The Disadvantages of Transactional Marketing

A transactional marketing approach aims to generate high numbers of individual sales. The approach does not involve building long-term relationships between the business and its customers or encouraging repeat buying behaviors. This approach works well for creating revenue in the short term, under the right market conditions. There are, however, several disadvantages to transactional marketing strategies.

Price serves as the sole factor in the vast majority of purchases based on transactional marketing. Factors such as quality of the product or the competence of customer service play no role. This leaves businesses that use transactional marketing open to price wars. If a competitor lowers its price on an equivalent product, customers will abandon your business or product for your competitors. You may face yourself in a destructive price war just to keep your sales numbers up. Price wars threaten profit margins and, in a worst-case scenario, can put you out of business.

Transactional marketing leaves very little room for the business to engage in reputation-building, because transactional customers typically lack any brand loyalty. The absence of brand loyalty and a focus on price over quality limits the chances for the kinds of positive reviews and good word of mouth that companies can leverage in building a reputation. The limited relationship between the customer and company skews toward the passive, meaning customers probably will not follow your business on social media, blog about your business or, in many cases, ever even notice your business.

Products sold via transactional marketing come with price points designed to yield a profit, but the profit exists only in the short term. The absence of a relationship between the seller and buyer means much lower odds of repeat business. Since new customer acquisition costs run high compared to the costs of retaining a customer, businesses employing transactional marketing must spend considerably more over the long haul to acquire customers. Relationship-driven marketing tends to yield a better return on investment on a long run view.

The success of transactional marketing depends heavily on boom conditions in the economy. Boom periods provide for better budgets, higher levels of demand for products and more customers. That combination of higher customer numbers, demand and ready cash allow the business to focus on achieving a higher volume of transactions, rather than nurturing relationships with existing customers. Economic slowdowns, however, mean a contraction in budget sizes, demand and customer bases. Businesses that rely on transactional marketing tend to face steep drops in profit during slowdowns.