Managing Business Relationships by Analyzing the Effects and Value of Different Actions
Introduction
Many of a company's customer or supplier relationships are vital for its continuing competitive survival, and each may involve a substantial commitment of resources that cannot be easily used elsewhere. A company's decisions on what actions to take in each relationship are of great importance to the development of its overall portfolio of relationships and its competitive success.
This article considers how companies make sense of the possible effects of their own and other companies' actions and how they value what happens in their relationships. To do this, we first need to explore the complexities and difficulties that arise when we think about value in business relationships. We also need to develop a structure to examine the multiple effects of a company's actions in a relationship. Managers are unlikely to be able to foresee all of the effects of their actions, and they may not intend some of them to happen. This article examines how managers behave in a relationship when seeking to achieve specific effects and how they describe the value of these effects. This provides insights for those trying to understand business relationships and for managers who need to examine both their own plans and those of the companies with which they deal.
The article examines several real relationship cases, and we map out the outcomes that managers seek; the effects that they expect to occur through their actions, and how they value those effects.
Section snippets
Value in business relationships
It is important to be clear about what we mean when we use the term value in business relationships, since there are a variety of ways in which it can be used:
It is possible to consider the value-in-use of the product offering that is exchanged [1]. This is a customer's assessment of value and will be related to the perceived value of alternative offerings. It is the “economic value to the customer” [2]. However, this use of the value concept is restricted to narrowly defined product related
Exploring value in real relationship cases
Perhaps the simplest way of finding out why managers behave as they do in relationships is simply to ask them. However, this approach would be based on three assumptions. First, it assumes they think about what they do. But this is unlikely always to be the case. Many decisions within relationships seem to be taken on the basis of habit 8, 9. Second, it assumes that they do what they say. But there are many occasions when action does not precisely follow intention and where circumstances
Discussion
Because of considerations of space, only four of the cases in the study are reported here. The first two cases deal with a single focal company's relationships with its suppliers. The second two deal with a single focal company's relationships with its customers. This enables comparisons and contrasts to be made between how the focal companies behave in one relationship compared to another. The cases are described in Table 2
expected effects:
The focal company expects the seller's action to lead directly to increased market share for it as it becomes the seller's preferred channel to market. The seller expects to improve its cost basis as a result of the action.
perceived value of effects:
There is obvious financial value of the action to the focal company. But the company's headquarters sees the greatest value of the action to be on the relationship itself (level 2). In contrast, the seller seems to value the effects at this level more than any other and seeks
expected effects:
Having an extra supplier means that the focal company is more able to switch between suppliers to achieve lower prices for this product. This has slightly reduced the volumes that it buys from the seller.
The perceived value of effects is that the business unit manager in the focal company takes a short-term view of relationships and particularly values the benefit of lower prices at the expense of a longer-term view of the value of the relationship with the seller.
Level 2: Effects on the Relationship
The expected effects are that
expected effects:
The seller expects the action to increase the amount of sales force time per customer and to increase and retain sales in existing and new relationships.
The perceived value of effects is that the seller values the growth in sales achieved through increased sales effort and so is prepared to commit the resources to provide two sets of new regional office staff. The customer does not perceive value in the relationship as a result of this action by the seller. It doesn't believe that there is a
expected effects:
If the customer's proposals come to fruition, they would have the immediate effect of doubling the customer's requirement for material from the seller and its capacity to meet the requirements of the seller's downstream business.
The perceived value of effects is that the customer would value these level 1 effects. However, its primary aim is to enhance its relationship with the seller (level 2) by appealing to the seller's wish for more business (level 1).
Level 2: Effects on the Relationship
The expected effects are that the
expected effects:
A successful bid would have clear level 1 effects as it would more than double sales volume to this buyer in one move.
The perceived value of effects is that a successful bid for the related contract has direct sales value to the seller. For the customer, there would be obvious cost savings associated with a better performing supplier. However, the customer regards supplier nonperformance as inevitable for this type of product and is not yet convinced that awarding the contract to the seller
Managerial implications
This article is part of a continuing program of research aimed at helping managers to take a strategic approach to the management of intercompany relationships in the complex networks that comprise business markets.
The complexity of these networks adds to the difficulties of both marketing and purchasing management. But, if a manager takes a network view then this can highlight the multiple influences on a company from others in the network, the multiple potential effects of any action by
Acknowledgements
The authors acknowledge the financial support of the Economic and Social Research Council, UK.
DAVID FORD is Professor of Marketing at the School of Management, University of Bath, UK.
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Cited by (0)
DAVID FORD is Professor of Marketing at the School of Management, University of Bath, UK.
RAYMOND MCDOWELL is a Senior Lecturer in Marketing at the Bristol Business School, University of the West of England, UK.