertise on television like other car brands do because their target audience is not sitting around watching TV. Both of these companies are known for maximizing the effectiveness of their marketing capital by hosting high-end events in places with activities that are enjoyable and “the norm” for their target customers. Companies that cater to a wealthy clientele or corporations often have corporate jets, vehicles, yachts, stadium boxes, and other perks that they can leverage to get their target customers in the right setting and/or mood to discuss a business transaction.
The same goes for investment and advisory services. Firms from Northwestern Mutual and Fidelity to Cushman & Wakefield to Big-Law names each have massive teams of “salespeople.” The difference between their army and that of companies with commoditized products such as AT&T or Jeep is that the former’s are not in polos and khakis with name tags standing in their branches — instead, they are well-dressed and well-spoken individuals with weekly or monthly discretionary budgets to seize an opportunity to onboard a new client into their firm. These same people are often masters of human psychology and interaction, whether they know it or not.
I personally have been courted by several firms, and the capital I was considering placing with them or the office lease that I was considering was at the bottom of the 1% of their normal clients. So why were they paying so much attention to me? Why were they driving hours from other meetings to buy me a coffee or take my whole team to after-work drinks? Why is it that front-row tickets to concerts and sporting events would conveniently find their way onto my desk as the weekend approached? Despite having owned or leased more than 7 Jeeps in a 5-year period, there were no perks from Jeep or even phone calls. Despite having a large business account with many lines, AT&T never did anything extra for us to earn or retain our business. It’s because these companies engage in traditional marketing means — they are so big that their regular brand awareness campaigns and many storefronts take care of reinforcing their value to us, keeping them front-of-mind. But when it comes to services from companies that are less of household names than the others, relationship marketing is key in earning that business regardless of how small the initial account may be.
Northwestern Mutual knew that the capital I was going to place with them upon the sale of my business was going to be nominal and even under their minimum threshold. In fact, they were providing me with expensive perks (tickets, dinners, etc.) well before any sort of term sheet was even finalized. The relationship had been established and worked for them in multiple ways. While I was not ready to become an official client yet, the relationship that they built with me transformed into a trusting bond that allowed them to capitalize on my network second-hand. As someone who was running a business whose future solely depended on how much time I spent expanding and nurturing my network, Northwestern Mutual knew that I would undoubtedly come across people with newfound wealth (or soon to be). When the conversation would turn to the capital they have or would soon have, my subconscious would call upon the availability heuristic of Northwestern Mutual, and an introduction would be made, at no additional cost to the contact and by default, his company.
Relationship marketing can be instilled in startups of all shapes and sizes as well. Even business-to-consumer companies such as Snapchat or Facebook in their early days engaged primarily in relationship marketing at the executive level, even though users were being rapidly onboarded through traditional marketing. Large partnerships were being made by Snap executives to add features such as Bitmoji or GeoFencing, and Facebook was building its initial groundwork for the massive acquisition channels it began to capitalize on. These types of firms have troves of investors, big and small, and those investors know that when they review financial projections and take a look at the proposed budgets during due diligence, the line item “Marketing” is inflated to include both traditional marketing as well as the expenses related to relationship marketing.
Consulting firms that have bigger ticket sales with longer sales cycles have to engage in relationship marketing much more heavily than those with brand recognition (not to say that firms like KPMG, Deloitte, or Palantir don’t build relationships — they have to if they want any shot of retaining high-value business). The sales process in these types of firms can span months or even years.
Take the comparison of a pharmaceutical company with a technology consulting firm for instance: Pharma Company A is developing a new drug that MAY be able to assist in the treatment and prevention of seizures (Tech Co A has a leading team of engineers that can likely build any project). No one really questions the budgets of big pharma since they know the marketing of a new drug can be just as, if not more, expensive than the manufacturing of it. People also know the tradeoff potential — the revenues can be massive (in the billions). But what about a small technology consulting firm that makes several million dollars a year. A friend of mine ran one for many years that was on the cusp of making the bottom of the Inc. 5000 list (built from scratch with no initial capital…not exactly a small feat for a consulting company just a few years old out of the 275,000++ companies in the US alone).
But instead of taking the time to understand or view the company’s marketing plan from a birds-eye-view, my friend was ostracized by the media and the Government for the way they conducted their marketing efforts. Because my friend was the only person running the sales, strategy, and partnerships discussions, the company’s very legitimate and fruitful marketing expenses were instantly classified as a personal indulgence and in turn, financial fraud. And that too from their revenues, until our last year where they took on short-term loans to float themselves to an acquisition, which would have been more than enough to instantly pay off their short-term debt.
The show Ballers which aired multiple seasons on HBO showed the world a great example of how a sports management agency with a wealth management arm for their players marketed their agent and investment services. The players are accustomed to fame and glory, being at exclusive events and parties. The firm threw events like these at mansions and yachts to show the players what life could be like if they signed with them. The firm in the show was often short on cash flow until a new player signed with them at which point they were replete with cash that carried them until their next sale. The difference between the relationship marketing portrayed in Ballers and a consulting company that was raising money for a venture capital fund amongst the high-profile clientele of Boston / New York / Greenwich is close to zero, albeit for the industry that the two firms were operating in.
Relationship marketing is critical to firms that cannot traditionally advertise their services, or at least without wasting their dollars on fruitless efforts.
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