To build a relationship, it is first necessary to give in order to receive in order to build trust and credibility, and demonstrate what can be expected on an ongoing basis. Companies offer promotions as incentives to encourage prospects to try products and/or services on a trial basis before fully committing as customers.
To form a relationship, a customer must become a new user of a product and/or service, or must change providers. The new provider has to be persuasive. Decisions to adopt a new provider are often made out of emotion and then rationally justified. 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 multiple suppliers to stimulate competition, especially on price, but also as a hedge if quality degrades or disruptions occur.
Relationships between parts migrate through up to four stages of development:
- Emerging: getting to know each other with some 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
- Decreasing: decrease in the 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-financial events, such as invitations to parties, receptions and seminars, and referrals.
The migration path is not linear. Due to changing circumstances or a lack of commitment, some emerging and growth relationships do not reach their full potential, while some mature and declining relationships return to the growth stage. It can take time to build a relationship, but it can be damaged beyond repair in an instant if credibility is lost.
The strength of a relationship is based on the degree to which the parties want 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, mainly during the emergent stage of development:
- Training: get to know us
- Divergence: different opinions, disagreement and doubt.
- Convergence: reconciliation, acceptance and agreement.
- Association: acting collaboratively or cooperatively.
However, the relationship can return to the divergence phase at any time.
The pieces can be:
- Suppliers and external customers
- Individuals within the company with an internal supplier and customer relationship
- In some other relationship in which they have to work together, either external or internal to the company
If either or both parties are companies, the connection is always between individuals. Two people within the same company may connect differently. Differentiators include a willingness to help or go beyond the call of duty.
Relations between non-competitors are collaborative or cooperative. In both cases, there is a common purpose or value. In collaborative relationships, the parties depend on each other; in cooperative relationships, the parties are independent.
Team members must have collaborative relationships because they depend on each other. Organizational units within companies must have collaborative relationships because the people within them must work toward a common purpose: 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: to complete the project on budget and on schedule. The relationship between a retail company and its customers is cooperative. The retailer wants or needs to sell products and/or services and the customer wants or needs to buy them. Therefore, there is a common purpose. However, unless some 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 the offered value and the perceived value are approximately equal, the relationship is likely to be sustainable over time. When the perceived value is greater than that offered, the customer has an advantage, but the relationship may not be sustainable over time because value is being given away. When the perceived value is less than what is offered, the provider has a price advantage. However, unless the provider can further differentiate itself, the customer may believe they are being taken advantage of. The customer may get better quality or a lower price elsewhere, and therefore the relationship may not be sustainable.
Relationships often exist within certain tolerance levels of quality and price, and service levels can be differentiators. In general, lifestyle businesses differentiate themselves on the basis of service because the owners are willing to go the extra mile to personally exceed customer expectations at no additional labor cost.
Customers will often test providers with “teaser” transactions before a major financial outlay occurs and before a provider is recommended to others. However, “word of mouth” referral is the best way to start a relationship.
Relationship building is a business competency (entrepreneurship, leadership and management).
