The role and value of long term relationships in business to business environment

Table of Contents

Table of Figures

1. Introduction

2. Relationships between Companies
2.1 Problems, Uncertainties and Solutions
2.2 Changes and Development of Buyer-Seller Relationships
2.3 The Role of Relationships in a Reduction of Complexity

3. Strategy in Business Markets
3.1 Strategic Management and Business Relationships
3.2 What Relationships Mean for Strategy in Business Markets

4. Developing Strategy in Business Market

5. Business Relationships
5.1 Suppliers Relationships
5.2 Customer Relationships
5.3 Distribution Relationships
5.4 Managing Business Relationships

6. Building Long-Term Relationships

7. Summary

References

Table of Figures

Figure 1: The development of buyer-seller relationships

Figure 2: Strategic options for revenue generation

1. Introduction

The profitability of any company and stability in its activity depends on the preferences of their customers. Marketing mix also plays a very important role. Analysing customers company should choose the product to produce, price for which to sell, place of selling, the strategy of distribution and advertising. Company should not ignore their competitors. During recent years the importance of inter-company relationships has been widely recognised. Customers are always searching for suppliers that can and are prepared to meet their requirements. To make a right decision it is necessary to analyse the market. That is the work of departments. The relationships between buyers and sellers are rather like the relationships between people. Two companies are surviving due to each other. Relationships exist between all suppliers and their customers in business markets. The decision that managers of a company face are mainly how to achieve that relationship and what sort of relationships they would like to have. Company have to set priorities between their different relationships, allocate resources accordingly and manage them individually. An important task to build relationships with the customers, which will span not just several months but be counted by decades. Long-term relationships company behave according to the values that create genuine trust over time: quality, honesty, accountability and fairness. To serve clients now and as far into the future as they may need a company. Company have to strive to build long-term relationships with our customers this enables both partners to share in the economic benefits and trust established by a continued relationship.

2. Relationships between Companies

2.1 Problems, Uncertainties and Solutions

How do companies relate to each other in business markets? A useful way to examine how companies relate to each other is to analyse the problems and skills that each brings to their relationship. How buying and selling companies face similar issues in buying markets and how the tasks of relationship management are similar for both of them?

Buyers’ uncertainties

1. Buyer has need uncertainty:

A buyer company may have difficulty in specifying its requirements (especially when they are new, or when complex technologies are involved). These buyers are likely to value suppliers with a strong brand that they feel they can trust.

2. Market uncertainty:

It may also be uncertain about the nature of the supply market it faces. The buyer will need to scan its supply markets widely and may use several suppliers and ”keep its distance from all of them”.

3. Transaction uncertainty:

It may be faced with suppliers it does not know or trust, or might not get what it thought it ordered. The buyer will need to interact closely with a supplier to check it skills and resources and monitor such things as its deliveries, quality and price.

Sellers’ uncertainties

1. Capacity uncertainty:

A selling company is often very uncertain how much it will be able to sell of a particular product or service a coming year. These companies will be keen to gain additional business from other customers, often at very low margins, in order to utilise their capacity.

2. Application uncertainty:

The way a product is used by customers may also change rapidly and often in quite different direction. Sellers must develop strong mechanism for scanning its customer relationships and the changes that customers face.

3. Transaction uncertainty:

A seller may not trust the buyer actually to take and pay for the volume it has ordered and it may also be uncertain that the buyer actually needs what it says it wants. The seller will need to interact closely with its customer to cope with this uncertainty and to try to limit its dependency on anyone relationships.

Buyers’ tactics

A buyer will try to reduce a seller’s capacity uncertainty. Also the same way as sellers, buyers have ability, which they can bring to their relations with suppliers. A customer’s demand ability enables it to offer the seller both the quality and the type of demand that meets its requirements.

Transfer ability is a buyer’s skill as a relationship partner. It includes its abilities and
re-ability in transferring information on volume, and its skills in logistics.

Sellers’ tactics

Supplier can build a relationship with customer having particular uncertainties by using either of 2 types of abilities: problem solving and transfer ability.

1. Problem solving:

Most valuable to the customer when it has high need or market uncertainty. Buying Company relies on the seller to provide it with the solution to the problem of what to buy.

2. Transfer ability:

Tend to become more important to customers as their need and market uncertainties declare.

2.2 Changes and Development of Buyer-Seller Relationships

We have seen that there is a close similarity between the uncertainties and abilities that buying and selling companies bring to a relationship.

A relationship can be very productive for both parties and the volume of business may grow rapidly.

It is important to emphasise that many relationships fail to develop at all. Others are short-term either because their usefulness disappears or because parties are unable to develop them. But usually many business relationships are long-term. Managing business relationships is coping with different circumstances and ways of dealing with each other by both companies. There are some concepts to examine the evolution of business relationships:

- Learning:

Very important point is that companies learn about each other’s uncertainties and abilities, what they need from relationship and what they can offer to it. Learning is the process by which companies reduce their uncertainties and how to exist with some uncertainties that is not possible to reduce. Relationships will vary depending on the extent to which the 2 companies feel that they need to learn, on their willingness to learn, and on their ability to learn.

- Investment:

The development of business relationships involves the investment of tangible and intangible resources by both parties. This investments ranges from the use of human resources to develop contacts with the counterpart, developing new products or services in relationship or dedicating existing or new ones to it. Companies also invest their expertise in a relationship.

- Trust and commitment:

Sometimes a company will not be committed to the long-term future of a relationship and will try to take short-term advantage. The level of trust in a relationship can also vary widely. The behaviour of the two companies won’t always be predictable.

- Distance:

There are some aspects of distance between companies in business relationships:

- Social distance: the measure of familiarity of working and thinking between 2 companies.
- Cultural distance: is the degree to which the norms and values vary from country of origin.
- Technological distance: difference between the product and production technologies of the 2 companies and hence the degree of fit between them.
- Time distance: time between a deal is being negotiated and the day of payment.

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