1. Copyright © 2002 All rights reserved. 1 CHAPTER 10 Relationship Based Buying

2. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 2 Conceptual Framework Payer UserBuyer UNDERSTANDING CUSTOMER BEHAVIOR Model of Relationship-Based Buying Relationship Buying and Selling in Business Markets Art of Nurturing Suppliers Supplier-Customer Partnering Customer Relationship Management on the Web Relationship-Based Buying

3. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 3 A Model of Relationship-Based Buying Relationship- Based Buying Trust Commitment Search costs Risk reduction Switching costs Value-added benefits Cost-Benefit Factors Early socialization Reciprocity Keiretsu Friendships Socio-Cultural Factors Supplier loyalty Increased buying Willingness to pay more Proactive word-of-mouth Goodwill (customer equity) Antecedents (Motivators)RelationshipsOutcomes

4. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 4 Cost Benefit Factors The cost-benefit factors that drive decisions about relationship-based buying include:  The search costs  The potential for risk reduction  The switching costs  The value-added benefits of the relationship

5. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 5 Combinations of Perceived Risk and Switching Costs HighLow Switching Costs HighConstrained in relationshipRelational buying LowTransactional exchangeVulnerable relationship

6. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 6 Value-Added Benefits Differentiation  These added benefits serve as a motivation for customers to engage in relationship-based buying

7. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 7 Sociocultural Factors The sociocultural factors that influence the formation of a customer relationship include:  Socialization  Reciprocity  Networks  Friendships

8. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 8 The Supplier-Customer Relationship Trust  A willingness to rely on the ability, integrity, and motivation of the other party to act to serve my needs and interests as agreed upon implicitly or explicitly Commitment  An enduring desire to continue the relationship and to work to ensure its continuance

9. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 9 Outcomes of Relationship-Based Buying Supplier loyalty Increased buying Willingness to pay more Proactive word-of-mouth Goodwill (customer equity)

10. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 10 Process of Relationship Buying in Business Markets IMP Model  A model that describes the processes or steps in the development of relationships in a series of interactions  Industrial Marketing and Purchasing (IMP) group established that long-term patronage is quite common in business buying

11. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 11 Characteristics of Relational Buying The IMP model has identified three key factors that characterize all relational buying by business customers:  Transaction-specific investments/adaptations  Power dependence  Role formalness

12. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 12 Steps in Relationship Development The IMP group identified the steps that companies go through in building a relationship  Needs complementarity  Interactions  Outcomes and satisfaction  Investments  Commitment

13. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 13 Reasons for Relationship Development in Business Buying Businesses may need a long-term exchange contract to assure long-term supply Business customers also want to reduce the cost of buying transactions Buyers and sellers may also have quality and cost goals that require collaboration

14. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 14 Determinants of Trust and Commitment in Business Relationships Determinants for the CustomerDeterminants for the Supplier Switching costsSupplier-specific investments Partner-specific investmentsCustomer avoidance of opportunistic behavior Mutually shared goalsSingle-source policy Communication and product supportData sharing and nurturance Supplier avoidance of opportunistic behavior

15. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 15 Relationship Based Buying: The Art of Nurturing Suppliers The art of nurturing suppliers is clearly needed when the existing suppliers cannot meet the required quality, quantity, price, service, and delivery objectives Rather than select from the slate of existing suppliers, the purchaser task is then to create suppliers

16. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 16 Reasons For Nurturing Suppliers Meeting future needs Government policy compliance Good citizenship Promoting environmental policies Quality assurance Cost reduction

17. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 17 Supplier-Customer Partnering Supplier-customer partnering is establishing a partnership-like relationship with one’s supplier or with one’s customer The supplier and customer firm would not merge ownership

18. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 18 Vendor Relations in Japan and the United States Traditional U.S. ModelJapanese Partnering Model Department or firm focus, optimize firm efficiency.Business system focus (includes supplier/customer economics), optimize value chain efficiency. Emphasis on unit cost/price (minimum quality standards). Emphasis on full value chain (systems) costs as well as on improving quality. Manufacturer defines needs; specifications of activities; sequential planning. Joint efforts to define needs and problem solve; highly integrated operations and planning. Communication is sporadic, problem driven; little sharing of information or assistance. Communication is frequent and planned; continuous sharing of information and assistance. General investments; uniform approach.Customized investments to meet unique customer or supplier needs (e.g., in information systems, people, manufacturing equipment). Precise contracts that split economic benefits beforehand. Flexible contracts that adjust to spilt economic gains fully as market conditions change.

19. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 19 Factors for the Growth of Supplier Partnering Competitive intensity Pressure on market prices Concern with quality Enabling technology

20. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 20 Customer Relationship Management and the Three Customer Roles CONCEPTBUYERPAYERUSER General concept of relationship marketing Marketer refocuses on the user after the sale. A model of relationship-based buying Motivation Search costsSearch entails time and effort of the buyer role. Risk reductionPerformance risk to user is reduced. Switching costsEffort to learn to deal with the new supplier. Retooling costs.Usage learning of product from new supplier. Value-added benefitsBetter financing plan may benefit the payer. Add-on benefits for the user.

21. CHAPTER 10 PART 3 Copyright © 2002 All rights reserved. Customer Behavior: A Managerial Perspective Copyright © 1999 by Thomas Southwestern. All rights reserved. 21 Customer Relationship Management and the Three Customer Roles (cont’d) CONCEPTBUYERPAYERUSER Early socializationBuyer socialization.User socialization. ReciprocitySource availability assured. Payment through reciprocal exchange assured. NetworksEasier to do business.Firms in network are accommodating in financial exigencies. Suppliers in network more trustworthy with product/service quality. FriendshipsFriendly vendors give friendly service. Friendly supplier assures quality product/service. Reverse marketingLower costs over the long run. Better performance value. Supplier partneringBuying function becomes more efficient. Total cost reduction.Better performance value; data sharing; joint planning helpful to user.