Hello from Boston, where I'm attending and live-blogging the Marketing Profs B2B Forum 2008. My client/boss/friend Robin Fray Carey is here as well, we're planning to attend different sessions. She's liveblogging at our sister site, The Customer Collective.
I've already chatted briefly with two SMT Featured Bloggers - Debra Murphy of Masterful Marketing and Scott Monty of crayon. Scott will be on a panel with Robin tomorrow.
My first session features Allen Weiss, Founder/CEO of Marketing Prof, on The Real Story about Value-Added Relationships. He's also a professor of marketing at USC, which explains the "Marketing Profs" name.
In a value-added, long-term relationship (he's talking six-month to a year timeframe or more), you can charge higher prices; partners know and care about each other; they have lots of communication; there is a tangled web of linkups between the companies, not just one exec to another.
Incumbency is valuable in long-term relationships and largely irrelevant in short-term transactional relationships.
Do you sell something strategically important to your customer - something that allows the customer to differentiate themselves in the market? Then the customer will be looking for a long-term relationship.
All customers will tell you they want long-term relationships, but the transaction-oriented customer will then complain the price is too high and try to nickel-and-dime you down.
You can sell the same product to different customers and have both transactional and long-term relationships.
Nutra-Sweet allowed Coke to differentiate itself in the market when it first came out. There were joint marketing agreements and long-term interests were aligned.
Nutra-Sweet got greedy and started selling to every other soft drink, and became less strategically important to Coke... but eventually became strategically important throughout the industry. (Then came Splenda, etc.)
You can have a value-added relationship without being strategically important. Hughes satellites are not strategically important -- telecom customers don't care whose satellite carries their calls -- but the downside risk to the telecom is huge if the satellite doesn't work. So they develop long-term relationships because their interests are aligned.
Switching costs will bind a customer into a long-term relationship. Airlines tried to create switching costs through frequent-flier miles, but customers rebelled and refused to accept switching costs.
Key: look for sources of dependence. Long-term relationships do not happen without dependence.
Transaction: focus on selling modularity and price.
Value-Added: focus on selling strategic importance, switching costs, and the vendor (you).
A large commercial real estate company calls its top salespeople "Cowboys," they're in to flipping properties - transaction oriented. But they lose business when they meet with customer looking for long-term relationships. You have to act differently with different customers.
Watch out for asymmetric dependence -- if the dependence is not mutual, the relationship will not last. If a customer talks about wanting to have multiple sources, it means they feel dependent on you but don't perceive that you are dependent on them.
Credible commitments have little value in other relationships - they send signals that you are committed to the relationship. If you fly from LA to Boston to visit a client, it signals that you have a credible commitment to that customer - unless you let it slip that you're seeing lots of other customers on the trip as well.
Transaction relationships are all about price. Do I really want to be in this game? Is this the only kind of customer in this marketplace? If so, you have to have a low price.
Memory chips are price-sensitive. Texas Instruments saw the market as all about price. They would lose accounts to Samsung, which understood that in certain markets, price was not the only factor. It happened around Christmas, when new toys using memory chips would come out. Chips for Chatty Cathy had to be not just about price - Samsung said we know how to add more value by customizing these chips. So there may be a way to pursue value-added relationships in what appears to be a commodity market.