Database Reference
In-Depth Information
1.2.5 Customer Relationships
In today's world of decreasing margins, increasing competition, and ever-changing business envi-
ronment, corporate success depends on an enterprise's ability to build and maintain loyal and
valued customer relationships.
In a market where loyalty has plummeted and the cost of acquiring new customers is prohibi-
tive, companies have turned to their current customers in an attempt to retain and maximize the
business potential from them.
The value of relationship can be expressed as follows:
M
∑
(
)
=
−
ValueofRelationship uturevalue
expected benefits
cost of obtainingthe benefits
I
I
I
=
1
where
Expected benefits =
economic cost
+
hassle
+
risk
Cost of obtaining the benefits = solution value = (customer value × customer
it
)
economic cost
is typically the cost of delivered solution
hassle
includes all noneconomic costs, such as effort required to place orders and locate potential
providers
risk
includes all of the uncertainties about the delivered solution and the cost of protecting
against risk such as insurance, inspections, and contracting
it
is delivered solution effectiveness of the customized individual deliveries
The customer-responsive enterprise adds value for the customer even by eliminating the hassle
required to research the product and to learn how to use it. When relationships exist uninter-
ruptedly for extended periods of time, they improve need diagnosis and delivered solution effec-
tiveness as well as establish procedures that minimize the hassle of communicating needs and
responses.
1.2.5.1 Why Cultivate Customer Relationship?
The relationship-oriented organization sees the customer not as a single sale but as a long-term
relationship in which the value of future solutions will always be greater than the value of
any existing transactions. Relationships not only define and determine expectations but also
minimize transaction costs. Good relationships obtain substantial outcomes with a minimum
of effort (i.e., cost and hassle). When relationships are positive, solutions are more effective,
and the effort expended for making these solutions also gets reduced (e.g., the hassles, risks, or
transactions).
Such a relationship results in several benefits because of the following:
1. The parties understand and trust each other:
a. Parties have shared values.
b. Have confidence in each other.
c. Rely on each other.
d. Communicate clearly.
e. Work easier.
