Customer Behaviour
A Managerial Perspective
First Canadian Edition
Jagdish N. Sheth
Emory University
Banwari Mittal
Northern Kentucky University
Michel Laroche
Concordia University
© 2008 by Nelson, a division of Thomson Canada Limited
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PART 3: CUSTOMER DECISIONS AND RELATIONSHIPS
CHAPTER 10
Relationship-Based Buying
© 2008 by Nelson, a division of Thomson Canada Limited
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Conceptual Framework
Buyer
User
UNDERSTANDING
CUSTOMER
BEHAVIOUR
Payer
Relationship-Based Buying
• 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
© 2008 by Nelson, a division of Thomson Canada Limited
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A Model of
Relationship-Based Buying
Cost-Benefit Factors
•
•
•
•
Search costs
Risk reduction
Switching costs
Value-added benefits
Socio-Cultural Factors
•
•
•
•
RelationshipBased Buying
•Trust
•Commitment
•
•
•
•
•
Supplier loyalty
Increased buying
Willingness to pay more
Proactive word-of-mouth
Goodwill (customer
equity)
Early socialization
Reciprocity
Keiretsu
Friendships
Antecedents (Motivators)
Relationships
© 2008 by Nelson, a division of Thomson Canada Limited
Outcomes
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Cost-Benefit Factors

The cost-benefit factors that drive
decisions about relationship-based buying
include:




The
The
The
The
search costs
potential for risk reduction
switching costs
value-added benefits of the relationship
© 2008 by Nelson, a division of Thomson Canada Limited
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Combinations of Perceived Risk
and Switching Costs
Perceived Risk of Alternatives
Switching
Costs
High
Low
High
Constrained in relationship
Relational buying
Low
Transactional exchange
Vulnerable relationship
© 2008 by Nelson, a division of Thomson Canada Limited
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Value-Added Benefits

Differentiation
 These added benefits serve as a motivation
for customers to engage in relationship-based
buying
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Sociocultural Factors

The sociocultural factors that influence the
formation of a customer relationship
include:




Socialization
Reciprocity
Networks
Friendships
© 2008 by Nelson, a division of Thomson Canada Limited
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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
© 2008 by Nelson, a division of Thomson Canada Limited
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Outcomes of Relationship-Based
Buying
Supplier loyalty
 Increased buying
 Willingness to pay more
 Proactive word-of-mouth
 Goodwill (customer equity)

© 2008 by Nelson, a division of Thomson Canada Limited
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
© 2008 by Nelson, a division of Thomson Canada Limited
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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
© 2008 by Nelson, a division of Thomson Canada Limited
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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
© 2008 by Nelson, a division of Thomson Canada Limited
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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

© 2008 by Nelson, a division of Thomson Canada Limited
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Determinants of Trust and Commitment
in Business Relationships
Determinants for the Customer
Determinants for the Supplier
Switching costs
Supplier-specific investments
Partner-specific investments
Customer avoidance of opportunistic
behaviour
Mutually shared goals
Single-source policy
Communication and product support
Data sharing and nurturance
Supplier avoidance of opportunistic
behaviour
© 2008 by Nelson, a division of Thomson Canada Limited
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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

© 2008 by Nelson, a division of Thomson Canada Limited
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Reasons For Nurturing Suppliers
Meeting future needs
 Government policy compliance
 Good citizenship
 Promoting environmental policies
 Quality assurance
 Cost reduction

© 2008 by Nelson, a division of Thomson Canada Limited
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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

© 2008 by Nelson, a division of Thomson Canada Limited
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Vendor Relations in North America and Japan
Traditional North American Model
Japanese 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.
© 2008 by Nelson, a division of Thomson Canada Limited
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Factors for the Growth
of Supplier Partnering
Competitive intensity
 Pressure on market prices
 Concern with quality
 Enabling technology

© 2008 by Nelson, a division of Thomson Canada Limited
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Customer Relationship Management
and the Three Customer Roles
CONCEPT
General concept of
relationship marketing
USER
PAYER
BUYER
• Marketer refocuses on
the user after the sale.
A model of relationshipbased buying
Motivation
• Search entails time and
effort of the buyer role.
Search costs
Risk reduction
• Performance risk to
user is reduced.
Switching costs
• Usage learning of
product from new
supplier.
• Retooling costs.
Value-added benefits
• Add-on benefits for
the user.
• Better financing plan
may benefit the
payer.
© 2008 by Nelson, a division of Thomson Canada Limited
• Effort to learn to deal
with the new supplier.
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Customer Relationship Management
and the Three Customer Roles (cont’d)
CONCEPT
Early socialization
USER
• User socialization.
Reciprocity
Networks
Friendships
PAYER
• Suppliers in network
more trustworthy with
product/service
• quality.
Friendly supplier
BUYER
• Buyer socialization.
• Payment through
reciprocal exchange
assured.
• Source availability
assured.
• Firms in network are
accommodating in
financial exigencies.
• Easier to do business.
• Friendly vendors give
friendly service.
assures quality
product/service.
Reverse marketing
• Better performance
value.
• Lower costs over the
long run.
Supplier partnering
• Better performance
value; data sharing;
joint planning helpful
to user.
• Total cost reduction.
© 2008 by Nelson, a division of Thomson Canada Limited
• Buying function
becomes more efficient.
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