Relationship Quality

Why Customers Want Relationships with Suppliers

We now reverse the questionOpens in new window and examine why customers may want to build relationships with suppliers. First, we look at the business-to-business context. A relationship with a supplier can reduce the customer’s sense of perceived risk.

High levels of perceived risk are uncomfortable for many customers. A relationship can reduce or eliminate perceived risk. Here are a number of circumstances when perceived risk may be high and a relationship desirable:

1.     Product complexitiy

If the product or its applications are particularly complex, for example networking infrastructure, a relationship can reduce performance risk — the risk that the technology will not work as desired or expected.

2.     Product strategic significance

If the product is strategically important or mission-critical, for example supply of essential raw materials for a continuous process manufacturer, performance risk may be high.

3.    Service requirement

If there are downstream service requirements, for example for machine tools, a relationship can ensure that the tools will remain serviced and functional.

4.     Purchase cost

If a purchase is particularly costly, for example purchases of large pieces of capital equipment such as earth-moving equipment, financial risk is high.

5.    Reciprocity

A financial audit practice may want a close relationship with a management consultancy, so that each party benefits from referrals by the other.

B2C

In the business-to-consumer context, relationships with suppliers are likely to be valued by customers if the relationship delivers customer benefits over and above those directly derived from acquiring, consuming or using the product or service.

Risk may play a role here, too. For example, an automobile owner may develop a relationship with a service station to reduce the perceived performance, financial and physical risk attached to having a car serviced.

The relationship provides the assurance that the job has been skillfully performed and that the car is safe to drive.

There are other motives behind consumers’ desires to build relationships with suppliers, too:

• Recognition. Customers may feel more valued when recognized and addressed by name, for example at a retail bank branch, or as a frequent flyer.
• Personalization. Relationships mean that suppliers have enough customer insight to customize products or services. For example, over time, a hairdresser may come to understand a customer’s particular preferences or expectations.
• Power. Relationships with suppliers can be empowering. For example, some of the usual power asymmetry in relationships between banks and their customers may be reversed when customers feel that that they have personal relationships with particular bank officers or branches.

• Status. Customers may feel that their status is enhanced by a relationship with a supplier, such as an elite health club or platinum credit card company.
• Affiliation. People’s social needs can be met through commercially based, relationships. Many people are customers (members) of professional or community associations, for example.

Customer segments can vary in their desire to have relationships with suppliers. In the banking industry, for example,

• large corporations have their own treasury departments and often get little value from a bank relationship;
• small private account holders have no need for the additional services that a relationship provides;
• small and medium-sized business and high net worth individuals may have most to gain from a closer relationship.

A number of B2C organizations deliver incremental benefits by building closer relationships with their customers. The Harley Owners Group (HOG)Opens in new window offers a raft of benefits to Harley Davidson owners including club outings and preferential insurance rates. Nestlé’s mother and baby clubOpens in new window offers advice and information to new mothers.

When might customers NOT want relationships with suppliers?

Whilst companies generally want long-term relationships with customers for the economic reasons already described, it is far less clear that customers universally want relationships with their suppliers. B2B customers cite a number of concerns.

1.     Fear of dependency

This is driven by a number of worries. Customers are concerned that the supplier might act opportunistically, once they are in a preferred position, perhaps introducing price rises.

They also fear the reduction in their flexibility to choose alternative suppliers. There may be concerns over a loss of personal authority and control.

2.     Lack of perceived value in the relationship

Customers may not believe that they will enjoy substantial savings in transaction costs, or that the relationship will help them create a superior competitive position, generate additional revenue or that there will be any social benefits. In other words, there is no perceived value above and beyond that obtained from the product or service.

3.     Lack of confidence in the supplier

Customers may choose not to enter a relationship because they feel the potential partner is unreliable, too small, has a poor reputation or is insufficiently innovative.

4.     Customer lacks relational orientation

Not all company culturesOpens in new window are equally inclined towards relationship-building. Some are much more transactional.

For example, some retailers make it a policy to buy a high proportion of their merchandise on special occasion. This preference for transactional rather than relational business operations will be reflected in the company’s buying processes, and employee reward systems.

5.  Rapid technological changes

In an industry with rapidly changing technology, commitment to one supplier might mean that the customer misses out on new developments available through other suppliers.

In the B2C context, consumers buy hundreds of different convenience, shopping and specialty products and services.

Whereas consumers might want a relationship with their financial service adviser or their physician, they can often find no good reason for developing closer relationships with the manufacturer of their household detergent, snack foods or toothpaste. However, for consumer products and services that are personally important, customers can become more involved and become more emotionally engaged.