MANAGING BUSINESS

RELATIONSHIPS

By SportsKenya

Highlights:

1) Developing Relationships in

a) Consumer Markets

b) Business Markets

2) Quality and Value – the keys to

developing customer relationships

3) Customer satisfaction and retention

4) Customer satisfaction metrics

Quote

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’ships 1. 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’ships 5. 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.

6. 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.

7. 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’ships 7. 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 failures

8. Partnerships, Alliances, Consortiums and Joint

Ventures - the more robust ,relationships the greater

potential to growth of business and benefit from

delivering value

9. International relationships - those who operate in

global markets are aware of challenges thrown up by

cultural differences, national, regional or frequently

corporate

10. 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

profits

Goodwill –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) Awareness

2) Initial Purchase

3) Repeat Customer

4) Client

5) Community

6) 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 costs

Increase in Team-Based Buying Decisions -

Better decisions come from diverse expertise

Increase 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 Measurement

1. 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 Rate

5. 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. Referrals

9. Social Communication