Relationships, Relationships, Relationships


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published October 27, 2004

It’s said that the three rules of retailing are Location, Location, Location. For branded consumer goods, the location paradigm is driven to higher precision with issues of distribution channels, shelf placement, and end-caps. To extend the parallel to business markets, the three rules are Relationships, Relationships, Relationships.

Competitive Advantage

In most business markets, personal relationships managed by individual salespeople and supported by marketing communications form a conduit for reaching the market. The ability to reach a market efficiently and effectively can form a distinct source of competitive advantage which yields higher profits and/or maintains a defensible market position. Because relationships yield market power or increase flexibility in business markets, they are a root source for creating Porterian and/or Schumpeterian Rents. (Rents implies profits above the risk weighted expectation value.)

Strong positive relationships with potential customers enable a company to better understand customer needs, launch new products quicker, and protect market share from would-be competitors. Customers with highly positive feelings towards a business can even be converted into “customer evangelists”, referring new business and lowering the costs of customer acquisition. With respect to corporate acquisitions, the ability to leverage relationships to either sell the existing product line to customers of the acquired company or to sell the acquired company’s product line to existing customers is one of the key determinants of future shareholder value.

Strength and Leverage Determinants

Because the sales force is the largest determinant of the strength of customer relationships in most business markets, the evaluation of the health of a business with respect to its relationships must include an evaluation of the strength of the sales force. With regards to marketing and competitive advantage, key issues that should be examined in the sales force include breadth, depth, flexibility, and demand discovery.

Breadth and depth refer to the number of prospects and customers with whom the sales force has developed and maintained positive relationships. Key questions include:

  • How many key decision makers does the sales force maintain relationships?
  • Has the sales force relied on a single point of contact with each customer or have they broadened their relationships to include multiple contacts per company?
  • How often does the sales force contact these decision makers?

Creating and maintaining relationships with many key decision makers through multiple conversations supports sales through the obvious means of uncovering and fulfilling demands as they arrive. Maintaining multiple relationships with a single business is important because individuals change roles and employers on a regular basis. Multiple contact relationships with a single business enable salespeople to maintain a customer relationship regardless of workforce changes.

Flexibility refers to the ability of leveraging the sales force for marketing alternative products and services. The key issues in evaluating the flexibility of a sales force are:

  • Does the sales force require retraining or replacement in order to sell a new product to the current target market?
  • Can the sales force leverage exiting relationships to reach other key decision makers within the target businesses for promoting a new product?

A highly flexible sales force can easily cross sell other products to the same market, enabling the company to penetrate the market with new products or services faster than competitors. A less flexible sales force will require retraining or worse, replacement, when launching new products or services.

Demand discovery refers to the ability of the sales force to uncover unmet customer needs and, importantly, to communicate new demands to marketing for the purpose of informing value offering strategy. Key questions regarding the demand discovery skills of a sales force include:

  • Does the sales force listen to customers and understand their needs or does it “pitch” offerings in search of willing buyers?
  • Does the sales force accurately communicate new customer demands to marketing, or do they discard these demands as irrelevant to the enterprise, or do they bias understanding towards customers they view as key?

Demand discovery affects the breadth of offerings that a sales team can sell, as well as the direct ability to facilitate a sale.

Soft Skills

As the above list of relationship strength determinants indicates, key metrics in creating a competitive advantage from relationships include soft, qualitative skills along side the harder, quantitative, issues of breadth and depth. Evaluating soft skills is much more difficult than evaluating quantitative issues. In comparison, the mantra “Location, Location, Location” relies largely on quantitative or observational issues such as the number of nearby households, traffic, income, and population density. Each of these issues can be easily measured or obtained from various informational sources. In “Relationships, Relationships, Relationships” only the number and type of contacts can be easily measured. The determinants of the strength of these relationships and the ability of the sales force to leverage these relationships must rely upon qualitative, non-quantifiable issues.

In “Relationships, Relationships, Relationships,” using the sales force to share information with buyers and to capture information for sellers may be introduce uncertainties, but companies that manage these soft issues have a competitive advantage.

About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.