Maintaining Competitive Advantages

The management of relationships has been a facet of business for as long as business transactions have existed. On the most basic level, Relationship Management is about interaction with customers. From a broader perspective one can consider employees, suppliers and consumers as customers, the employees being the internal customers of the organization. Relationship Management deals with the treatment and management of partnerships, connections, linkages and chains between business entities.

For the purposes of this paper, we view Relationship Management (RM) as a conscious and planned activity. It would be misleading to suggest that there have not been relationships in business or any focus on relationships by companies. However, the thrust of RM, as expounded in recent times, points to a more tactical and strategic approach to focusing on the customer rather than a relentless focus on the competition.

After the economic downturn of the 90s, many companies started to examine the possible benefits to be gained from less negotiation strong-arming, closeness to suppliers and the establishment of constructive relationships with strategic stakeholders. This does not suggest that RM was founded in the US, or has not existed before then; the Japanese had perfected RM and value-concretisation into an art form on the basis of social structure and communal creed.

RM itself has not just many types but many levels. The manufacturer has his suppliers and the end users as his customers; the retailer has the manufacturers and the end users as his customers, and manufacturer, the supplier and every organization with a tactical or strategic agenda have internal customers.

Literature Review

There have been several different sub types of Relationship Management introduced by writers, marketers and business pundits, starting from the most widely known Customer Relationship Management (Buttle, 2004; Kracklauer, Mills & Seifert, 2004) to Customer Centricity (Gummesson, 2008); Collaborative Customer Relationship Management (Kracklauer, Mills & Seifert, 2004); Supply Chain Relationship Management (Kracklauer, Mills & Seifert, 2004), Integrated Supply Chain Relationship Management (Kracklauer, Mills & Seifert, 2004), and so on. Hines (2006) delineates three types of relationships: the strategic alliance, the functional partnership and the one-sided partnerships. Donaldson & O’Toole (2007) outlines four types of relationships: partnership, friendship, adversarial and detachment. Our discussion here centres on four components of Customer Relationship Management: Customer Identification, Customer Attraction, Customer Retention and Customer Development; all of which, for the purposes of this paper, we shall consider all of these under the blanket term Relationship Management; Relationship Marketing, the management of, not the cooperation with customers; the latter being the job of relationship management, is not within the scope of this paper but since from a conceptual perspective, the difference between the two may not be as simplistic and marked, it may be mentioned or discussed in passing.

Traditionally, RM was an activity (or non-activity) that involved an electronic customer database of an organisation’s customers or consumers,which reports on consumer buying behaviour. Contemporarily, RM delves much deeper than this: undertaking intensive research on customers and customer behaviour and using the result of such research to (re)design business culture. RM, at its strategic level, advocates for a business culture with a concentrated focus on the customer rather than on the products or the sales, but what seems to be the biggest trump card of and in RM is loyalty. The customer-centric concentration in business relationships in recent times has forced a move towards shared goals and shared benefits, and for this to work there has to be commitment; each party being committed to their personal objectives but also to the shared goals; each party having the competence to carry out their responsibilities and believing and relying, having a confident and positive expectation that the other party will act within the ambits of the agreement.

The focus on the customer (which is the basis for a relational existence) runs across certain concepts: price, quality, innovation, reliability of product, reliability of associated service and brand reputation. On the proven premise that it is easier and cheaper to retain a customer than to attain a new one or regain a lost one, customer RM on the concepts already discussed should be the goal of the contemporary business.

Different types of RM have been identified, ranging from the transactional, the collaborative and the formation of alliances, which is also known as partnerships or value-added exchanges. The alliance is a partnership with suppliers that involves a mutual beneficiary arrangement where cost-cutting ventures are jointly addressed by both buyer and seller, the seller being considered an extension of the buyer’s organization. The business relationship between Japanese suppliers using JIT is a good example. For example Toyota holds a strong alliance even with its 3rd tier vendors. The result of such partnerships means added value, reduced production and transport costs, a more seamless supply and delivery network, and maintenance of exceptional quality, as per TQM considerations.

Traditionally, companies were preoccupied with rigorous competition, firm-induced and firm-controlled business strategies, focus on short-term profits and strategies and independent decision-making. This transactional existence meant a focus more on the competition than the customer, a concentration on short-term profits rather than long-term strategic gains and likelihood to be blind to opportunities for expansion and change. Today’s strategically-minded companies are pre-occupied with partnership with other firms, collaboration and coaction, boundarylessness, joint decision-making and a focus on long term benefits. With today’s business climate, one can easily foresee a rapidly changing business environment where manufacturers will have the most fruitful partnerships with every member of the supply chain and the consumers, a scenario where the manufacturer will run a ‘virtual factory’ with the effective and efficient use of value chain networks unlimited by geographical location or consideration.

RM functions on a strategic, a tactical and an operational level. Businesses that are product-oriented ensure effective performance of their products, in the design, the features and output; the production-oriented business (not to be confused with the product-oriented) believe in mass production at a cheap scale on the notion that the customer uses low-price as a singular consideration; sales-oriented businesses put a lot of stock in advertising, promotions and public relations while the customer-centric enterprise strives to understand its customers preferences and purchasing behaviour and models its business activities to suit this. This is considered strategic RM. The operational level deals with automating the customer management process using computer applications and devices across market, sales force and service categories. Tactical RM deals with using the data from customer management computer applications to add value both to the customer and the company.

While it would be immensely useful to run a customer database to keep the organization in sync with full information with its customers, RM especially from a strategic perspective delves deeper than mere software; it deals with a ‘pull’ strategy, letting the wants and needs of the customer dictate what products and services are offered, rather than the other way round, using a production-oriented strategy to ‘push’ products and services that the consumers may or may not need, but which does not ultimately satisfy the customer.

Companies generate more revenue when they satisfy – and because of this retain- their customers. It is hereby propounded that the simple economic fact that customer retention is cheaper than customer attraction provides the customer with an intrinsic importance to business performance than anything else.