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5.7.Relationship Marketing and Organizational Buyer Behaviour

With a smaller number of suppliers to manage, it becomes possible for buyers and suppliers to develop closer, longerterm relationships to increase competitiveness. There are three underlying reasons why stronger customer relationships can help to build competitive advantage:

Systems cost reduction– closer relationships achieved through multiple linkages between a preferred supplier and the customer enable better work practices, such as JIT deliveries, and reduced inventories and order cycle times. As trust increases and sales volatility decreases, cost savings resulting from improved work practices can be shared by both parties.
Increased effectiveness through innovation – as supplier relationships solidify, the customer may ask key suppliers to invest in technology that will allow the supplier to provide a quality platform, offer direct deliveries and engage in information exchange. Suppliers are naturally more willing to innovate by investing in such assets and services when they enjoy a strong relationship with the customer.
Enabling technologies – electronic linkages, ranging from automatic reordering and invoicing to the use of the Internet for immediate inter-company communications, enable suppliers to become closer and more responsive to their major customers. IT also allows the cost of transactions to be tracked. Consequently, suppliers are better able to determine which customers are cost-effective to serve.

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It is sometimes useful to picture supplier relationships as a continuum; with four levels of engagement defined according to the contribution the relationship makes to the buyer’s competitiveness. At each relationship level, the supplier provides products and services as well as capabilities, such as R&D, Risk Management and training. However, as the relationship develops and there is increased interdependency, the offering becomes more weighted towards the supplier’s capabilities. Let us consider each relationship level in turn.

Level 1

This basic level describes a traditional supplier who has a transactional relationship with the customer. The supplier sells specified products to the customer on the basis of price, service and quality. In most instances, the supplier adds limited value to the customer's overall competitiveness. This is a traditional buyer–seller relationship.

Level 2

Here, the supplier works co-operatively with the customer to reduce total costs and to increase the customer's competitiveness. Procter and Gamble’s work with US food retailers on achieving everyday low price (EDLP) across its product portfolio is an example of this level of engagement.

Level 3

Working in partnership with the customer, the supplier takes responsibility for a significant component of the customer’s value-adding capabilities. The customer will also be dependent on the supplier for innovation. Strategic sub-assembly deals in the automotive industry characterize this level of supplier relationship

Level 4

At this level, a strategic supplier can enable the customer to move beyond its traditional competencies. Buying companies are moving to higher levels of supplier relationships in order to increase their own ability to add value. Such firms are treating their preferred suppliers more like customers, investing in shared technology, resources and expertise so as to achieve mutual benefit. In short, buyer–supplier relationships with common business interests require shared relationship marketing and planning skills. The growing trend towards long-term business relationships both indicates and influences changes in organizational buyer behaviour. The tendency towards long-term partnerships represents one of a number of current trends in organizational buyer behaviour.

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