Transaction Marketing vs. Relationship Marketing: Which is right for your business?

When it comes to marketing, there are two very different types of approaches you can take.

The first type of approach is transaction marketing.  This is the type of marketing that most executives and business owners are familiar with.  It’s designed to be a shotgun approach to marketing where you try to get the biggest bang for your budget.

Then there is relationship marketing.  With relationship marketing, you’re zeroing in on the absolute highest level prospects who are going to drive the needle in a BIG way for your business.  

If transaction marketing is like a shotgun, then relationship marketing is like a sniper.

In this article, you’re going to learn about the two different approaches so that you can make the best choice to grow your business.

What is transaction marketing?

Transaction marketing is the type of marketing that most companies perform with the goal of increasing sales at scale.

It’s the type of marketing that gets measured in cost per click, return on ad spend, lifetime value, and customer acquisition cost. 

Marketers are comfortable with transaction marketing because it’s easy to measure.  You put $1 into the machine and you get $3 out.

Transaction marketing typically focuses on three areas:

  1. Distribution:  How far can you penetrate your market with your product or service?
  2. Conversion:  What percentage of the people who see your product or service buy it?
  3. Lifetime value:  What can you do to make each customer worth more money for your business through increasing the amount of money spent through longevity or upsells.

Benefits of transaction marketing

There are a number of reasons why transaction marketing is so popular amongst CMO’s.

  1. Easy to measure:  In most marketing campaigns, you can set up tracking to see how effective the campaign is.  You know that for every $1 you spend, you are making $3 back.  
  2. The payback is fast:  While there may be a large upfront cost for transaction marketing, you will be able to recover that expense relatively quickly.
  3. Easy to Test:  There are a lot of tools that will allow you to run split tests on various marketing campaigns.  Whether you want to change the messaging on an ad, tweak the pricing of a product, or test an upsell to a service, you’ll be able to get immediate feedback to see what’s working and what isn’t.

Examples of transaction marketing

Email marketing:  It is said that for every $1 you spend on email marketing you make $42 in return.  (source)  This makes it one of the most effective transaction marketing channels there is.

Radio and Television:  A well-placed ad on television and radio can still give your product or service a high rate of distribution. 

Pay Per Click:  Whether you’re using Facebook, Google, or some other ad platform, pay per click is one of the most popular transaction marketing channels out there.  It’s easy to test, you get fast results, and there isn’t a large upfront cost associated with the channel.

Upsells:  One of the most famous upsells in history is “Do you want fries with that?”  And you know where it comes from.  The reason for doing this is because it increases the lifetime value of your customer.  Do you have something that you can sell that will compliment your product or service?

What is Relationship Marketing

We have a very different approach to relationship marketing than other companies may have.

For instance, most companies think relationship marketing is about having a referral program or a loyalty program.

Credit card companies and airlines are prime examples of companies that consider this a type of relationship marketing.

But do patrons of airlines and credit cards really feel like they’re in a deep relationship with the companies they patron?

Of course not.  They’re simply incentivized to continue to spend money with them in order to reap the benefits.

We consider loyalty programs and referral marketing campaigns a type of transactional marketing.

A true relationship is about winning the hearts and minds of people without expecting anything in return.

For us, relationship marketing is a form of long-term marketing effort designed to endear yourself to a high-value prospect over a long period of time.  You are looking to win over their hearts and minds through a series of outreach efforts until they consider you a friend.

Therefore, relationship marketing is a “sniper” approach to marketing.  

You carefully choose the few prospects who are most likely to move the needle for you and you pour your marketing budget into converting those prospects into customers.

Benefits of relationship marketing

Let’s face it, if you’re selling consulting services or enterprise software to executives in the fortune 500, you’re not going to grab their attention with PPC marketing or a direct mail campaign.

  1. A strong relationship makes for easy sales.  Think about how much easier it is to make a sale when you already have a strong relationship with the person that you’re trying to sell to.  You no longer have to get them to “know, like, and trust” you.  You just have to prove that your product or service solves their problem.
  2. Relationship marketing gets their attention.  You’re selling to the executive of a fortune 500 company.  Do you really think your direct mail campaign or your cold calling is going to get past the secretary?  Of course not.  Relationship marketing is the type of marketing you need to do something drastic in order to grab your prospect’s attention.
  3. Relationship marketing builds long-term clients.  It’s said that it is easier to keep an existing customer than it is to find a new customer.  Because you’ve built a true relationship with your marketing efforts, you’re going to have clients that will stay with you for years, not months.  These clients are in it for the long haul, and thus have a much higher lifetime value than other types of clients.
  4. $1 in; $100 out. Unlike transactional marketing where your goal is to make $3 for every $1 you put into the system, with relationship marketing, you can make $100 for every $1 you put into it.

Examples of relationship marketing

For us, the most effective form of relationship marketing comes by way of gifting.  

For instance, we recently finalized a ‘TOP 100 GIFTING CAMPAIGN’ for a rapidly-becoming known tech company.

The owner’s ROI goal was lead flow (first) and acquisition (second). The lucky 100 individuals were:

  • 30 circles of influence (the people who KNOW people)
  • 40 current clients (who could be referral partners)
  • 20 prospects (that could pay for the investment 5x over)
  • And 10 referral sources who have provided numerous leads in the past.

100 recipients, 3 gifts each, spread out every 4 months.

  • Total gift investment for the year – $49,850.
  • Most of our clients hire us to be their agency partner (more on that below).  And when they do, we hear things like this:

“We’ve shifted our entire marketing budget to gifting and looking after customers. Revenue has catapulted as a result. Anybody who has had the chance to read the book can consider themselves lucky and fortunate. Fantastic work.”

-Jonathan Goodman, founder of The PTDC

As you can see, we aren’t targeting EVERYONE with this marketing campaign.  We’re simply targeting the 100 people we think are most likely to drive business.  Then we set out to build a relationship with them through a comprehensive gifting campaign.

Final Words

We are big believers in relationship marketing as we’ve seen it transform our business and those of many of our clients.

A well-executed relationship marketing campaign can help you move the needle in a way that transaction marketing might not be able to.

You’ll get the attention of those individuals who are not going to click on your PPC campaign or have secretaries that filter out promotion emails.

Build a relationship first, and ask for the sale later.  Click here to set up a call with us and we’ll get your relationship campaign started off on the right foot.