Building Partnering Relationships

Chapter 2

BUILDING PARTNERING RELATIONSHIPS

Outline of Chapter

I.The Evolution of Personal Selling

II. Relationships and Selling

A.Market Exchanges

1.Solo Exchange

2.Functional Relationships

Partnerships

1.Relational Partnerships

2.Strategic Partnerships

Summary

III.Characteristics of Successful Relationships

A. Mutual Trust

1.Dependability

2.Competence

3.Customer Orientation

4.Honesty

5.Likability

B. Open Communications

C. Common Goals

D. Commitment to Mutual Gain

1.Mutual Investment

E. Organizational Support

1.Structure and Culture

2.Training

3.Rewards

IV. Phases of Relationship Development

A. Awareness

B. Exploration

C. Expansion

Commitment
Dissolution

Managing Relationships and Partnering

Choosing the Right Relationship

Size
Access and Image
Access to Technology

Using Technology to Increase Efficiency

VI.Summary

Teaching Suggestions

1.As you may recall, we began a discussion of partnering relationships at the end of chapter 1 by asking students why they thought building partnerships was becoming more important in business. We also asked them “What do buyers and sellers have to do to build an effective partnership?” And also, “How will building partnerships affect the role of salespeople?” We expect to provide answers to these questions in this chapter. After you’ve established the importance of partnering relationships to business, you might begin the current discussion by talking about the different types of relationships. For example, use the opening profileof John Peteet and ask students what type of relationship he develops. Why is it important that he develop relationships or that buyers trust him? You may want to emphasize the increasing levels of trust necessary to achieve each succeeding level of relationship. You may want to talk a little about the history of buyer-vendor relations in the US.

2.Develop the discussion further by talking about the characteristics of successful relationships. Each succeeding level of relationship is marked by increasing levels of trust and commitment. You should probably define trust (a belief that the other party will fulfill its obligations) and talk about how its three aspects, dependability, capability or expertise, and concern for the other party contribute to a good relationship. You may want to motivate this discussion by asking your students to think about a close relationship that they have and what role does trust-especially dependability, capability, and mutual concern-contributes to the relationship. Ask them if they behave differently in this relationship than they do in relationships with passing acquaintances. Ask them if they think their close relationships would be possible without trust. (Refer to the first Thinking It Through. Ask students how they are treated in a clothing store and then walk through the customer lifetime value of a female college student. Students are often surprised to realize how much they may be worth to a store.)

Next talk about communication and the role it plays in a successful relationship. Open and honest communication is essential to developing trust, therefore, it is essential to a successful relationship. Ask your students to compare the quality of communication, especially how much they know about those with which they have close relationships, to the communication in those relationships they have with people they don’t know so well. Also mention that shared goals and commitment to mutual gain help the relationship grow by giving each party an incentive to sustain the partnership and not do anything that would damage the relationship. One way to encourage this is through mutual dependency-both parties share about the same amount of power in the relationship and they spend their time trying to figure out how they will expand the pie instead of how they will divide the pie.

As the levels of shared goals and commitment to mutual goals grow, these ideals become codified into credible commitments, which are tangible investments in the relationship. These investments signal a partner’s commitment to a long-run relationship.

Finally, you will want to talk about the role of organizational support in fostering partnering relationships. All of the major organizational systems including its structure, culture, and training and reward systems must be consistent with and support these long-term relationships.

3.Next, you will want to discuss how these relationships develop. You probably want to return to the student’s close relationships. Ask them how the relationships began and how they proceeded from one phase to the next. Talk about how they probably began with an awareness phase-no interaction takes place, but they may do some information search about their object of interest. Next, if they don’t discover information to eliminate the person, they will move to the exploration phase where they make an initial contact and explore the potential benefits and costs to having a relationship. This is the “getting to know you” phase and in business relationships as is often true in personal relationships, most people do not put sufficient time into this phase before moving on to the next. In the expansion phase, both parties investigate the potential benefits of a long-term relationship. Parties begin to share sensitive information and take some risks. Both attempt to work closely to achieve mutually beneficial outcomes.

Last, comes the commitment phase which is the most advanced phase in a relationship. The benefits each party achieves from this stage of the relationship are difficult to achieve with other parties. With trust and hard work, commitments grow in number and complexity throughout the relationship.

You should mention that at any one stage, termination of the relationship is always a possibility. Dissolutions in business are as difficult as they are in personal relationships.

4.An important element for students to recognize is that strategic partnerships are not always the objective. Use discussion question 5, “What factors should a salesperson consider when deciding which customers he or she wants to develop a close relationship? How would these factors change when considering functional relationships versus strategic partnerships?” See how we answered this question on the next page. Also, consider the “From the Buyer’s Seat” as illustrations of relationship choices. Shannon Goodson, president of a small publishing company, talks about her relationship with her printer, as well as with a college professor who provides assistance to the organization. Ask students what the prof might get out of the relationship. Why provide the help?

5.Look at discussion question 7. Ask students “When does lowering the price make the sale?” This question should get you into a discussion of value, how value is created, and its relationship to price. Then extend that discussion into the value of the relationship.

Suggested Answers to Questions and Problems

1.When might relational partnerships potentially dangerous for selling companies to encourage? Or should companies encourage salespeople to develop relational partnerships with all accounts? Why or why not?

In some instances, the relationship takes on a power of its own which can make customers uncomfortable in raising concerns and other issues. Then, the customers simply leave because the problems don’t get resolved. In other instances, it can make salespeople forget their responsibility to the company and take the part of the buyer too much. Another challenge for the company occurs when the salesperson leaves – does the customer leave too? Or if the buyer leaves and then a new buyer is hired with whom there is no relationship – is that business lost? These and other problems can arise when the buyer/seller relationship becomes more important than other relationships (such as that between the seller and the company).

2.Which is more important to the seller: attitudinal or behavioral loyal? Why? What can a salesperson do to increase loyalty in buyers? How does loyalty relate to lifetime customer value?

Both are important; behavioral because it reflects actual sales. Attitudinal is probably preferable in that it should be exhibited in terms of both sales and advocacy for the product to others, as well as greater tolerance when problems arise (as they always will). But attitudinal loyalty without purchase is not worth much. Feelings won’t pay the bills! Loyalty should improve CLV through the following ways:

Willing to pay a price premium (note: Continental Airlines says that loyal fliers pay an average of 15% more per ticket than non-loyal, but research says this premium varies greatly by industry)
Willing to consider other offerings from the same vendor
Recommends the vendor to friends, which results in sales
Provides information on needs that can lead to new offerings

3.What are the responsibilities that a customer has in making a relationship work? Should the customer have a relationship manager? If so, what would that person’s responsibilities be?

Interestingly, some companies not only have relationship managers, but they have relationship management departments who have responsibility for increasing their seller’s share of the business in that company. This is found in situations like Panasonic in Japan, where the company set up such a department in order to get more off-shore purchasing done. They found that managers were very unlikely to use new off-shore suppliers unless there was an internal relationship manager encouraging them to do so. Such a department is the extreme. There has been some research that indicates, though, that companies are implementing a strategy of establishing relationship managers for key supplier relationships. These managers have a responsibility to show cost-savings or other forms of return on an annual basis as a result of the relationship, as well as find opportunities to leverage the relationship more fully. Such examples of leveraging a relationship might be finding additional opportunities to use that supplier or to increase account share.

The customer does have a responsibility to commit the right level of resources to the relationship. That means not relying, for example, on the selling firm to set up all of the technology necessary to automate supply chain management. If it means assigning personnel to the relationship, because it is a strategic partnership, then that should be done. If only one side works to maintain the relationship at a certain level, then the relationship can not rise to that level.

4.How could country culture influence the nature of buyer/seller relationships?

Culture influences relationships in such ways as how quickly relationships form, what expectations are held for buyer or seller, issues such as social hierarchy, and others. Culture also influences the role that contracts play in relationships. Culture can create a problem when expectations clash. In general, it is the seller's responsibility to adapt to the buyer's culture, which entails learning as much about the culture before entering it.

What are some cultural barriers to developing partnerships in your culture?

In the American culture, some barriers are economic Darwinism (the belief that the fittest should survive on their own), individual-orientation as opposed to a group-orientation, and a propensity toward contractualism (where legal contracts define relationships). Other cultures will depend on the student.

How does the organization’s culture also influence the nature of buyer-seller relationships?

Some companies have a sales culture of customer acquisition and do not focus on retention; as a result, the culture is somewhat “anti-relationship.” Others may have such a strong sales culture that other parts of the organization are kept away from customers; this stymies strategic partnerships.

5.Which factors should a salesperson consider when deciding whether to develop a close relationship with a customer?

When choosing a partner to develop a close relationship, the salesperson should choose the firm that, by working together, could increase benefits to both firms. In other words, the salesperson should first consider the firm that is most critical to their firm’s survival. Close partnering relationships make sense when the products bought are not well-defined or are highly specialized, or when there is a need for specialized information or service, and when one firm’s performance could have a critical impact on the other’s.

How would these factors change when considering functional relationships versus strategic partnerships?

A strategic partnership implies a greater level of commitment by both parties. One factor - does the buyer have access to technology or information that would benefit the seller? If so, a strategic partnership may be required so that both parties can jointly use that technology or information to mutual benefit. In fact, that factor can offset lower sales as a reason to form a strategic partnership. Some medium-size customers may actually benefit the seller more than some larger customers, as they may be closer to the leading edge of technology. Thus, size is an important but not determining factor.

Other factors include whether the two organizations' cultures fit well, are both equally committed to the relationship, if power is not equal at least use power equally, and other issues surrounding the relationship.

What factors should the customer consider?

Some of the factors would include a company’s ability to innovate, whether the culture is a good fit, the financial stability of the organization, and the importance of the supplier’s product to the core business of the customer. This last item is probably the most important, but if the others aren’t there, then a good relationship may be hard to develop.

6.How do buyers calculate profit? What is the role of the relationship type in increasing buyer profit?

A buyer calculates profit, or value, as a function of benefits received minus (the purchase price plus shopping costs such as hassle and time). A functional relationship, for example, increases profit by reducing shopping costs.

7.If the seller lowers price to make a sale, the salesperson’scompany makes less money and the buyer makes more. How is it possible for a buyer and a seller to have a win-win relationship and still arrive at a price?

If covering this in class, when a seller lowers price to make the sale, why does lowering the price make the sale? Because value has not been established. Thus, that sale is more transactional and not based on the relationship. The seller does win the sale but at the expense of some of the margin. Strategic partnerships are win-win relationships because both parties have gone beyond trusting each other to making significant financial investments that improve the profitability of both companies. They have taken risks to expand the pie, giving the partnership a strategic advantage over their competitors. Strategic partnerships are created explicitly for the purpose of discovering and exploiting joint opportunities, thus, both parties win.

8.Assume you have a functional relationship with a buyer. You have been informed that the next order placed by the buyer is going to be shipped late. The buyer has told you it is critical for the order to be delivered on time. You contact the factory and cannot do anything to speed up delivery. What should you do next?

Assuming you cannot personally go get the product or find it for them through another source, the first thing is to contact the buyer, in person if possible. Explain the delay, but offer a firm delivery date. Then allow them to make the decision on what to do next. If possible, a discount or some other incentive to stay with you should be offered. At this point, it matters not whose fault it is. You may lose the customer forever if it is your fault or your company's fault, but right now, they are most concerned with getting the product. So how you help them do that is most important.

Building Partnering Relationships

Outline of Chapter

Teaching Suggestions

Suggested Answers to Ethics Problems

Suggested Answers to Questions and Problems