We have disbelievers in our midst!
Among our loyal flock of AdVerb subscribers there are those who profess to embrace our principles but who flout at least one of them conspicuously.
I’m referring to those executives who claim to be Relationship-centric Marketing aficionados but who, nonetheless, invest their scarce promotional dollars in golf days, boxes at sporting events, lunches with no formal business agendas, directionless client visits and — horror of all horrors — birthday and Christmas cards.
Worse still, I’m periodically confronted by executives who hold up such activities as evidence that theirs are Relationship-centric sales processes!
"Look," is the common declaration, "I agree that business is all about relationships; that’s why I insist that all of our salespeople memorise the names of their clients’ partners, children, and favourite pets."
This article identifies the principle that is being violated in the scenarios above. More importantly, it explores the longer-range implications of this violation and — as a consequence — provides deeper insight into the Relationship-centric sales process.
The significance of relationships
As you know, the essential attribute of the Relationship-centric approach to sales process design is the recognition of relationships as the most lucrative source of sales opportunities.
The reasoning goes like this.
A (pre-existing) relationship is the most significant influencer of the probability of a given individual transacting with your organisation.
This is evidenced by the following observations:
- Clients are most organisations’ greatest (and lowest cost) source of sales opportunities.
- Referrals (from either clients or centres of influence) are typically the second-most lucrative source of sales opportunities.
- An organisation’s reputation has tremendous potential to influence a potential customer’s purchasing decision, for better or worse. (Of course, the word reputation infers a relationship.)
Although few would question these observations, it is rare for an organisation to formalise the acquisition and management of anything other than client relationships.
To put it another way, most organisations regard clients and relationships as one and the same.
Of course, we argue that this is a logical flaw. Specifically, we argue that client is a sub-set of relationship. In other words, all clients are relationships but not all relationships necessarily have to be clients.
This realisation allows us to:
- Acquire relationships with individuals other than clients (in other words, to acquire a relationship with someone without selling him anything).
- Manage relationships with clients and non-clients alike.
As a consequence, Relationship-centric Marketing holds that, in order to generate sales opportunities, an organisation should deliberately acquire relationships with (non-client) members of its target market and then manage these relationships alongside client relationships.
An organisation’s target market is comprised of three categories of individual:
- Existing clients.
- Potential clients.
- Centres of influence (individuals who may never transact, but who are in a position to influence those who may).
The methodical acquisition and management of relationships represents the first two components of our Relationship-centric sales process, as pictured below.
While it is possible to invest promotional resources directly in the acquisition of sales opportunities, our experience is that, in most industries, our indirect approach is more effective.
This is particularly appropriate in situations where a client’s decision whether or not to transact in the first instance is influenced by their estimation of the quality of a future relationship. (If there’s a pre-existing relationship, the requirement for guesswork is eliminated.)
Our experience is that the recognition of the relationship as the most lucrative source of sales opportunities impacts positively on both promotional activities and on the opportunity management process.
Where promotion is concerned, our clients discover that it is significantly less expensive to acquire a relationship than it is to acquire a sales opportunity. (We typically achieve the former by giving away some kind of packaged information.)
Where the opportunity management process is concerned, our clients find that a pre-existing relationship reduces significantly the resources required to close an opportunity.
Such is the power of relationships.
The silent ‘$’
If relationships are so valuable, why then am I suggesting that initiatives such as golf days, informal client visits and birthday cards are incompatible with Relationship-centric Marketing?
What is the purpose of such initiatives if it isn’t to build relationships?
Might I begin by suggesting that the word relationship has different inferences depending upon the context in which it is used?
If we consider just human relations, it’s obvious that there are many kinds of relationships.
We have relationships between doctors and patients, between friends, lovers, employers and employees, politicians and constituents and, of course, relationships between traders (commercial relationships).
For each relationship type there is behaviour that is compatible — as well as behaviour that is incompatible — with that relationship.
It does not follow, therefore, that the behaviour that is compatible with one type of relationship is necessarily compatible with another type.
To choose an extreme example, behaviour appropriate for lovers is not necessarily compatible with a doctor-patient relationship.
Now, the reason I am unimpressed by executives who present golf days and the like as evidence of the fact that their sales processes are Relationship-centric is that they are exhibiting behaviour inappropriate for the context in question.
Specifically, they are assuming that the behaviour that is appropriate for friends is also appropriate for a commercial relationship.
This assumption, as we’ll discuss shortly, is a non sequitur (it does not follow).
The executives who make this mistake are dropping the context in which the word relationship is used.
It should be obvious that, because Relationship-centric Marketing is a commercial methodology, the word relationship refers specifically to commercial relationships.
Hence my assertion that there is a silent ‘$’ in relationship.
Personal friendship is not a pre-condition of a commercial relationship
This point was driven home to me years ago when I was struggling to make it as a life insurance salesperson.
My sales manager at the timeregularly stressed that, prior to launching into a sales presentation, it was essential to build rapport with the prospect.
The technique he offered to accomplish this involved the salesperson gazing around the prospect’s home, looking for anything that indicated an interest shared by both parties.
Once the salesperson had identified a common interest, the trick was to steer the conversation towards this subject area and, as a consequence, for the salesperson to demonstrate empathy with the prospect.
My experience with this technique was that it served only to annoy prospective customers. Most displayed reluctance to engage in a conversation of a personal nature when the meeting had been scheduled for commercial purposes.
Even in cases where there was an obvious common interest, the resulting discussion seemed to do little empower the prospect with faith in me — at least in my capacity as an insurance professional.
Counter to my manager’s protestations, I discovered that the most effective approach was to dispense with the preliminaries all together and launch directly into the commercial agenda.
In retrospect, I realise that my sales manager was half right. He had recognised that, in many cases, rapport is a necessary condition for a commercial transaction.
However, he had assumed that you would use the same method to build rapport in a commercial context as you would if you were getting acquainted with your host at a dinner party.
My discovery was that, in a commercial context, the selling process itself was a more appropriate medium for the development of rapport.
It rarely makes commercial sense to invest in personal relationships
Let me make clear at this point that I am not claiming that personal relationships are a commercial liability.
While, admittedly, in some instances, they can be (e.g. conflicts of interest), this is more the exception than the rule.
Rather, my position is that the investment of scarce resources in the development of personal relationships can rarely be justified on commercial grounds.
This is because, when resources are scarce, the real cost of investing resources in one activity is the opportunity cost of investing those same resources elsewhere.
Or, in practical terms, when promotional dollars are limited, every dollar that is invested in golf days, informal client visits, Christmas parties and the like, is a dollar that cannot be invested in the development of commercial relationships.
Of course, this raises a critical question.
What is a commercial relationship and how do you develop one?
The term commercial relationship obviously refers to the relationship between two (or more) parties who conduct commercial transactions.
It follows, therefore, that if you wish to enter into a commercial relationship with an individual, you must transact with him.
Herein lies a dilemma:
I am suggesting that you invest in the development of commercial relationships with potential clients. If a potential client is a person who does not transact with you — and a commercial relationship presupposes transactions — how could it be possible to develop a commercial relationship with a potential client?
The solution to this dilemma is one of the key principals upon which Relationship-centric Marketing is based:
A commercial relationship presupposes commercial transactions. However, where potential clients are concerned, these transactions are zero-dollar transactions.
This principle is significant because it provides the loophole we need to build relationships with potential clients without dropping the commercial context.
Specifically, Relationship-centric Marketing stipulates that commercial transactions with potential clients consist of the exchange of a service of some kind for the increased probability of future real-dollar transactions.
In most cases, the service provided (at no charge) to potential clients consists of packaged information — delivered either in the form of a periodical (think AdVerb) or via events (seminars and workshops).
Obviously, the advantage of using information as the transactional commodity is that (packaged) information is a scalable resource (the incremental cost of servicing an additional e-mail periodical subscriber is negligible).
That said, where the value of a client is significant enough, it may be justifiable to deploy more expensive relationship-management resources (e.g. consulting services).
Transactions build relationships
You may have already detected an inversion of conventional wisdom with regard to the role of relationships in the sales process.
Conventional wisdom supposes that relationships precede transactions. Our method recognises that transactions precede relationships:
You acquire a (commercial) relationship with an initial transaction.
You then increase the value of that relationship with ongoing transactions.
Of course these two activities map back to the first two components of the Relationship-centric sales process:
Relationship acquisition. The initial transaction typically consists or the offer (and provision) of a document of some kind. (A white paper or a manifesto.)
Relationship management. Ongoing transactions typically consist of the provision of an e-mail periodical and events (seminars and workshops).
As you know, when making the claim that transactions build relationships, we don’t differentiate between zero-dollar and real-dollar transactions: both build relationships.
It’s reasonable to assume, however, that real-dollar transactions add more value to relationships than zero-dollar transactions and, accordingly, that larger real-dollar transactions add more value than smaller ones.
This realisation can be expressed as an unashamedly simplistic maxim:
If you want a relationship: sell someone something. If you want a stronger relationship: sell him more, more often!
Valuing relationships
A moment ago, I reminded you of the importance of recognising the opportunity cost associated with the investment of promotional resources in one activity, as opposed to another.
Considering that all promotional investment is (should be) intended to either acquire or add value to relationships, it is necessary to calculate the value of the relationships under our custodianship.
Because we’re discussing commercial relationships, the metric (measure of value) must be dollars.
Because a commercial relationship is an annuity (an income stream), the value of this relationship is simply the net-present-value (NPV) of that annuity.
This income stream has two components.
There’s the income stream related to current transactions and then there’s the income stream related to possible future transactions.
Accordingly, the value of a relationship can be calculated by adding the NPV of current transactions to the NPV of future transactions, discounted for probability.
It’s beneficial to consider a Relationship-centric sales process as a conveyor belt, designed to migrate low value relationships into high value ones.
This approach is depicted in the table below. Each row represents a milestone in the development of client relationships. The dotted line marks the point at which a potential client converts into an actual client.
This approach makes it obvious that promotional dollars should be invested in the activity most likely to induce the greatest positive change in the value of relationships under management.
If you apply this test to the allocation of your scarce promotional resources, you are unlikely to conclude that it is justified to devote many of those resources to social activities with no formal commercial objective.
You’re also likely to conclude that it doesn’t make sense to devote many promotional resources to clients who are already fully utilising your range of services: the relationship cannot become any more valuable. (It is more appropriate to view client retention as a responsibility of your research-and-development and operational functions.)
What if mine is a commodity product?
Those who object to our stand on personal relationships generally have one last objection.
"Mine," they argue, "is a commodity product. [Personal] relationships are all I have to differentiate me from my competitors."
The attempt to differentiate a commodity product with a personal relationship is simply a fool’s errand.
The resources invested in this endeavour will produce a greater return if they are either passed on to the customer in the form of a lower price or invested in product development (with a view to developing a more meaningful point of difference).
The reality is, if personal relationships are all that differentiate you from your competitors, your business’s outlook is questionable!
Nice, but not necessary
The fact that personal and commercial relationships share many common attributes makes it easy to fall into the trap of assuming that the two are interchangeable.
This issue is made even more confusing by the tendency of commercial relationships to migrate into personal relationships. (It’s only too easy to mistake effect for cause.)
However, as this article demonstrates, the application of this seemingly harmless assumption to sales process design can have harmful consequences.
If the inevitable scarcity of promotional resources makes it impossible to treat all commercial relationships as if they are equal, then the assumption that commercial and personal relationships are equivalent is reckless in the extreme.
