What is Customer Relationship Equity?
And the three factors that define it
This is Part 6 in a blog series on Customer Relationship Marketing
Most CEOs and entrepreneurs in business tech intuitively understand that inter-firm relationships between their company and their customers are critical—that the quality of their sales relations with buyers determines the deal outcome, that their customer support depends on how their service agents handle the escalations, and that their early product adoption may be limited by user relationships within their reach. All these are inter-firm practices where relationships between tech company employees and business customer employees directly affect the growth of the tech company.
Collectively, we can call this the customer relationship (CR) equity: the sum total of all the key inter-firm relationships between a tech company and its customers that determine the company’s growth.
In this post, I explore the main factors of CR equity.
Three Factors of Customer Relationship (CR) Equity
According to Palmier and Sridhar, there are three factors that contribute to such inter-firm relationships: quality, composition, and coverage. Together, these factors allow a company to understand the sum total of their relationships.
Relationship quality focuses on the specific nature of a relationship between two individuals at the respective firms and is a measure of depth of such a relationship.
Relationship composition is the mapping of various types of customer relationships according to the power they wield on the adoption of your technology inside an account.
Relationship coverage is the measure of the reach your technology has within a customer quartet (user and buyer types), within a customer account or segment, or within a network or marketplace.
In a previous blog post, I mapped out the four key customer relationships for any business tech company. These four relationships—the relationship between users and product managers, buyers and sales people, marketplace and partner managers, and IT services and IT enablers— are the most critical ones for a tech business. The foundation of social capital a tech company builds with its customers is built through each such relationship, one brick at a time.
In another post, I explored how this social capital is generated between the tech company and business customers through a series of social exchanges that build mutual trust and commitment. Over time, such trust between people allows the two companies to take shared risks and reap shared rewards. At its core, a deep foundation of such quality relationships between key employees allows tech companies to help customers navigate the business disruption caused by their new tech products.
This social capital is the first critical factor of CR equity. The measure of social capital captures the relationship quality, or depth, between two individuals across the firms.
A quintessential example of relationship quality is in the relationship between a startup CEO and the first few buyers. Very often, the CEO builds the social capital with each buyer during the sales cycle through references, shared connections, and face-to-face interactions and sets the terms for the first few pilots and the deals. This is especially true for high-value accounts. Similarly, the product manager of an early-stage company invests in building direct relationships with the few top power users to get feedback that cannot be obtained through transactional means like surveys.
For later-stage tech companies, sales teams carry most of the accountability for high-quality relationships with buyers. In fact, the biggest obstacle to growth in large accounts is the lack of high-quality relationships between the firms. This explains why the best enterprise sales people nurture and guard their buyer relationships closely. In many cases, the salesperson may even do so at the expense of the company. I have known top salespeople who have refused to sell a mediocre update to a product because they believe this will set back their buyer relationship. Conversely, one of the ways to drive growth in an enterprise is to bring in a salesperson “with a rolodex” who has standing high-quality relationships with buyers. These relationship tactics are not always effective on their own, but they speak to the primary role relationship quality plays in driving growth.
The second critical factor of inter-firm relationships is the composition of relationships between the tech company and the customer. Not all relationships are equal in power, even if they are equal in quality of trust and commitment between the two people. This is especially true for relationships surrounding technology products where we identified at least four different customer subtypes. We know that each member of this customer quartet (the user and the buyer from the business and tech domains, respectively) interacts with their tech company counterparts with a different purpose.
But do the users and buyers hold the same power in making technology decisions?
This is a tricky question because it depends on the growth pathways a company is pursuing. For a company pursuing product-led growth, users may have more power initially, whereas for account-driven growth, buyers may hold the relationship power.
In business sales, there are many conventional ways to assign power to various customer roles, such as “decision maker” or “approver.” These are situational and vary across companies and domains.
However, there is a deeper way to think of relationship power and the role of technology.
Fundamentally, most tech products are disruptive to a business. They change the status quo of how things get done. They alter jobs to be done, change workflows, introduce new practices, generate new data, and raise expectations of new outcomes. In short, most tech products drive change that makes people uncomfortable. That is why startups seek customers who are early adopters and believers.
Essentially, for a business tech company, the purpose of having power in a customer relationship is to drive the adoption of their technology in a firm. To do so, the company needs to identify the power wielded by each person in their customer base, in fact, by each person in an account that can influence technology use, purchase, or adoption.
In a complex sales cycle or during the critical stages of the technology deployment and usage, a company needs to understand who is for and against this adoption.
Each person’s power can be summed up on two axes: their capacity to drive change inside the company to adopt the technology and their attitude towards the company’s tech offering. This yields four relationship types.
A champion is a person who is positively inclined towards the tech product and can drive change. The kind of change may vary. For a senior buyer, this may be organisational change needed to manage disruption unleashed by the technology. In a large firm, a champion buyer can drive the change necessary to extract economic benefits from the technology. For champion users, the change may be to their work habits as the product simplifies or improves their job to be done. For critical developer tools, champion developers can make or break the tech usage inside a firm.
A blocker is a buyer or a user who is negatively inclined to the product and has the power to resist change in the company. This is especially true for technology guardians in a company whose job it is to protect the firm from harm. These guardians are not just in IT or corporate governance but also in business functions. Many valuable consumer technologies take years or decades to be adopted by businesses simply because there are powerful interests that block their adoption. These interests and the people who serve them are most often legitimate—a fact that many tech companies do not fully appreciate or understand. (For a deeper discussion on this topic, see the section on Technology Guardians and Limits to Growth.)
An influencer is a buyer or a user who is positively inclined to the product but has limited power to drive change. Often, tech companies make the mistake of building quality relationships only with influencers who have limited ability to effect change. Companies are later surprised when their sales or product adoption stalls inside the account. Marketing to influencers can be a valid pursuit, but a separate strategy for increasing reach or improving preference among champions and blockers is also needed.
A detractor is a person who has negative opinions on technology but can neither stop nor drive change in the company. A vast majority of buyers and users for a new tech may fall in this category. If that is the case for a tech company, it is important to ignore or limit relationship investment among detractors. If detractors have power outside of the company in the broad marketplace, then a company may need a targeted communications plan to limit their effect on the market—the inverse of influencer marketing.
The third critical factor of relationship equity is relationship coverage, which is the measure of reach a tech company has among its customers. To measure coverage, a tech company can audit the number of relationships they have in all their routes to market. While these can be summed up in many ways, it is important to map the relationships in line with the business model.
The first category of relationships to audit are the direct ones between your employers and customers. For each business customer, these relationships form a quartet of business and tech users and buyers. Once mapped, these can be summed up across accounts, which in turn can be aggregated at the level of business segments (e.g. customer size, geography). Finally, for companies accessing customers through networks or the marketplace, they can identify and count the key partner relationships that determine access to such channels.
Companies that pursue product-led growth realize the importance of relationship coverage immediately. At an early stage, the tech product managers build close relationships with many power users to understand product usage. The coverage is limited to these user relationships. Slowly, they extend the reach to buyers to ensure that their product can be purchased centrally. Once this user adoption takes off, marketers expand their reach within an account or a customer segment to access new users and buyers. As these become saturated or if the product needs to be part of a community, companies turn to critical partner relationships to drive coverage of even more users. This sequence is simply an illustration of how relationship reach may expand. Each market may have a different path. For developer tools, the relationship path may be to first drive reach with a niche community of early developers, then build reach among power users with key companies, and finally get to tech buyers who support the rollout of new software tools inside the company.
We may need to define other ways to audit relationship coverage for more complex routes to the market, as in regulated industries (e.g. health, finance, and the public sector). However we do so, these three factors—depth, power and reach—are the components of a firm’s CR equity.
So, now that we have the basic definition of customer relationship equity, the question becomes how much should a tech company invest in building such equity? All relationships are hard to build and sustain, so how much is too much or too little? I shall turn to this in my next post.
Customer Relationship (CR) Equity is the sum total of all the inter-firm relationships between a tech company and its customers that determine the company’s growth.
CR Equity has three key factors: relationship quality, which measures depth; relationship composition, which measures power; and relationship coverage, which measures reach.
Social capital determines the depth of relationship quality between two individuals across the firms. It takes time to build this capital through trust and commitment.
The relationship power can be summed up based on a person’s capacity to drive change inside the company to adopt the technology and their attitude towards the company’s tech offering.
To measure relationship coverage, a tech company can audit the number of relationships they have in all their routes to market.
Palmatier and Sridhar: Marketing Strategy
This is Part 6 in a blog series on Customer Relationship Marketing
Part 1: Who is the Customer in Business Marketing?
Part 2: Key Customer Relationships for Tech Offerings
Part 3: Orchestrating Three Pathways into Business Customers
Part 4: The Hidden Purpose of Customer Relationships
Part 5: Pursuing Business Growth with APIs