Relationship Quality

When Might Companies Not Want Relationships with Customers?

Despite the financial benefits that can accrue from a relationship, companies sometimes resist entering into relationships with customers. We look at both business-to-business (B2B) and business-to-consumer (B2C) contexts. In the business-to-business contexts there are a number of reasons for this resistance.

1.     Loss of control

A mature customer-supplier relationship involves give and take on both sides of the dyad. In bilateral relationships, suppliers may have to give up unilateral control over their own business’s resources. For example, a supplier of engineering services might not want to provide free pre-sales consultancy for a new project with an established client because of the high costs involved. However, the customer might have clear expectations of the activities that should be performed and the resources deployed by the supplier.

2.     Exit costs

Not all relationships survive. It is not necessarily easy or cost-effective to exit a relationship. Sometimes, investments that are made in a relationship are not returned when a relationship breaks down, for example, investments in Electronic Data Interchange (EDI).

Relationships investments vary from the insignificant (e.g. co-branding of promotional literature) to highly significant (e.g. setting up a new production line to service a particular customer’s requirements). A company might justifiably be concerned about the security of a relationship-based investment in new manufacturing operations.

3.    Resource commitment

Relationships require the commitment of resources such as people, time and money. Companies have to decide whether it is better to allocate resources to customer management or some other area of the business such as operations or research and development.

Once resources are committed, they can become sunk costs. Sunk costs are unrecoverable past expenditures. These would not normally be taken into account when deciding whether to continue in a relationship, because they cannot be recovered whether the relationship endures or not. However, it is a common instinct to consider them.

4.     Opportunity costs

If resources are committed to one customer, they cannot be allocated to another. Relationships imply high opportunity costs. If you commit resources to customer A, you may have to give up the possibility of a relationship with customer B, even if that does seem to be a better proposition.

An engineering consultancy that commits consultants to pre-sales activities with a current client might incur the opportunity cost of losing more lucrative work in business opportunities from other prospective clients.

When businesses interact with consumers (the B2C market) they have many opportunities to collect customer-related data that are useful for CRM purposes. Transaction data, warranty data and loyalty program data are examples of the types of data that many B2C companies routinely collect.

The majority of consumer marketers would like to establish closer, even one-to-one, relationships with their customers, but customer focus is not the only strategy available to consumer goods and services companies. Some adopt a product leadership strategy and focus on innovating and bringing to market leading-edge products.

AppleOpens in new window, whilst providing a uniformly high level of customer service and experience, does not mine its customer database to generate differential treatments for individual customers aligned to their needs, wants and preferences.

Other companies opt for an operational excellences strategy and seek to reduce costs through outstanding operational expertise, rather than investing in customer relationships. Low-cost airlines, for example, rarely manage individual relationships actively; they compete on cost rather than on excellence at relationship management. Many of the “fun fashion” retailers do not invest on loyalty programs but focus on design and supply chain for competitive advantage.