Managing a long-term customer, vendor or partner relationship is a complex process that involves a range of activities. Potential partner profiling and qualification begins as filtering and prioritizing activities. As the relationships progress, the work turns towards analysis, negotiation, planning and implementation.

The foundations of business have shifted. Now we are concerned with our share of our targeted customers and our potential for their value creation. Each relationship must be viewed and managed both as part of a large, homogeneous company and as many unique individuals representing various keys to identifying and appreciating value opportunities.

These changes are revolutionary and force us to shift our focus from promoting transactions (sales) to building relationships. The challenge now is to deliver the right value to the right customer at the right time. As much a science as an art, relationship development is a far more complex undertaking than traditional transaction selling. It requires more detailed information on customers and more sophisticated databases and analytical tools for manipulating that information; new techniques for customer needs valuation and customer segmentation; and better methods for targeting customers, sorting needs, creating solutions, pooling resources and managing communication channels or networks, and measuring performance.

In contrast, relationship sales is a rifleshot approach. Using highly detailed customer information, it enables messages and programs to be tailored to the key value triggers of target customers or segments. The result is greater sales productivity, with significantly higher returns on investment, as well as a better ability to measure the performance of sales against concrete, quantified objectives.

We can substantially increased revenues generated by a program to attract new customers by using targeting models to identify companies evidencing both a high appreciation of quality and a strong likelihood of becoming high-value relationships.

* A credit card company improved the retention of its most profitable accounts by first calculating the long-term value of individual customers and then using attrition models to identify those high-value customers most likely to terminate their accounts in the near term. The effort revealed that 95 percent of the at-risk group were concentrated in only 20 percent of the overall customer population. On this basis, the company was able to launch highly targeted and highly effective intervention programs to strengthen the retention of these accounts.

Because it requires a comprehensive view of the customer needs, relationship and value sales provides the impetus for integrating the sales function with operations.

Relationship and value selling can lead to a reinvention of business, dramatically enhancing efficiency, accountability, and, ultimately the power for profitable growth.

While relationship development usually incorporates both loyalty-building programs and sophisticated customer databases, it also entails a broader, more comprehensive linking of the sales function with operations.

In general, five critical factors distinguish true relationship development strategies:

Traditional transaction selling necessarily focuses on the short term in its attempt to maximize the volume of sales. "How can we get a buyer to buy?" is the question the transaction marketer seeks to answer. Relationship development, in contrast, places the immediate transaction in the broader context of the customer's overall relationship with the company. "How can we maximize the lifetime value of this customer to our firm?" is the central question for the relationship marketer. The answer may entail establishing programs or disseminating communications that are not intended to promote a short-term sale but rather to influence the target customer's perceptions and behavior over the long term.

While transaction development focuses on getting messages to customers, relationship development focuses on opening and maintaining dialogues with customers. Getting information from customers is every bit as important as getting information to them. This has broad implications for a company's business. For example, what once might have served as simply a "sales channel" may need to become a "sales and information channel" that carries a flow of tailored communications to the customer while at the same time continually capturing information from the customer whenever there is contact. Order-taking, customer service, billing, sales, and other customer-contact functions thus become integral parts of business development.

In relationship development, the focus is on building the breadth rather than the number of customer relationships. Economies of scope pertain at most businesses for a simple reason: broad customer relationships, where a large number of products and services are sold over an extended period of time, tend to be far more profitable than narrow relationships. As relationships broaden and lengthen, the cost-to-serve tends to fall, often dramatically. In contrast, the pursuit of economies of scale can backfire. Because an unmanaged customer base tends to obey the 80/20 rule-20 percent of customers generate 80 percent of the profits-efforts to attract as large a market share as possible can result in a big but not necessarily profitable customer base. With relationship development, companies target only those customers that are profitable to serve and then focus their efforts on building long-term relationships with them.

Adaptability is at the heart of relationship development. In today's marketplace, customers' needs, priorities, and behavior change constantly, as their own situations change and as competitors bring new value propositions to their attention. To maintain relationships over time, successful companies need to move with or even lead their target customers, continually refining the value they offer and deliver in order to stay one step ahead of the competition. The ability to adapt requires, first, superior sources of information-an ongoing stream of intelligence from individual customers and the marketplace as a whole. It is not enough to rely solely on static snapshots of the market, such as those provided by surveys, which tend to miss turns in customer preferences or behavior. Sophisticated customer databases can provide a dynamic source of information, keeping the pulse of the market by continuously monitoring, in real time, the stream of customer transactions and interactions.

The adaptive strategies should be driven by sales measurement and tracking systems that monitor the return on each sales initiative and track key indicators of competitive position. Through this process, it becomes possible to continually learn, refine programs, and build sales productivity. Businesses are placing more and more emphasis on measuring sales effectiveness on an objective basis, which could lead the sales function to be treated increasingly as an investment and measured in terms of return.

In addition to using a myriad of definitions, companies are employing a wide range of approaches to instituting relationship development. The variation is to be expected. After all, the companies moving to adopt relationship development are pioneers; they're blazing the trail as they go, without the benefit of maps or guidebooks. What seems clear is that, whatever the approach taken, adopting relationship development entails many fundamental changes, not only in the sales function but also throughout the business. Fulfilling the full promise of relationship development requires vision (to see beyond the obstacles to the ultimate benefits), leadership (to guide the organization through a series of challenging transitions), and patience (to stay the course through the inevitable setbacks).

1. Establish senior-level champions. Because the transition to relationship development requires a sustained effort and significant investment, senior management support is essential. Without leadership and vision-from the top-an organization is not likely to allocate adequate funding or orchestrate the complex changes required.

2. Forge a strong link to business strategy. It is extremely important that relationship development be seen as a means of executing the business's core strategies. Management needs to define the sales functionality required to achieve strategic goals and then gear the relationship sales effort to provide that functionality. Companies that attempt to institute their relationship development capabilities as a side project are unlikely to persevere through the substantial requirements for investment and change. The effort will either fall far short of its potential or be abandoned altogether for lack of senior management support and funding.

3. Map the overall architecture. Relationship development systems can be complex, both technically and organizationally, requiring interfaces with many internal units as well as with customers and third parties. The architecture can be defined in many ways. The important thing is for companies to develop a broad view of the overall architecture in order to establish a context for the development of each component as the program is developed. Without this broad vision of how the resources will be applied and the ultimate form the program will take, companies risk losing time and, in some cases, may need to backtrack and redesign what's already been done in order to achieve the needed functionality.

4. Capture comprehensive customer information. In today's rapidly changing markets, the company that has the most extensive, most up-to-date information on customers holds an important competitive advantage. For this reason, a sophisticated customer database lies at the heart of most successful relationship development strategies. The difficulty of capturing customer data varies considerably by industry. In some industries, such as financial services and telecommunications, companies enjoy ready access to the names of their customers and to information on each transaction with them. In other industries, it is a challenge just to identify who the customers are. Virtually any company can, however, capture extensive customer data if it is motivated to make the investment. Companies that are separated from their customers by third party distributors, for example, can build innovative alliances to capture customer names and other data. For most companies, though, valuable customer information can be obtained simply by setting up systems to capture data that is already running through their organization. Data can be harvested at all the points of customer contact, such as complaints, inquiries, support services, telemarketing, field sales, and, of course, targeted promotions.

5. Upgrade information systems skills and processes to support the new sales functionality. Implementing and maintaining customer databases often require a new set of information systems capabilities. There can be dramatically different requirements in such areas as turnaround time, linkage or centralization of all sources of customer data, the addition of disparate information to customer records, the complexity of analyses and data access, and continual updating to reflect ongoing transactions. Fulfilling these requirements often depends on the development of new skills and processes within information systems functions. In some cases, companies simply will not be able to develop the internal resources needed to make the transition within the required time frame. They may need to contract with a service bureau or other external resources, at least initially, to build their systems either remotely or on their own premises.

6. Use powerful analytical techniques for targeting and tailoring. Better, more comprehensive customer data provides the basis for much better customer targeting, leading to compelling economic gains.

• Companies serving large markets have the greatest opportunity to leverage the investment in improved targeting.

Reaping the economic advantages of improved targeting requires the adoption of powerful analytical techniques, such as one-to-one targeting models. Such techniques are widely available but are not yet used to their full potential, as many companies lack familiarity with them or don't yet have the skills needed to employ them. The opportunities for early adopters remain great.

7. Optimize targeting, message content, and channel strategy. The greatest gains will accrue to those companies that take the most comprehensive view of the opportunities to apply targeting and tailoring programs. By combining targeting, tailoring, and channel optimization objectives, companies are succeeding in identifying the right customers or prospects, saying the right things to them at the right time, and conveying that information through the right channels. The tools needed to meet these optimization objectives are widely available, primarily in the form of pattern recognition techniques such as regression models. However, application of these tools for the full spectrum of these sales applications is less well established.

8. Integrate lines of business and functions; cut across silos. Many companies are organized in ways that frustrate, rather than support, a holistic view of customer relationships. For example, companies that market a range of products to their customers and are organized along product lines, rather than around the customer, may have difficulty motivating product managers to work together to serve the customer in a way that strengthens the entire relationship. In some cases, each product manager may feel that he or she owns the customer. Similarly, functions that may have traditionally operated independently such as customer service, repair, advertising, sales, and marketing-will often need to be integrated, as all can have an impact on the customers' perception of value. Clearly, the adoption of relationship development will often require a fundamental organizational realignment.

9. Keep pace with change management requirements. Because relationship development breaks old organizational and strategic molds, it can be highly disruptive to a business. Anything new will appear threatening to those steeped in the traditional. To minimize resistance, middle management must buy in to the effort and provide the support needed to execute the new strategies, tactics, and organizational processes.

10. Anticipate a long-term investment of money and time. In our research, we found that many companies underestimate the internal obstacles to relationship development and become frustrated to find that the implementation process proceeds far more slowly than anticipated. Even when implementation proceeds rapidly, it is important to recognize that relationship development is an evolving process. Under the best of circumstances, the programs are built in stages, with each generation of development providing significant competitive gains and expanded sales applications. Some of the leaders have been building their programs for 15 years or more. Some newcomers are spending more than a year building infrastructure, before reaching a point where they can begin realizing significant benefits. Management needs to take a realistic view of the investment required. There is good news, however. As technology continues to accelerate and as companies learn more about productive implementation processes, implementation times can be expected to fall. In fact, some companies are today poised to attain and even exceed the current state-of-the-art in less than a year.

Because of the complexity of a relationship management system, it is often difficult to envision it as a whole. The program is often best viewed as a set of components, each playing a distinct role and occupying a distinct position in the relationship-building value chain. It is by no means necessary for businesses to have all of the components in place before realizing major benefits. Some of the components are more difficult than others to implement, and can be put in place in stages.

1. The relationship development strategy, tied closely to the overall business strategy, guides the design of the overall program. Everything else exists to support the execution and refinement of the strategy.

2. The customer database is the foundation of virtually all relationship development efforts. It can be viewed as the memory of the corporation, enabling it to achieve the intimacy and personalized service of a corner store, no matter how large its customer population.

3. The decision support systems can, in broad terms, be viewed as a capability provided by the overall relationship development infrastructure. More specifically, they often provide a means for quick access to the data. In this context, they can be used by management to gain insight about customers and by customer contact staff to guide their customer interactions.

4. Customer valuation is a critical function that enables a business to allocate resources based on each customer's real value to the company and to measure sales effectiveness based on changes in customer value.

5. The product development component monitors trends in product usage and continually test refinements and new forms of value, allowing customers themselves to drive the value proposition.

6. Customer contact staff access customer records, both to support customer interactions and to capture new customer information.

7. Targeting and tailoring models provide a way to leverage the customer data and gain significant economies by ensuring that the right value proposition is offered to the right customer and tailoring messages to the unique priorities of each customer.

8. Channel strategies optimize the firm's ability to convey the targeted information to the customers and capture information back from the customers, while ensuring that the overall channel mix maximizes productivity.

9. Sales measurement systems link sales actions to marketplace results and can be used to track responses to proposals and refine sales strategies on an ongoing basis.

The components of the architecture, their positioning in the chain, and the priority placed on each will vary by company. Some companies will, for example, adopt a centralized approach to the relationship development resources, while others will stress decentralization. Our research shows that the decentralized approach-allowing wide access to customer data and relying heavily on the broad use of decision support systems-is prevalent today. The decentralized approach is designed to provide assistance in sales planning, provide customer contact staff (such as call centers) with quick access to current customer information, provide a channel to capture updated customer information, and facilitate simple list selection.

While decentralized access via decision support systems is valuable, it is not a substitute for more advanced analytical applications, which are usually best operated on a more centralized basis. A wide spectrum of predictive tools is readily available, including regression models, neural networks, and other pattern recognition techniques. By integrating skilled analysts with the sales planners, companies can realize very substantial gains in customer acquisition, relationship development, and retention, and in their ability to tailor messages, determine customer value, and maintain ongoing test cell and performance measurement processes. Many of the more sophisticated forms of these applications go well beyond the scope of typical users of decision support systems; they are best handled by analysts with specialized skills.

The transition from transaction sales to relationship development will be difficult; there are no recipes to follow, and there are no guarantees of success. The experience of leading practitioners demonstrates, however, that the required investments are justified by the returns-in terms of accelerated revenue growth, stronger margins, and, ultimately, greater shareholder value. In a number of industries, sophisticated relationship development is already becoming or will soon become a prerequisite to competitive viability. In more and more industries, it will be a prerequisite to profitable growth over the long term.