Creating & Nurturing Relationship Equity

Published in: IPA Bulletin, November/December 2008

Initiating opportunities for the buyer to become more important
to the supplier in ways other than higher price.

We were known for being able to call major clients for work when we needed it. No one from the outside taught us to do that, and I personally had never read about sales or marketing types being able to do this, though I'm confident a few of the best could.

Curiosity caused me to go looking and eventually, in the discipline of sociology, to discover the concept known as relationship equity. 

Understanding Relationship Equity

What relationship equity basically says is: If the first party is doing far more for the second party than the second party is doing in return, the relationship cannot last. This is true whether we are talking about the relationship between two organizations or between two individuals.

The corollary is perhaps more important: To strength the relationship and sustain it, the first party that is doing too much for the second party needs to create opportunities for the second party to return the favor and do things for the first party. And in the process engender a feeling of mutual importance in the second party.

In a typical supplier-customer working relationship, and particularly in today's demanding "low price wins" conditions, many suppliers are under unusual stress to serve the often extreme demands of major accounts. However, if the supplier creates opportunities for the buyer to become more important to the supplier - particularly in ways other than higher price - the working relationship is strengthened, the customer is more important to the supplier, and the working relationship has a higher probability of lasting.

Creating Relationship Equity

Recently, in preparing with a client for a "periodic business review" with a major customer, the question was raised, "What should we be asking them?"

Discussion led to recognition - and belief - that the customer desired to be more valuable to the supplier but didn't want to pay higher prices for products and services. Similarly, the supplier wanted to be more important to the major account but was at the "end of their rope" on how to accomplish this through better pricing and faster turnaround of work. Clarity on the objectives upfront was important. In effect, the supplier wanted to do what it could to improve or ensure the major account's longevity with the supplier.

Brainstorming resulted in the action items listed below. While on the surface these items may appear simplistic, they cannot be left to chance; they must be done in a purposeful way. I suggest you ask yourself the following questions, "Do we recognize and do these things? If we believe we do this, do we track these activities with our major accounts? Do our major accounts know these items can make them more important to us and affect our profitability?"

Request for Referrals:  In the client situation just referenced above, the major account was known for introducing the supplier (our client) to between three and five new customers each year. This major account had profound influence in its market(s), and on an ongoing basis was glad to introduce our clients to multiple six figures of the new business each year. What is the rationale from the major account's perspective for doing this? They wanted to be able to call, without hesitation, this supplier with emergency delivery requirements because they had "earned the right to make such requests."

Requests for Flexible Delivery Dates:  This allows the supplier to accommodate other customers when the production schedule is jammed or when another client has a time-critical job. Calling a major account and asking for an extra day or two (or three) is not an activity that should be engaged with any frequency. Yet, in today's spike-filled production schedules, there is often a need to find additional production time that doesn't legitimately exist. The rational approach, which keeps order and credibility with your production team, is to know which customer you can call for additional time. Asking, "Ms. Smith, we need an additional day in order to obtain this new account (or process a time-critical order), and your job is ahead of it in the production schedule. If the situation were reversed, we would be calling folks on your behalf. May we have an extra day or two on your order?"

More times than not, your buyer will work to find additional time because they want to create IOUs they can call on when they need a favor.

Underneath these facts is the "exchange of value" between two organizations, which has the potential to make both organizations more valuable to each other but will never show up on a corporate income statement or "sources of profit" report.

Opportunities to Learn about the Customer's Industry:  Trade shows, conventions, and similar "informational" industry events are often open only to members. An invitation to such an event can be priceless for what you learn, whom you meet, and opportunities that have little chance of occurring outside such a venue.

Opportunities to Provide Education and Training to Customer Personnel: A marketing maxim I deeply believe in is stated something like, "Customer education precedes customer appreciation."

Your customer's permission to allow you to go to their location(s) for providing education and training sessions to their key contact personnel or approval to send key personnel to an education and training program that's customized just for them can lead to profound support in the future - particularly in situations that are difficult t predict but that are guaranteed to occur. What you are doing is creating an intellectual and working relationship position in the mind and heart of a major account's key personnel through professional development of those key personnel.

Such situations are not limited to sale and CSR positions. An international packaging company I was working with had a rookie IRS examiner come in for a routine audit. The Finance Department discovered on their own that certain entries needed to be corrected because a technical detail in the tax law had changed. The decision? Do we show this to the rookie examiner? They decided to reveal the previously overlooked entries to the rookie tax examiner, who was surprised, and grateful. The tax examiner was subsequently promoted several times, and eventually became the head of tax audits for the Manhattan District, where this particular packaging company was headquartered. That packaging company, in training their up and coming executives on why to do what's right with both suppliers and customers, reported that they seldom had a problem with tax audits under the new chief of IRS audits.

Requests for Work When You Need It:  From my opening story, I want to testify that I had customers who took pride in supplying my organization with work when we needed it. They were, in effect, paying us back for what our production and service teams had done reliably over and over. In recent times, I've watched first-hand as a client found himself in untenable circumstances and needed significant amounts of work from major accounts for up to a year. Knowing how to approach such an account - and the cultivation of working relationships before such an emergency situation - allowed those requests to be fulfilled and an otherwise disastrous situation avoided. I have seen this happen more than once and believe there's no accurate value that can be placed on what it is worth to both organizations. In effect, the supplier must earn the right to make such a request. But on earning such a right, the two organizations actually go forward, saying to each other, "I want you to always be available to us when we open for business Monday morning."

Being Purposeful in Developing Equity

Trust is the cornerstone on which western society and commerce occur. It is what went wrong recently between lending institutions in the United States. It is partly why the Russian economy is struggling after their 1998 meltdown.

Trust and relationship equity are developed through the frequent give-and-take of opportunities between individuals and organizations. If such give-and-take is occurring mostly one way, you need to recognize what dangers this creates and then correct the situation in a purposeful way. Do not leave it up to chance!

I remember hearing a fellow rep ask me, "Don't you have any pride? How can you go to high-end, major accounts and ask them for work?"

My response included, "Because I've earned the right to ask plus it's a form of a test. It answers the question, Am I and is our organization important to the client's future and do they want to count on us like they have in the past?

My belief is that the customer not only wants to count on us, but also wants to do anything reasonable that ensures they can count on us to continue doing for them what we have done in the past. Relationship equity assures customers they can call on us first when they need something that is difficult - or even outrageous."

Customers need to know they are important, and they need to earn that importance. There are numerous ways to contribute to the supplier's profitability other than through higher prices, and it is up to the supplier and the customer to create the understanding and the opportunities so they can become more important to each other.

I believe you either have a servant's heart, and love performing or you don't. And if you don't you not only are not in the game but the marketplace will drive you out.