Topic: MANAGING BUSINESS

RELATIONSHIPSBy By SportsKenyaSportsKenya

Highlights:1) Developing Relationships in

a) Consumer Marketsb) Business Markets

2) Quality and Value – the keys to developing customer relationships

3) Customer satisfaction and retention4) Customer satisfaction metrics

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Definitions

What are Business Relationships?According to businessdictionary.com – it’s an association between individuals or companies entered into for commercial purposes and sometimes formalized with legal contracts or agreements.

Freedictionary.com – a formal contractual relationship established to provide for regular banking or brokerage or business sources.

Types of Business Relationships:David Nour in his book Relationship Economics classifies them as;1.Personal relationships/ Discretionary – may not be relevant to the respective individual’s or organisation’s profession;2.Functional relationships – those with a customer or client;3.Strategic relationships – extend beyond the horizon of one’s business

Importance of Business R’ships1. Business Strategy and Leadership - Thus leadership should create appropriate an environment and support those engaged in execution.

2. Risk Management- the more risk they can manage the greater their competitive advantage. Risk maybe financial, performance, safety and external events whether natural or social and political.

3. Value creation - the value chain seeks to engage all parties to assess and address these impacts to mutual benefit. Relationships are important to identify and translate them into value

Importance of Business R’ships4. Knowledge management - The more we trust the

more we share and the greater the potential to benefit. Knowledge maybe power but if not shared it has very limited value. Understand what you can and what should not be shared and make this visible.

5. Outsourcing- The desire to exploit the potential of non-core activities through outsourcing must be tempered with a robust process that embraces the need to consider the importance of relationships involved.

6. Supply chain vulnerability - 50-80% of operational cost is channelled through the supply chain. There is the cost reduction and rationalisation of the supply base and the rush to exploit benefits of low cost markets.

Importance of Business R’ships7. Mergers and acquisitions- quickest not easiest way

to grow a company. Risky considering the investment and rationalisation cost. A KPMG report -85% of mergers & acquisitions across the world are failures8. Partnerships, Alliances, Consortiums and Joint Ventures - the more robust ,relationships the greater potential to growth of business and benefit from delivering value9. International relationships - those who operate in global markets are aware of challenges thrown up by cultural differences, national, regional or frequently corporate10. People, Behaviours and Trust - managed, targeted, measured, incentivised and rewarded has influence on how they interface with others either internally or externally

Developing Relationships in Consumer Markets

• It considers the customer needs, wants and expectations developing long-term relationships.

• Previously, consumer markets were assumed to be purely transactional based with minimal emphasis on building relationships with customers

• There was more focus on the short term. • Marketing is not just about manufacturing and selling

products; it’s more concerned with building and preserving long-lasting relationships with customers.

• A hybrid of both transactional as well as relational emphasizes the importance of mutually beneficial relationships with consumers that can serve the interests of both parties.

Importance of Building Long-lasting Relationships with Customers:Profitability – consumer markets are very competitive and with increased sales comes profitsGoodwill –results in word-of-mouth promotions and lower costs associated with attracting new customers.Brand loyalty – favoured treatment thus brand loyal customer.Product differentiation and competitive advantage – include consumers in the planning process and gives the chance for company to tailor their products accordingly. Ask for suggestions from customers

Relationship Stages:1) Awareness2) Initial Purchase3) Repeat Customer4) Client5) Community6) Advocacy

Developing Relationships in Business Markets

• It involves moving buyers through increasing levels of relationship intensity.

• It is based more on creating structural bonds.

• It is more involving and complex than CRM in consumer markets

Types of Business Markets include;• Producer markets/ Commercial markets• Reseller markets• Government markets• Institutional markets

The changes in business relationships are captured as follows;

Change in Buyers’ and Sellers’ Roles - Shift from competitive negotiation to collaboration;Increase in Sole Sourcing - Creates solutions at lower costsIncrease in Team-Based Buying Decisions - Better decisions come from diverse expertiseIncrease in Productivity through Better Integration- Reduces inefficiency and hard/soft costs; increases profitability

Quality and Value – Keys to Developing Customer Relationships

• Quality is a relative term that refers to the degree of superiority of a firm’s goods or services

• The Core Product– Satisfies the basic

customer need– Core product in services

(people, processes, and physical evidence)

• Supplemental Products– Goods or services that

add value to the core product

• Value is the subjective evaluation of benefits versus costs to determine the worth of a firm’s product offering relative to other product offerings

• Perceived Value = Customer Benefits/ Customer Costs

Value can be used to guide marketing strategy.•It balances the five types of utility.•It includes the concept of quality, but is broader in scope.•It takes into account every marketing program element.•It can be used to explicitly consider customer perceptions.

Keys to improving Quality:•Understand customers’ expectations•Translate expectations into quality standards•Uphold quality standards•Don’t overpromise

Customer Satisfaction: The Key to Customer Retention

Range of customer expectations•Ideal expectations•Normative expectations•Experience-based expectations•Minimum tolerable expectations

Customer expectations can vary based on the situation

•Expectations increase during highly involving or important purchase situations.•Expectations decrease when customers are more tolerant of poor performance, when they have few alternatives, or when performance is beyond the control of the firm.

Customer Satisfaction Measurement1. Lifetime Value of a Customer (LTV) -is a prediction of

the net profit attributed to the entire future relationship with a customer

2. Average Order Value (AOV) - describes how to calculate average order value of an e-commerce website and how it is useful in predicting revenue

3. Customer Acquisition/Retention Costs - percentage at which a company reports growth in costs. It takes into account existing customers and newly acquired customers.

4. Customer Conversion Rate5. Customer Retention Rate - percentage of customers

that a company is able to retain over an extended period of time-typically over one year.

6. Customer Attrition Rate - divide the number of customer lost by the total number of customers at the start of the period

7. Customer Recovery Rate - 8. Referrals9. Social Communication