Business is about generating economic events that result in financial transactions. However, other than for occasional incidental events, a relationship must exist between an enterprise and its customers for financial transactions to occur because there are always competitors. Relationships are based upon the effectiveness of specific individuals within enterprises, whether in management, on the front line, or in between. Relationships are built on the expectation that stated and enacted values, and offered and perceived value will be the same.
To build a relationship, first it is necessary to give in order to receive so as to build trust and credibility, and to demonstrate what can be expected on an ongoing basis. Enterprises offer promotions as incentives to encourage prospects to try out products and/or services on a trial basis before making a full commitment as customers.
To form a relationship, a customer has to become a new user of a product and/or service, or has to switch from another supplier. The new supplier has to be persuasive. Decisions to adopt a new supplier are often made on emotion, and then justified rationally. The new supplier may only receive part of the new customer’s business at first, and has to earn the rest over time. It is not uncommon for customers to do business with several suppliers to stimulate competition, especially on price, but also as a hedge if quality degrades, or if outages occur.
Relationships between parties migrate through up to four stages of development:
- Emerging – getting know each other with a few test transactions (both financial and non-financial)
- Growth – increases in size and/or volume of transactions
- Maturity – steady state: stable size and/or volume of transactions
- Declining – decreases in size and/or volume of transactions
Non-financial transactions include updating account information, and determining service delivery options. However, they can also be related to non-economic events such as invitations to parties, receptions, and seminars, and referrals.
The migration path is not linear. Due to changing circumstances or lack of commitment, some emerging and growth relationships do not reach their full potential, whereas some mature and declining relationships migrate back to the growth stage again. It can take time to build a relationship, but it may be damaged beyond repair in an instant if credibility is lost.
The strength of a relationship is based upon the degree to which the parties wish to connect with each other, and applies to both financial and non-financial transactions. The strength of the relationship migrates through four phases of connection, primarily during the emerging stage of development:
- Formation – getting to know each other
- Divergence – differing opinions, disagreement, and doubt
- Convergence – reconcilement, acceptance, and agreement
- Association – performing collaboratively or cooperatively
However the relationship can migrate to back to the divergence phase at any time.
Parties can be:
- External suppliers and customers
- Individuals within the enterprise with an internal supplier and customer relationship
- In some other relationship where they have to work together, either external or internal to the enterprise
If either of the parties or both are enterprises, the connection is always between individuals. Two individuals within the same enterprise can connect differently. Differentiators include willingness to help, or going beyond the call of duty.
Relationships between non-competitors are either collaborative or cooperative. In both cases, there is a common purpose or value. In collaborative relationships, the parties are dependent upon each other; in cooperative relationships, the parties are independent.
Team members should have collaborative relationships because they are dependent upon each other. Organizational units within enterprises should have collaborative relationships because the individuals within them should be working towards a common purpose – the mission and vision. However, in highly political environments where stated and enacted values differ, relationships tend to be competitive as individuals fight for position and status.
A general contractor/subcontractor relationship is collaborative because both parties have a common purpose – project completion on budget and schedule. The relationship between a retail enterprise and its customers is cooperative. The retailer wants or needs to sell products and/or services and the customer wants or needs to purchase them. Hence, there is a common purpose. However, unless any other form of relationship exists, the retailer and the customer are independent.
In financial transactions, a supplier offers a product and/or service that a customer wants or needs with a certain level of expectation. A financial transaction is an offer of an item in exchange for cash or credit (or barter). The price is the exchange value offered by the seller; quality is the value perceived by the customer. When offered and perceived value equal approximately, the relationship is likely to be sustainable over time. When perceived value is higher than offered, the customer has an advantage, but the relationship may not be sustainable over time because value is being given away. When perceived value is lower than offered, the supplier has a price advantage. However, unless the supplier can further differentiate, the customer may believe that they are being taken advantage of. The customer may be able to get better quality or lower price elsewhere, and thus the relationship may not be sustainable.
Relationships often exist within certain tolerance levels for quality and price, and service levels can be differentiators. In general, lifestyle enterprises differentiate on the basis of service because owners are willing to make the extra effort to exceed customer expectations personally with no additional labor cost.
Customers will often test suppliers with “teaser” transactions before a major financial outlay occurs, and before a supplier is recommended to others. However, “word of mouth” referral is the best way to start a relationship.
Building relationships is an enterpriship (entrepreneurship, leadership, and management) competency.
The notions are promoted by its affiliate, TechKnowPartners, LLC.