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"So you get in, and then if you do things right, what happens for the business?

The customer calls you and wants to place an order. ... If you do it right, you
also increase the scope of the relationship."
"This is how you can think about evolving a relationship. But does it work all t
he time? The answer is no," he said.
Sometimes the all-at-once approach is the only way to jump-start from zero, he o
bserved. "I think the most underestimated factor in industrial or business marke
ting is buyer behavior," said Narayandas.
From transaction to commitment
To explain how he has come to answer question threehow to convert a customer from
a transactional to a relationship orientationNarayandas answered with a case and
a research project.
The Wesco case is about a company whose business was very transaction-orienteddea
ling in bulbs, wires, and connectors for contractors and industrial customers. Y
et it managed to shepherd about a third of its customers into a relationship.
"The process always has to be initiated by supplier," Narayandas emphasized. As
he learned in the Wesco experience, the road is bumpy at first. The distributor
tells the customer, "I want to give you lower prices, which will come at the exp
ense of my markets. What I want you to do is give me higher volumes." The custom
er, typically, does not offer higher volumes but instead begins to cherry-pick.
The suppliers' costs, meanwhile, just go up. While the customer is getting more
value, only one partythe distributoris actually working at the relationship.
"But if you do things the right way, then there comes a day when the customer be
gins to see benefits," said Narayandas. "More importantly, the customer now begi
ns to realize that taking a hands-off approach in the relationship is actually d
etrimental. Even the slightest effort they put in will lead to much more value f
or themselves.
"That's when they begin to invest. At some point, the customers begin to give mo
re volumes." Wesco's costs began to go down, not just due to volumes but also ef
ficiency. For the customers, value increased, thanks to price reduction and the
fact that the customers began to see the value of collaboration.
Trust forms between people, between individuals. But commitment forms betwee
n firms. Narakesari Narayandas
"It doesn't happen from day one, much as you want it to," he said. "A lot of wor
k and planning need to go into it. So make sure you get through the investment p
hase at the beginninginvesting in skills and systemsand figure out how long to inv
est and pull out [if necessary]. In Wesco's case, about a third of relationships
migrated through; two-thirds fell in the trap."
"The Wesco case shows that it's not just about the product. You also need to hav
e an understanding of the pattern of investments, and more important, an underst
anding of the process of how relationships evolve over time," he said.
Buyer-seller evolution
To study how relationships evolve in mature industrial markets, Narayandas and H
BS professor V. Kasturi Rangan took an in-depth look over time at three buyer-se
ller relationships, all in commodity markets. The three pairs represented differ
ent parts of the value chain: supplier-manufacturer, manufacturer-distributor, a
nd manufacturer-customer.
"People have always argued that depending on where you are in the demand chain,
the dynamics might be different. What we found is that there are many commonalit
ies," he said.
Together they developed a process model of relationship development, described i
n their working paper, "Building and Sustaining Buyer-Seller Relationships in Ma
ture Industrial Markets".
Previous work by other scholars had focused on two paths: competition, the study
of how each actor leverages its own position ("with the obvious answer," accord
ing to Narayandas: "the more powerful you are, the more you're able to improve t
hings for yourself in any contract"), and collaboration, the study of trust and
None of this work could explain how relationships that began as unbalanced, with
one player holding most of the cardsas is typical in industrial marketscould evol
ve from adversarial to collaborative.
"In any relationship, the dependence that each side has defines the initial bala
nce of power in the relationship," he said.
In their paper, they developed nine propositions and identified five processes.
They found that the contract stage in industrial markets leads to a performance
evaluation stage. Performance evaluation affects two elements: trust and commitm