Let's unpack how the framework should be used. The first thing to do is to select a group of customers maybe in a product group or a specific market area, or maybe a group of key accounts. Then you want to complete a set of items for each customer. These items are in the form of a questionnaire that I typically administer to my class. And I have made this questionnaire available in this modules reading section in Coursera. The questionnaire is designed to measure two aspects, the partnering potential of the customer, as you can see here. These items are assessing the customer's power and criticality to your firm or aspects of your product's implementation. The questionnaire also assesses how the customer currently treats its relationship with your firm today. Now, let's see analyze the responses to this questionnaire. In class, I typically ask each student to report on a customer relationship and to fill out all the questionnaire items with respect to that individual customer. Then I use their collective responses as a group of customers that affirm might be assessing. So here's a spreadsheet of a set of responses from one class. This may be difficult to read, so I have also provided a copy in the module readings folder. Now each row represents a specific customer that was reported on by a student, whose name is in the first column. Then each column captures their specific rating response to each question just listed on the previous slide. The first nine questions assess the partnering potential with the customer and questions 10 through 12, measure how close the relationship is The last two columns average the responses. So potential reflects the average of questions 1 through 9, while current reflects the averages of questions 10 through 12. Now before we interpret these means it's important to keep in mind that those in the middle of the scale like around four may not truly be due to the fact that the rating is a four, but due to the fact that there are lots of extreme scores like ones or sevens in the row Now I've highlighted these occurrences in gray. In general, the presence of a 1 or 7 score indicates that there are some extreme conditions present in the relationship and you should pay careful attention to them. If you have several 7s for questions 1 through 9, I consider that customer to be a high potential partner. And the converse is also true, if there are several ones then the customer is low in partnering potential. In those cases, it doesn't matter if the average score for this partner is middling or if there are other nonextreme scores. The very presence of extreme scores are sufficiently worth making an exception for to ensure that the customer is appropriately classified. For now, let's move on. For the purpose of illustrating how to use the framework, let's focus on the last two columns, the averages and let's interpret them. In this slide I've plotted each customer relationship using their partnering potential average on the x-axis and the current state of the customer on the y-axis. Let's layer the diagonal onto this graph. And let's start in the upper left corner, the fallacy region. I like to refer to this area as the rose colored glasses region, because this is the area where the customer treats your firm well. Perhaps the customer shares important or useful information and there's a great deal of trust in closeness. If your firm emphasizes relationship building and all customer relationships, then you might see a lot of customers in this area. And you can see that a one size fits all strategy of building relationships with everyone means that there may be customers for whom it's not really economically worthwhile to do so as in this plot. I will tell you that after years of doing this exercise with scores of students and classes, that this is the region where I always see the most relationships. Now, with this class you can see that the economic potential is at the middle or higher end of the scale, suggesting that they are potentially valuable partners. And correspondingly you can see that they are approaching the diagonal. But even so, there is too much relationship love in these relationships. The best thing to do if your firm finds its customer relationships in this area, is to quietly withdraw the investments that you have made in building these relationships. Maybe you go to fewer sporting events, less weekend retreats and fewer diners with expensive wines. Perhaps reduce the amount of time that your reps are spending with these customers. This is the appropriate response to customer relationships in this fallacy region. Now, I say that you should do this subtly because these customers have a very positive view of the relationship and has demonstrated a willingness to be close. But if the customer detects a rapid change in your behavior, this conflict with their expectations can create uncertainty, and in the worst case suspicion as to why you are suddenly dropping them like a hot potato. This is why refer to this area as rose colored. There is an illusion that the relationship is better than it should be and while this casts a positive glow it's not the best economic reality. Now let's return to the diagonal, as you can see there are far fewer relationships on the diagonal. In the grow the pie region, we have practically no one that fits the criteria of being high partnering potential and the existence of a close strategic relationship that could really grow the pie of benefits for the partners. There are a number of relationships along the diagonal that are optimal. That is, less valuable partnering potential, but the appropriate corresponding level of quo love or relational closeness. These might be relationships that are progressing towards the grow the pie region, although they do not have to be. For example, it might be that for Jamie, Jared, Raymond, and Shereen, their close relationships with the customer might uncover even more economic potential, which would justify a greater relationship investments. Or these exchanges might be exactly where they should be. This is certainly the case for those in the middle of the diagonal like Mark or Lydia's customers. I refer to this region as test the waters, because this might be a place where it would make sense to see if the way you interact with your customer should move closer to either end of the diagonal. It's worth noting at this point that this analysis is cross-sectional. It occurs and reflects only one point in time. But if you do this analysis in another six months from now, the points might shift. So one approach might be to give your customer groups a regular checkup and assess the relationship health over time. So for example, if you realize that the relationships around them middle area of the diagonal should be migrated to either extreme, then six months from now, perhaps you check and see if in fact that progress has been made. In class, it's rarely the case that we see many relationships in the prices right or foe region. This may be because I generally ask students to report on their important customer relationships. So we don't always get a lot of observations here, although we have occasionally. This area is labeled the prices right and it gets us label because customers located in this area should not get a lot of relational resources. Instead, a more transactional approach should be taken. So the emphasis here might be on building year over year sales volumes and discount strategies. Focus on achieving low price points and economic efficiencies over building close relationships. Let's move to the last quadrant. I call this region necessary enlightenment because customers in this area are generally those that may have partnering potential, but the relationship is too underdeveloped to explore this further or to exploit the partnering potential. So if you observe customers in this quadrant, it likely means that you need to turn up the relationship dial and give the customers more love. In other words, try to build a level of trust and information sharing to determine whether or not this is the case. I don't generally get a lot of observations in this area, but in this particular class, we had a few. Since they were close the average of the scale, these were situations where Ilana, Castilian, and Wil, just needed to better determine where these customer relationships should be impossibly warm them up. I recall that the culture in Wils from just an emphasize close relationships, it wasn't prioritized or valued. This also happens in government organizations or hospital settings where interpersonal relationships between employees and outside vendors are kept at a minimum. So this is how we can interpret and analyze the customer plot analysis and how it can guide and inform not only whether our relationships strategy with customers is optimal, but also where it should be and what next steps we should take. I will say that there is a lot of face validity in this exercise. Year after year, I asked students throughout the quadrants to share more about the relationship they reported on and over and over we hear that in fact relationships above the diagonal admittedly have more love than they should, and that those situations are the most frequent and common case. I really think this is symptomatic of the movement in the marketplace to always create closer relationships with everyone, as in the A and Z example that I shared at the start. However, what I hope you take away is that developing close relationships with every customers is not an economically viable strategy because building such relationships takes time and resources, and like anything else they need to be smartly allocated because they are costly. It's also worth noting that even though the survey asked for an assessment on an important customer relationship, you can see that even with what people think of as their quote important relationships, there is a great deal of variation. In fact, you can be misallocating your relationship resources, even with those you classify as your most important customers. The number of customer relationships that should be made into a strategic alliance or mutual partnership is always very small. These are expensive and risky relationships and they should be formed only after a very selective and thoughtful process. However, if you can get it right, there are many, many gains to be had from expanding the pie together. So a key learning point is that all of your customers should not be your close friends. However, they don't all need to be transactional arm's length relationships either. Instead, consider a portfolio of relationship types that hinges on their economic value and partnering potential. If you think about it, we take this approach in our personal lives as well. There are some people we know who are acquaintances, or some that we interact with regularly, but maybe more arm's length. There are those who we are close friends with, there are those that we date, and then there are select few with whom we marry or partner with over a long term period. In our business relationships, we also want to take a portfolio approach and not try to have a close relationship with all of our customers or even pursue a complicated strategic partnership with every one of them either As we close out our time together, let me just say that although, we have used this framework from the perspective of a salesperson or channel member looking at their downstream customer base, the framework is in fact more flexible than that. It can also be used to look upward into the supply base and the same analysis can be done. If you are a purchasing manager, you might select a group of suppliers in a product category or market area and ask the same set of questions for each one. The tool is powerful enough and generalizable enough to be used in this way. In summary, it's important to consider not just where relationships are, but where they should be, and the framework is a vehicle to enable you to accomplish this. It is also important to understand where you might be under or overestimating a customer's partnering potential. The purpose of this tool is to help you do this better and give you some concrete evidence and insights as to what direction you should take next. So in relationships where there is too much love, quietly and slowly withdraw your relationship resources, so as to shift those relationships to the diagonal. In contrast, warm up relationships with high potential below the diagonal. Focus on year over year efficiencies and pricing for relationships in the lower part of the diagonal and work on expanding the pie for both parties in strategic partnering situations. For these exchanges, your timeframe should be longer, the stakes should be higher in your investments focused on that particular partner. In summary, a channel strategists, customer relationship strategy rests on an examination of how those relationships are actually developing to where they should be. To this end it is vital that you identify where under an overestimation of partnering potential might exist. Most firms have over invested in relationships and this is expensive. It is also possible that there are many important customers for whom relationship building is neither necessary or effective as in the prices right scenario. And again, this framework can be used for lots of different customer and supplier groupings as well as over time. And that, my dear friends, we'll wrap up today's session on managing channel relationships.
