Do Relationships Matter?

Do cozy personal relationships really matter in business? The assumption has long been that relationship building erects psychological barriers that keep clients from switching to other suppliers. But new research suggests it may be time to cut back the expense accounts of the people who have been managing key relationships.

Using a survey of 39 key-account managers at a commercial bank and 114 managers at the bank's corporate customers, the researchers examined corporate buyers' decisions to switch suppliers. In particular, they compared how three factors influence that decision:

1. interpersonal relationships between account managers and buyers;
2. the existence of processes, custom software or other buyer-level switching costs; and
3. the product/price marketing mix.

They found that although interpersonal relationships do matter, price and switching costs are more important than socializing with clients.

It should be no surprise that buyers are price-sensitive. More interesting is the study's suggestion that a supplier's best option for customer retention may be to create switching costs for the corporate buyer, rather than to nurture close personal relationships. “Marketers have spent a lot of money on key-account managers,” says researcher Kenneth Wathne. “We say you should be pretty careful how you spend that money.”

That could mean thinking of ways to help the customer feel more invested in the supplier. Co-location, bundled services, training and software at the company level could make a buyer think twice before switching to another supplier. Suppliers also could create customized products — banks, for instance, might like to have custom cash-management programs. Switching costs, the study finds, creates a good buffer to competition.

The study also found that sellers have an inflated view of the power of their interpersonal efforts. The surveys presented buyers with hypothetical situations to determine their sensitivity to various factors. When key-account managers were asked to put themselves in the buyers' shoes, the differences were striking. Whereas buyers considered interpersonal relationships to be the least important factor for switching suppliers, sellers considered such relationships more important than company-level switching costs and product breadth.

“Key-account management has always been seen as an extension of selling,” says Malcolm McDonald, deputy director of the U.K.'s Cranfield School of Management, outside London. That's the problem, according to McDonald: “All [that key-account managers] are doing is trying to sell, and that's exactly what buyers don't want.” In the end, buyers want business relationships that are meaningful for their companies, not personal relationships that benefit themselves as individuals.

Kenneth H. Wathne, assistant professor, and Jan B. Heide, professor of marketing, at the University of Wisconsin-Madison School of Business, and Harold Biong, associate professor of marketing at the Norwegian School of Management, Sandvika, published the research as “Choice of Supplier in Embedded Markets: Relationship and Marketing Program Effect” in the April 2001 Journal of Marketing.