Business relationship management and marketing

Springer Texts in Business and Economics

Michael Kleinaltenkamp
Wulff Plinke
Ingmar Geiger Editors

Business
Relationship
Management
and Marketing
Mastering Business Markets


Springer Texts in Business and Economics

More information about this series at
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ThiS is a FM Blank Page


Michael Kleinaltenkamp • Wulff Plinke •
Ingmar Geiger
Editors

Business Relationship
Management and
Marketing
Mastering Business Markets

Editors
Michael Kleinaltenkamp
Ingmar Geiger
Freie Universita¨t Berlin
Berlin
Germany

Wulff Plinke
European School of Management and Technology
Berlin
Germany

Translation from German language edition:
Geschäftsbeziehungsmanagement
by Michael Kleinaltenkamp, Wulff Plinke, Ingmar Geiger
Copyright # Springer Gabler 2011
Springer Gabler is a part of Springer Science+Business Media
All Rights Reserved

ISSN 2192-4333
ISSN 2192-4341 (electronic)
ISBN 978-3-662-43855-8
ISBN 978-3-662-43856-5 (eBook)
DOI 10.1007/978-3-662-43856-5
Springer Heidelberg New York Dordrecht London
Library of Congress Control Number: 2014951102
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Preface

Economic value creation in business-to-business (B-to-B) markets by far surpasses
value creation in the business-to-consumer (B-to-C) interface in many developed
and emerging economies. In Germany as the most important European economy,
the ratio is about three to one. Interestingly, this fact is barely reflected in how
mainstream marketing scholars and professionals have treated the business-tobusiness realm; neglect may be the appropriate term. This is all the more astonishing since the paradigm shift from transactional to relational (B-to-C) marketing in
the 1980s was nothing new to many B-to-B marketers.
For many organizations selling their products and services to other
organizations, their customer relationships are one of their dearest assets. In our
four books series “Mastering Business Markets”, the present volume touches upon

all relevant questions B-to-B companies face with regard to the management of
customer relationships and all marketing-related aspects within them.
We have divided the book into three parts: basic principles of business relationship management (Part I), analysis, goals, and strategies (Part II), and the implementation of business relationship management (Part III). Part I gives a thorough
theoretical introduction based on both new institutional economics and behavioral
B-to-B marketing theories. Part II is concerned with organization (re-)buying
behavior, customer value and customer selection, and strategies within business
relationship management. Finally, Part III provides tools and instruments to put
business relationship management and marketing into practice: a chapter on the use
of the classical marketing instruments within business relationships is followed by a
reflection on how a B-to-B organization best organizes itself and its IT infrastructure to meet the challenges of business relationship management and marketing.
Since this book is based on the German language book “Gescha¨ftsbeziehungsmanagement” but will be used in a newly created international Executive Education
program, the China-Europe Executive Master of Business Marketing, we also
deemed it worthwhile focusing on a special type of business relationships, those
between organizations in Europe and China. Thus, Chap. 6 touches upon special
questions that these intercultural relations bring with them.
As with every book, we have to say thanks to a number of people whose
work was invaluable in finalizing this work. We thank all authors who contributed
to this volume. Our sincere gratitude goes to our research associates Silvia
v


vi

Preface

Stroe and Ilias Danatzis who managed the whole translation and editing process.
The original translation was provided by A.C.T. Fachu¨bersetzungen GmbH. At
Springer, Dr. Prashanth Mahagaonkar served as our publishing editor. Finally, our
research assistant Corinna Ebert rendered outstanding service to all layout works.
Of course any remaining inconsistencies or mistakes are the lone responsibility of

the editors.
Berlin, Germany
March 2014

Michael Kleinaltenkamp
Wulff Plinke
Ingmar Geiger


Contents

Part I

Basic Principles of Business Relationship Management

1

Phenomenon and Challenge to Management . . . . . . . . . . . . . . . . . .
Michael Kleinaltenkamp, Wulff Plinke, and Albrecht So¨llner

2

Theoretical Perspectives of Business Relationships:
Explanation and Configuration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Kleinaltenkamp, Wulff Plinke, and Albrecht So¨llner

Part II

3

27

Analysis, Goals and Strategies of Business Relationship
Management

3

Repeat Purchasing in Business Relationships . . . . . . . . . . . . . . . . . .
Frank Jacob

57

4

Customer Value and Customer Selection . . . . . . . . . . . . . . . . . . . . .
Michael Kleinaltenkamp

85

5

Strategies of Business Relationship Management . . . . . . . . . . . . . . . 109
Ingmar Geiger

6

Business Relationship Management and Marketing in
a European-Chinese Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Alexander Tirpitz and Miaomiao Zhu

Part III

Implementation of Business Relationship Management

7

Instruments of Business Relationship Management . . . . . . . . . . . . . 195
Ingmar Geiger and Michael Kleinaltenkamp

8

Internal Implementation of Business Relationship Management . . . . 245
Ingmar Geiger and Michael Kleinaltenkamp

vii


viii

9

Contents

Customer Relationship Management . . . . . . . . . . . . . . . . . . . . . . . . 289
Martin Gersch

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331


Part I

Basic Principles of Business Relationship
Management


1

Phenomenon and Challenge
to Management
Michael Kleinaltenkamp, Wulff Plinke, and Albrecht So¨llner

1.1

Business Relationships as the Foundation of Business
Relationship Management

1.1.1

The Business Relationship as a Competitive Marketing Task

Companies conduct business to achieve their objectives. They develop products and
services, create markets, manufacture goods, choose business partners, submit bids
and sell their products—all while dealing with the constant threat that other
companies acting similarly (or even completely differently) may be more successful in attracting and enticing away their business partners. Of course, this game,
which is known as competition, also offers opportunities—chances to close deals
with new business partners who previously worked with other companies. When a
company repeatedly does business with another company over an extended period,
we generally refer to this as a “business relationship”.
This book deals with marketing within business relationships, primarily from
the perspective of suppliers who then re-sell their products and services to other
companies or government organizations (business-to-business marketing in sales

markets).

M. Kleinaltenkamp (*)
School of Business & Economics, Freie Universita¨t Berlin, Berlin, Germany
e-mail:
W. Plinke
European School of Management & Technology, Berlin, Germany
e-mail:
A. So¨llner
Faculty of Business Administration & Economics, Euorpa-Universita¨t Viadrina Frankfurt (Oder),
Frankfurt (Oder), Germany
e-mail:
# Springer-Verlag Berlin Heidelberg 2015
M. Kleinaltenkamp et al. (eds.), Business Relationship Management and Marketing,
Springer Texts in Business and Economics, DOI 10.1007/978-3-662-43856-5_1

3


4

M. Kleinaltenkamp et al.

Marketing is intended to promote customer benefits, meaning to present the
customer with an offer that he considers superior to those from other, relevant
competitors. If there are no customer benefits, the customer will choose to do
business with a competitor, the long-term result being a supplier’s elimination
from the competition. Thus, marketing can also be considered the behavior scheme
of a supplier, intended to arm the company for survival amongst the competition. In
this sense, marketing means taking action to ensure survival in the competitive

environment, so to speak individual competitive policy. This includes all of the
processes related to planning, coordination and controlling intended to help the
supplier reach his competitive goals.
The premise on which the marketing concept is based is that a company that
finds itself in a competition amongst suppliers can only survive if its customers
make purchase decisions that provide the company with the required resources in
the form of revenue. So marketing as a behavior scheme is geared towards offering
the customer services that in turn induce the customer to grant the required services
to the company (Pfeffer and Salancik 1978; Utzig 1996).
Marketing as a way to secure the resource “customer” can have many different
shapes, depending on the structure of the competitive arena. The competitive
arena is a certain specific manifestation of competition. This type of manifestation
arises from the structure, sequence and result of competition. The competitive arena
is a virtual arena as the supplier experiences it. It is not simply fateful but—in the
case of an ongoing transaction—the result of decisions made by the supplier,
competitors and even third parties. In the case of new business, the supplier has
already decided to enter a certain field of competition with a certain offering, thus
changing the balance between the existing suppliers and customers.
When defining the relevant arena, a supplier must be careful not to specify it too
broadly or narrowly. It is certainly possible that a supplier battles competitors who
are objectively not truly competitors or that the company does not have an overview
of competitors who define “their” arena differently and may potentially be more
successful as a result (Abell 1980; Backhaus and Schneider 2009). A supplier must
establish various parameters to define the arena. These include the target customers,
their quantity and the solutions they expect; the number of relevant competitors and
their behavior scheme; the role of potential third parties; the rules of competition
and the degree of success to which the suppliers aspire.
In the business-to-business field it is the norm that a supplier does not have only
one customer for the products and services that he offers—just as a purchaser
typically contracts with more than one supplier for the products and services that

he purchases. A specific relationship between a supplier and a purchaser (the dyad)
generally constitutes only a segment of all business relationship that the two parties
live in (Refer to Fig. 1.1).
Thus, a specific business relationship is a potential definition of the competitive
arena. The individual customer and the competitors that compete for the customer
form the specific part of the market situation that is selected as the focus of
competition of a supplier. Marketing in business relationships (synonymous
with business relationship management, relationship marketing, relationship


1

Phenomenon and Challenge to Management

5

Customer

Supplier

Supplier

Customer

Customer

Supplier

Customer
Customer

Customer

Supplier
Supplier
Supplier

Fig. 1.1 Dyadic business relationship as part of supplier/purchaser relationships

management) is a behavior scheme that relies explicitly on the existence and the
significance of lasting exchange relationships between one supplying company and
one customer, and that focuses its marketing measures on the repurchase behavior
of the customer. Horizontal business relationships (e.g. cooperations between
competitors, alliances, cartels) are not discussed in this book. The subject is rather
the processes of ongoing market exchange between a certain supplying and a
certain purchasing company or: It is about managing repurchasing and reselling.
The subject of marketing in business relationships is one that has gained
substantial significance in theory and in practice over the last few decades. The
increase in relevance was triggered by fundamental changes in market processes
that vastly changed the rules in these competitive arenas.

1.1.1.1 Changes in the Field of Technology
Such changes have been and are still apparent in the fields characterized by
technical innovations. They affect the development and manufacturing processes
as well as application processes. The most pertinent fields include information
technology, communication technology, traffic engineering, aerospace technology
and networking of various enabling technologies used in manufacturing and logistics systems.
The technical advances are joined—particularly in the business-to-business
markets—by profound changes in sales activities and procurement activities
related to systems and process technology. In strategic investment situations
purchasers have absolute freedom of choice before committing to the technologybased system; however, once they have made the investment decisions, they feel a

strong sense of being bound to the technology and/or the supplier. Decisions on
technology investments cause customers to make far-reaching commitments that
pre-determine future decisions.
It is not only technology that shapes this evolution: Distinctive, computersupported networking between customers and suppliers is a sign of this new age.
Just-in-time systems as extreme manifestation of networking and continuity of
supply relationships are a form of technology-based cooperation and are a fundamental industrial standard today. Electronic ordering and invoicing systems are also
parts of such systems. The business of complex systems for office organization,
communication technology and factory automation has become increasingly important—these are all fields in which customers see themselves as locked into decisions


6

M. Kleinaltenkamp et al.

made earlier on the one hand and foster expectations as to the future benefits of
certain technologies on the other hand. Both of these reasons have made long-term
cooperation between suppliers and customers the predominant pattern.
Thus market transactions in the field of new technologies should not be viewed
and interpreted as single transactions but largely as decisions on whole
conglomerates of market transactions. This is why the suppliers’ marketing
strategies tend to be geared primarily towards one single customer (or a closely
linked configuration of companies) and a sustainable solution to that customer’s
problems as well as towards customer and supplier both growing along with
technological advances.

1.1.1.2 Changing in the Field of Marketing
Innovations in the field of technology are not the only catalyst for changing market
processes. Another factor is changing strategic behavior patterns that develop as a
result of the battle for competitive positions. Such patterns are not only a result of
changing technology, they actually have an impact on the market process. This

includes particularly evolving management and organizational structures within the
company (e.g. lean management, business process re-engineering, outsourcing) as
well as the general trend to consolidate while at the same time practicing division of
labor in regard to global competition. In a time of focusing on core competencies,
i.e. decreasing vertical manufacturing, the strategy of closer cooperation between
suppliers and customers (e.g. in the form of simultaneous engineering or concurrent
engineering) brings about substantial procurement concentration, with a declining number of suppliers per customer for a certain product. The increasing orders
for research and development are another reason for close cooperation between
suppliers and customers in these fields. A single customer can play such a significant role that he can himself represent a strategic business segment (e.g. an airline
as customer of a catering supplier; a telecommunications company for a producer of
communication technology).
Technical developments and changes in the field of marketing have caused us to
observe a gradual narrowing of the market focus. Whereas it used to be the case that
marketing concepts tended to apply the guideline of attempting to reach as many
customers as possible with a certain range of products or services, nowadays the
focus is on a single customer or a small number of customers along with a
broadening of the problem solving perspective for the customer(s).
Carefully complied customer analysis and customer evaluation are applied to
satisfy strategically important customers and groups of customers to the greatest
extent possible. Figure 1.2 illustrates the correlation.

1.1.2

Definition of Business Relationship

In this section we consider a business relationship to be the consequence of market
transactions between a supplier and a customer that is not random. “Not random”
means that, on the part of the supplier and/or customer, there are reasons that either

1

Phenomenon and Challenge to Management

Traditional focus

7

Focus on business relationship

Addressed
needs

Addressed
needs

Number of
customers reached

Number of
customers reached

Customer

Fig. 1.2 Business relationship management—altered market focus. Source: Based on Rogers and
Peppers (1994)

Initial
purchase

Supplier

Transaction # 1
Initial
resale

Repurchase
decision
#1

Repurchase
decision
#2

Repurchase
decision
# n -1

Transaction # 2

Transaction # 3

Transaction # n

Reselling
decision
#1

Reselling
decision

#2

Reselling
decision
# n -1

Economically significant effects (history matters)
Potential anticipated effects (shadow of the future)

Time

Fig. 1.3 Business relationship as a series of transactions

make systematic linking of market transactions seem sensible or necessary or that
actually lead to linking. So a business relationship—as demonstrated in Fig. 1.3—
can be seen as a series of market transactions between which there is an inner
connection (Plinke 1989).
Every business relationship begins at the time of the first transaction: the initial
purchase by the customer and the initial sale by the supplier. Once a business
relationship has been established, it leads to a respective number of repurchase
decisions on the part of the customer and reselling decisions for the supplier. The
fact that this happens and that it is “not random” can be attributed to economically
significant factors—which will be explained in more detail—on both sides. Such
reasons can originate from past transactions (history matters) or due to potentially
anticipated effects that do not become relevant until subsequent transactions occur
(shadow of the future).


8

M. Kleinaltenkamp et al.

So in this sense—and to some extent in contrast to colloquial understanding—
not every meeting of business people representing the supplier and purchaser can be
considered a business relationship. Rather the focus of the previous definition is
more on understanding the business relationship as a “relationship between
businesses” in the sense of single market transactions conducted by identical
partners, i.e. the same supplier and customer companies.
This does not mean that “relational” elements affecting the relationship between
the negotiating parties are not relevant within such business transactions. This
applies even more as the transactions in question become more “complicated,”
meaning as more things need to be clarified, as the partial services related to the
transactions grow, as the risk perceived by the involved parties increases, etc.
So for example, when a 3-year contract is entered for outsourcing all of a
company’s IT infrastructure, and then later during the term of the contract, there
are many aspects that have to be negotiated. And as a result of the contract many
contacts are made between various persons at different levels of the hierarchy in
both the supplier’s and the purchaser’s company. On the other hand, routine
procurement of wearing parts can be triggered with an online order; processing
and shipping are more or less automatic.
In scientific literature, these different (extreme) types of transactions are referred
to as “discrete” (in the sense of “simple”) and “relational” (in the sense of “complex”). The respective features of the two types are shown in Fig. 1.4.
The characterizations clearly show that in relational transactions—as opposed to
discrete transactions—relationships between the participants (social contacts, regular sharing of information, proactive and cooperative conflict solving processes,
etc.) not only occur randomly, they are essential to mastering the wealth of tasks
related to developing and processing the transactions. Nevertheless, such a complex
and thus relational transaction can be a standalone transaction, not being dependent
in any way on a business relationship.

Discrete

transactions

- Based on specific time
- Short-term
- One-time transfer of ownership
- Without social contact
- Ad hoc sharing of information
- Reactive conflict resolution
process

Relational
transactions

- Time frame-related
- Long-term
- Repetitive transfer of ownership
- With social contact
- Regular, informal
sharing of information
- Proactive, cooperative
conflict resolution process

Fig. 1.4 Features of discrete and relational transactions. Source: Based on Macneil (1980),
Werner (1997), Zimmer (2000)


1

Phenomenon and Challenge to Management

9

It does not become a business relationship—in the sense understood here—until
• A second transaction follows the first and the second transaction was entered into
because of the (positive) effect of the way in which the first transaction was
completed or
• Such a transaction was preceded by another transaction, the course and result of
which prompted the same partners to once again do business with one another.
Thus, there can be many different constellations of business relationships:
Sometimes there can be a sequence of relatively simple (routine) transactions,
sometimes a sequence of complex, long-term transactions, or a combination of
simpler or more complex transactions that occur more or less alternately. It is easy
to see that, depending on the shape of such constellations, the links between the
various transactions can vary greatly in the level of distinction (Palmatier
et al. 2006).
And the type of internal links can be vastly different as well. One can differentiate between one-sided and mutual commitments, and it is imperative to differentiate between the reference object of the internal link. Table 1.1 shows the ideal
possible cases.
Commitments between suppliers and customers can come about based on the
object of the transaction. This means that a customer is so convinced of the merits
of a purchased product or service (or is more or less dependent on acquiring it) that
the decision is made to purchase it again. Observed behavior patterns can be
subsumed under the concepts of brand loyalty (one-sided commitment to a product
brand), system loyalty (one-sided loyalty to a system architecture, e.g. Profibus) or
loyalty to a technology (one-sided commitment to a technology, e.g. laser
technology).
When a buying company is one-sided oriented, it means that the customer firm is
loyal for reasons that best suit its own plans, regardless of the attitude or behavior of
the selling company. For his part, a selling company can also be loyal, when in
pursuing its own advantages it recognizes reasons to stay with one subject
(e.g. certain core competencies and core products) and to thus commit

one-sidedly to certain solution expectations. We refer to such commitments as
Table 1.1 Manifestations of business relationships
Reference object
One-sided commitment
by purchaser

One-sided commitment
by purchaser
Mutual commitment

Object reference
Brand loyalty
System loyalty
Loyalty to a
technology
Problem loyalty
Reciprocal business
relationship

Personal
reference
Personal
loyalty

Personal
loyalty
Personal
relationship

Company reference

Store loyalty
Supplier loyalty

Customer loyalty
Business relationship, in
the proper sense


10

M. Kleinaltenkamp et al.

problem loyalty. When the commitment is mutual, it may be based on a reciprocal
business relationship, e.g. when an automobile manufacturer supplies the majority
of the vehicle to a car rental company and, in return, has the rental company manage
its own fleet ( fleet management).
Commitment can also evolve from an affinity to or between persons, whereby
there must again be differentiation between one-sided and mutual commitment.
This is referred to as personal loyalty when it is related to the individuals of
provider and/or a customer company; mutual affinity is referred to as personal
relationships. The commonly used term is “business friendship.”
Finally, the corporation as such can be the reference object of a commitment,
regardless of persons and specific products or technologies. When the commitment
is one-sided on the part of the purchaser, supplier loyalty and store loyalty can be
typecast (Wind 1966, 1970; Bubb and Van Rest 1973; Cunningham and
Kettlewood 1976; Bonoma et al. 1977; Jarvis and Wilcox 1977; Mathews
et al. 1977; Engelhardt 1979; Hannaford 1979). Supplier loyalty means that a
customer prefers to choose the same supplier, regardless of the problem and the
product in question. Accordingly, customer loyalty on the part of the supplier is a
manifestation of the loyalty. Customer loyalty means that, based solely on own

plans and independent of the attitude and behavior of the customer, the supplier is
interested in continuing the supply relationship with this customer. Mutual
commitments based on the respective partner company are to be typecast as
business relationships (in the proper sense).
There is obviously some overlap with these types. For example, loyalty to a
company can certainly go along with loyalty to persons or products or services.
However, this does not change the fact that there are commitments to companies
that have no reference to persons or objects.
We will now examine the field in Table 1.2 that classifies the business relationship in the proper sense as a special type: Both parties have an interest in the
relationship—which does not eliminate the possibility that reasons for and intensity
of the commitments may be asymmetrical—and the reference object of the commitment is the company. The business relationship will be examined by the type of
internal link between the transactions, looking at two dimensions: the situation of
the relationship before the commitment occurs (ex ante) and the situation after
(ex post); and the differentiation of whether the business relationship was planned
or whether it evolved de facto. There are four potential states; refer to Table 1.2.
The typology of the business relationships applies to both the supplier and the
customer; however, for now we will examine only the customer.
Table 1.2 Attributes of business relationships
Attributes of business relationships in the
proper sense
Ex ante situation
Ex post situation

De facto business
relationship
Case 1a Isolated
transaction
Case 1b Creeping
commitment

Planned business
relationship
Case 2a Strategic
decision
Case 2b Lock-in effect


1

Phenomenon and Challenge to Management

11

1.1.2.1 Case 1a
Cases 1a and 1b describe the de-facto business relationship. Such a relationship
evolves unplanned and often unnoticed (Kleinaltenkamp 1993). Many aspects of
this are conventional wisdom. First case 1a: A customer wants to begin a transaction with a supplier. S/he has no previous experience with this customer and expects
no repercussions on future transactions—it is an isolated transaction. The
customer’s preference Z is the result of a simple comparison of the benefits of the
two examined suppliers, S and SC. The preference ZN/S is simply the customer
benefit that customer N reaps by choosing supplier S. The competitor SC represents
the comparison level for evaluation of supplier S.
The de-facto business relationship (case 1a)
ð 1Þ

ZN=S

¼ ðbS À cS Þ
>
0

À ðbSC À cSC Þ

with
ZN/S ¼ Preference of customer N towards supplier S (customer benefit)
bS; bSC ¼ Benefit of transaction with S or SC
cS; cSC ¼ Cost of transaction with S or SC
The customer will initiate the transaction if Z is positive. There is no commitment
and the customer feels free to choose the same supplier or a different one next time—
s/he is flexible. However, the options become limited when we examine case 1b.

1.1.2.2 Case 1b
There has already been a preceding market transaction that occurred without the
intention of entering into subsequent transactions. In this case, the determinants for
a second potential repurchase decision are related to the customer’s experience
with the initial purchase. All of the elements in definition (1) were initially expectation values and now, as far as supplier S is concerned, are values based on
experience. The simplest way to explain a repurchase is the confirmation of
expectations by the experiences. Supplier S asserts the customer benefit ceteris
paribus based on his or her own behavior, because the customer is satisfied with the
purchase decision and does not change his or her opinion of the selected supplier.
In this case the way the customer evaluates the supplier generally changes—and
these changes tend to reinforce the inclination to repurchase. A significant factor is
the reduction in the risk of cost-benefit determination. When presented with the
choice between two suppliers who otherwise appear to be equal, in the future the
customer will prefer the supplier with the lower risk, meaning that the customer
benefit increases based on the experience that is reflected as a decrease in risk.
Furthermore, the customer’s transaction costs fall due to experiences: Routinization
of decision making processes, which can be attributed to defined interfaces to suppliers,
proven sample contracts and equally proven social relationships to the supplier, reduce

12

M. Kleinaltenkamp et al.

the efforts related to procurement in new transactions. trust as a component of the
attitude towards to supplier is established. It can be claimed with a high degree of
certainty that, the more complex the transactions, the more quickly and more comprehensively the effect of experience as reductions in transaction costs occurs.
So in comparison to case 1a, something has changes in case 1b, and it was
completely unintentional. A creeping commitment has occurred in the timing,
reducing the number of potential suppliers from the customer’s point of view
(creeping commitment, based on (Robinson et al. 1967).
If in a de-facto business relationship it happens that, after one or more market
transactions the expectations are not met for a specific market transaction, the result
is dissatisfaction. Which conditions could cause a customer to switch suppliers or
to be willing to repurchase? First of all, the customer will repurchase if the
perceived discrepancy between expectations and experiences is less than the subjective value of the savings in transaction costs. A certain degree of lethargy on the
part of the customer can play a role: One becomes accustomed to the supplier and
does not run away just because one is dissatisfied in a single case.
If dissatisfaction grows, the existence of switching costs must now be taken into
consideration to explain the repurchase behavior. The customer will feel that there
is something that binds him or her to supplier S or, in other words, that it will cost
him or her something to switch from S to SC.
Keep in mind that costs are not only monetary: Anything related to switching
that the customer perceives as strenuous, unpleasant, risky or time-consuming is
considered for this purpose to be a cost of switching (Refer to Sect. 4.2). In the case
examined here, a certain type of switching costs in relevant: The experience gained
with the current supplier becomes worthless, meaning getting to know one another,
establishing trust, functioning together, etc. can be of value only with this supplier.
When the customer switches suppliers, the learning curve for transaction costs is

replaced by a new learning curve (Refer to Fig. 1.5).The hatched area symbolizes
the value of the switching costs cS/SC in this case.
Thus definition (1) must be modified in regard to the costs and benefits of
supplier S from expectation values to values based on experience and expanded
to include the amount of the direct switching costs cS/SC.
The de-facto business relationship (case 1b)
ð 2Þ

ZN=S

¼
>

ðbS À cS Þ À
0

Â
ÁÃ
ðbSC À cSC Þ À cS=SC

with
ZN/S ¼ Preference of customer N compared to supplier S (customer benefit)
bS; bSC ¼ Benefit of transaction with S or SC
cS; cSC ¼ Cost of transaction with S or SC
cS/SC ¼ Direct costs of switching from supplier S to supplier SC


1

Phenomenon and Challenge to Management

13

Transaction
costs
per €
procurement
value
Supplier B

Supplier A

1 2 3 4

*

Supplier switch
Switching costs

1

*

2 3 4

Transactions with A, B

Fig. 1.5 Switching costs based on experience

If the equation (2) clearly differs from the value of (1) positively, the customer’s

loyalty to the supplier has evolved creepingly. Along with effects of an experience
of sustainable customer satisfaction, reduction of risk due to experience and the
decrease in transaction costs, the switching costs may be reason enough for a
customer to remain loyal to a supplier.

1.1.2.3 Case 2a
In the case of a planned business relationship, the customer (and generally the
supplier as well) assumes from the start that cooperation will be long-term. It is
clear to the participants that investments specific to the relationship will be incurred
and that commitments will arise from which one can free oneself only by accepting
the cost thereof. At the same time, one anticipates benefits that can result from
entering into the business relationship. Such a decision making situation is considered by the customer to be strategic, when it results in far-reaching commitments
that can vastly influence the chances of success, the costs and the flexibility of the
customer. It is generally the sometimes extreme commitment that the customer
feels to the business partner that is decisive. The customer firm often feels compelled to invest in hardware and software to be able to enter into a suppliercustomer relationship—just think of just-in-time systems, joint development
projects with the supplier or value-adding partnerships. This includes the choice
of supplier when inventing in plant automation. The customer will take into
consideration this restriction in flexibility for the assessments when beginning a


14

M. Kleinaltenkamp et al.

relationship with a supplier, meaning that the freedom that needs to by sacrificed
must be compensated by appropriate—anticipated or expected—benefits of doing
business with the supplier (Ulaga and Eggert 2006; Saab 2007). Before committing
to a relationship, it is essential to estimate the benefits of the relationship as well as
to assess the risks, meaning the damage that can result for failure to reap the benefits
once the commitment has been made. The investments that the customer has made

to initiate the supply relationship—and the anticipated values—must be considered
to basically be lost when the supplier is switched; comparable investments must
then be made for a different supplier. This raises the barriers that the customer faces
to ending the business relationship accordingly.
The customer will make the commitment to S when the ex-ante analysis of the
comparison to supplier SC indicates that a relationship with S is more beneficial.
Because no choice has been made before the time of this decision, the two potential
business relationships with S and SC are illustrated as simple net present value
models. The customer’s preference Z in relation to S is the difference between the
two net present values, taking into consideration the respective specific investments
in the business relationship. Since in an ex-ante situation the anticipated exit
barriers appear the same as entry barriers, the preference for supplier S under the
same conditions increases as the anticipated costs for switching from S to SC
decrease (The opposite applies from SC to S). This is why the anticipated switching
costs with a negative value must be considered.
ZN/S is the present value of the relationship with S minus the present value of the
relationship with SC. If this value is greater than zero, the customer will choose S
and enter into a relationship. To simplify the process, the probability of the
alternatives S and SC is considered to be equal. This seems permissible since we
are not dealing with a planning model but with the fundamental definition of the
conditions for the success of business relationships.
The planned business relationship (case 2a)
ð 3Þ

ZN=S

Â
ÁÃ
¼
À AS0 þ ΣðbSt À cSt Þ ð1 þ iÞÀt À ΣcS=SCt ð1 þ iÞÀt

Â
Ã
À À ASC0 þ ΣðbSCt À cSCt Þ ð1 þ iÞÀt À ΣcSC=St ð1 þ iÞÀ
>
0

with
ÀAS0;—ASC0 ¼ Investment in business relationship with S or SC in t0
bSt; bSCt ¼ Benefits of business relationship with S or SC in t
cSt; cSCt ¼ Cost of business relationship with S or SC in t
cS/SCt; cSC/St ¼ Direct cost of switching from S to SC or from SC to S in t
i ¼ Required rate of return
t ¼ Planning period
This definition reveals the significance of long-term risk management in business relationships with strong dependencies. So for example, suppliers of computeraided production technology must place particular emphasis on establishing trust


1

Phenomenon and Challenge to Management

15

when acquiring new customers. They have to assure their customers that they can
keep up with the latest technology over the long term. It becomes apparent that
customer recognize and evaluate competitive advantages related not only to single
market transactions but to business relationships as well.

1.1.2.4 Case 2b
When the decision has been made to choose supplier S, the result—based on
Williamson (1985)—is the so-called “Lock-in effect”: The customer is loyal to

the chosen suppliers, because a commitment has been made that makes it difficult to
switch. The customer will remain loyal to this relationship as long as the “damage”
in comparison to the net benefits is less than the now anticipated switching costs,
meaning as long as the value ZN/S is greater than zero.
The planned business relationship (case 2b)
Á Â
Á Â
Á
Â
ð4Þ ZN=S ¼ ΣðbSt À cSt Þ ð1þ iÞÀt À ΣðbSCt À cSCt Þ ð1 þ iÞÀt þ ΣcS=SCt ð1 þ iÞÀt
>
0
with
ÀAS0;—ASC0 ¼ Investment in business relationship with S or SC in t0
bSt; bSCt ¼ Benefits of business relationship with S or SC in t
cSt; cSCt ¼ Cost of business relationship with S or SC in t
cS/SCt; cSC/St ¼ Direct cost of switching from S to SC or from SC to S in t
i ¼ Required rate of return
t ¼ Planning period
The customer’s flexibility is determined not only by experiences with the performance of the current supplier. Actually, factors outside of the supplier-purchaser
dyad can change expectations related to benefits and costs, which in turn influence
the decision of whether to stay with the supplier or to switch. Actions of competitors
or additional competitors can change the comparison level for the current suppliers.
Technological and structural developments can also change the customer’s attitude
(evaluation of the benefits offered by the current supplier). Other exogenous factors
such as new laws are also aspects that can have an influence.
As previously mentioned, the current examination of a dyadic supplierpurchaser relationship does not always correspond to actual conditions. Multilevel business relationships often exist (e.g. component supplier—system supplier—operator). And frequently several suppliers work together to solve a
customer’s problem, which can lead to complex structures in business relationships.
Another dimension that adds to the complexity is the multi-personality of the
decision-making process in the organizations involved (Fließ 2000).

To summarize: A business relationship is a consequence of market transactions
between a supplier and a purchaser that is not random. “Not random” means two
things. Either there are reasons on the part of the supplier and/or customer that make


16

M. Kleinaltenkamp et al.

a planned link between market transactions appear practical or necessary (planned
business relationship based on aspects of benefits or dependency). Then specific
investments are made in the business relationship. Or there are reasons that de facto
lead to a link (de-facto relationship, e.g. due to habit or learning processes). In such
a case values emerge in the relationship that would result in a loss were the
relationship to be dissolved. In both cases, the business relationship has a more or
less positive significance for both parties (positive net benefit). Investments,
accumulated and developed values, and significance are thus the general commitment forces that reflect the “internal link” between the repeated market
transactions.

1.2

Internationalization of Business Relationships

A primary challenge to the management of business relationships is the increasing
internationalization of such relationships. Paul Krugman, one of the most influential
business journalists in the USA, emphasizes the potential of international division
of labor (Krugman 1999). According to Krugman, the essence of globalization is
not that an increasing number of participants have to share an existing economic
pie. Rather globalization can generate additional prosperity by greater international
division of labor. Globalization is understood in this sense as a process of

expanding the potential for international division of labor, primarily by reducing
the costs of communication and transport and by dismantling trade barriers. Globalization affects two areas: It provides many more ways to create value, offering more
activities with which a company can create value for its customers, and it extends
and expands the potential markets.
By merging production capacities in the course of specialization and division of
labor, additional cost benefits and potential for prosperity can be realized. International division of labor and international trade immediately present two
problems: Producers can concentrate on a limited product range and better
economies of scale. This is enabled by international trade, which grants access to
new markets. And consumers benefit from a wider range of available products.
International division of labor and international trade offer consumers millions of
product variations in the field of automobiles without excessively high price tags.
In addition to the prosperity promoted by the international cooperation, the
intensive international competition is a source of growing prosperity for
consumers. The process of globalization causes the number of suppliers and buyers
to increase. Since in many markets more and more suppliers are competing for a
scarce commodity that not all suppliers can have (the purchasing power of
consumers), the competition tends to become fierce. Free trade impedes the
establishment of national monopolies or cartels. Free access to the market is thus
an effective agent in combating the establishment of market power on the supplier
side. However, in recent years it can increasingly be observed that companies
attempt to face the challenge of international competition with a global monopoly.


1

Phenomenon and Challenge to Management

Costs
(C)

Total costs

17
Coordination
costs

Total
costs
minimum
Production costs

Cost-optimized degree
of division of labor

Division of labor (A)

Fig. 1.6 Production and transaction costs as a function of the degree of division of labor

The process of globalization, which has accelerated steadily over recent years, is
facilitated by a reduction in the coordination costs of international division of labor.
From the economic point of view, the degree of international division of labor is
determined particularly by the transaction costs—meaning the cost of coordinating
the division of labor (Refer to Chap. 2). As the division of labor increases, the
transaction costs progress in exactly the opposite direction of the production costs
(Refer to Fig. 1.6).
While the production costs decrease as the degree of division of labor between
international business relationship partners increases due to the effects of specialization and economies of scale, the need for coordination and thus the transaction
costs rise as division of labor increases.
The causes of a potential reduction in production costs due to international
cooperation have become well know, primarily through the work of Adam Smith

and David Ricardo (So¨llner 2008). Even after many modifications and
advancements of their work, the added benefits of cooperation can be attributed
primarily to two main aspects:
1. The parties have different (absolute and comparative) cost items, making
specialization and exchange of commodities beneficial.
2. The parties possess very different resources and capabilities. The makes it
possible to increase the variety and quality of the solutions offered, meaning
the products and services (Krugman 1999). This sometimes has far-reaching
consequences for the (re)structuring of the respective value-added chain
(Kleinaltenkamp 2007).
The generally rising transaction costs can be attributed primarily to the increasing complexity of international transactions. A few examples illustrating the